What you can find here:
- Difference between Live and Simulated Porfolios;
- how to launch a Live Portfolio;
- how to monitor and rebalance a Live Portfolio.
Difference between Live and Simulated Portfolios
The core of Simulation and Portfolio are identical. The differences boil down to a matter of past versus future.
- Simulations are set to start running at some point in the past, and run through the present time. Portfolio is set to start at the present time and run into the future in real time.
- The information you get is largely the same the difference being that with Simulation you use the information to evaluate a strategy that has not been implemented in the real world. With Portfolio, you use the information to conduct ongoing evaluation of a strategy that’s being implemented live.
- Because simulation has run in the past, Portfolio123 can and does make all the hypothetical trades for you. Because Portfolio runs in real time and has been designed under the assumption that you’ll be implementing it with real money, all Portfolio123 can do for you is prompt you, at the appropriate time, to take action to re-balance the list and, if you are actually investing in the strategy, presume you follow through by making those trades in your account.
- Because Simulation is a make-believe portfolio that has operated in the past, it’s fine to stick precisely with computer-generated assumptions about what will be traded, number of shares traded, and execution price. Because Portfolio is a real-time activity potentially with real money, it’s necessary that platform allow users to edit trade data to assure that the tracking and evaluation occurs on the basis of the trades as they were really made. Portfolio also gives users opportunities to reject trades proposed by Portfolio123 and/or to add new ones.
Much of this can be easily demonstrated by assuming we like the demonstration Simulation presented in Parts 12 and 13 and that we’d like to create a Portfolio which will be used to support real-money implementation of the strategy.
LAUNCHING THE NEW PORTFOLIO
Figure 1 shows what you see when you click on the appropriate prompt to create a new Portfolio.
That looks familiar!
Notice that default assumptions have been plugged in for some parameters. If you are basing your Portfolio on an existing Simulation, as we’re doing here, you need not bother inputting your parameters.
Notice the conspicuous prompt (set out visually by a yellow background) inviting you to copy from something else.
If you click on the prompt, you’ll see a small browser window that looks like this.
I’ll use the middle menu, “My Simulations,” to copy from the demonstration simulation with which we’ve been working.
Here’s what happens after I click on Copy.
Once again, we’re on familiar ground. Notice, for example, that the commission assumption has been modified to 9.99, as opposed to the 10.0 figure we saw by default. The only thing I’d like to do here is edit the Portfolio Name, to delete the words “Port Copy of.”
The next six sections, Position Sizing, Universe & Ranking, Buy, Sell Stop Loss and Hedge Mkt Timing, now look exactly as they did in the simulation.
There’s a slight difference in the next tab. The name has changed from “Period & Restrictions” to “Restrictions.” The interface, likewise, allows only for the listing of restrictions.
This makes perfect sense. There’s nothing for us to do in terms of “Period.” Portfolio123 already understands it will start now, and keep running indefinitely, until we decide we no longer want to use it, and delete it.
The final tab, “Review,” shows much the same content as we saw in Simulation. But in Portfolio, it plays a much more critical role. Notice, here, the absence of the “Run Simulation” buttons we saw in Simulation. Because Portfolio is meant to be a real-money strategy, we need to be much more careful about launching it. Instead of placing prompts all over the place, which could very easily be clicked by accident, this action is available only in final “Review” section.
MAKING YOUR INITIAL PURCHASES
Look again at Figure 6. Notice the drop-down menu and yellow-background prompt at the top of the interface. This is new to Portfolio.
The drop-down menu has three choices, “Get Recommendations,” the default choice, “Manually Enter Positions” and “Copy Positions”.
If you click to manually enter positions, Portfolio123 will set up the strategy but refrain from entering any stocks and wait for you to use the Edit interface (which we’ll see later) to do it on your own.
If you click to Copy positions, here’s what you’ll see.
Portfolio123 presumes you want to begin your live strategy with the most recent list of names generated by the Simulation that served as the basis for this Portfolio. You can fully translate the simulation by leaving the Copy Weights button checked. In the alternative, you can re-set the weightings to equal.
For purposes of this tutorial, I’m going to use the default “Get Recommendations” choice. Here’s what I see after clicking “Go.”
If I want to set up the portfolio based exactly on the list of stocks shown (which are the same the simulation would show if today is a re-balancing date), I can simply click on “Generate Portfolio.” Notice, though, that I am able to un-check a box next to any stock I don’t want to own. Actually, I’m going to leave all the boxes checked and click on “Generate Portfolio.”
Figure 9 shows what I see after the portfolio is generated.
Notice that nothing appears in the Performance Graph. That’s because the portfolio was just launched. There hasn’t yet been any opportunity to perform. Other performance-oriented tables will be similarly blank at this time.
Actually, though, we’ve come to a very important juncture.
If you aren’t going to invest real money (i.e. if you just want an out-of-sample test for a strategy you developed in Simulation), there is nothing more you need do at this time.
If, on the other hand, you are investing real money, you may not want to stop here. Notice in the “Last 10 Trades,” table, for example, that Portfolio123 assumed you bought 189 shares of AIMC at $21.11. This may not conform to reality. Perhaps you rounded up to 190 shares. Most likely, you got a price that differed from $21.11. If you want to track a real-life portfolio and get accurate information on your performance, it’s important that all the transaction information be accurate. So after you execute your trades, come back to this Portfolio, go to the Transactions section of the left-side menu, and click on “Edit.”
If you were unable to execute any of your Buy orders, use the check-box to delete the stock. As to the rest, make all necessary corrections. When you have finished, click the “Update” button at the bottom of the table.
Many users will be finished at this time, and need do nothing further until the next re-balancing date.
Others, however, may still have some work to do.
Suppose you decide to add another stock, something apart from the Portfolio123-generated list. (No matter how much we try to automate the process, it is, ultimately, your money and your portfolio, so it’s important that we give you all the opportunities you need to over-ride.)
Go to the Transactions section of the left-side menu and click on “Add.” Here’s what you’ll see.
The first row of input boxes is straightforward. You can input the ticker, number of share and price associated with any additional buy or short transaction you make.
On the second row, you see a drop-down menu in Symbol column. That will allow you to choose the ticker symbol of any stock in your portfolio. Here’s an example:
Since the portfolio has 220 shares of FL, the only valid action is to Sell (if it were a short position, the “Cover” button would become clickable). I can sell all 220 shares, or change that entry and sell part of the position.
We see the 1/28/11 date because the portfolio was just created. As the portfolio continues, you can add transactions for other dates.
Figure 13 shows what you’d see if you altered the drop-down menu at the top, the one that now says “Trade.”
This gives you the opportunity to add new cash or withdraw cash (you’d signify a withdrawal by entering cash as a negative amount).
That’s it. You now have your portfolio, based on the strategy you developed in your simulation, the stocks recommended based on that model, your real-life transaction information, and any alterations you chose to make.
Now all you need do is review it as time passes and you accumulate a track record and, of course, re-balance at your chosen intervals.
Portfolio123 will send you an e-mail reminded of when its time to re-balance, based on the parameter established in the “General” section of your Simulation/Portfolio.
You can start the re-balancing process by clicking on “Re balance,” the second item in the left-side menu.
I can’t demonstrate re-balance with the demonstration portfolio we’ve been examining because it was just set up. Instead, Figure 14 illustrates a re-balancing with a different (dormant) portfolio saved in my account.
Note that the last re-balance was 127 days ago. This underscores that fact that notwithstanding the parameters you set, you can actually re-balance at any time. (Portfolio123 will send you e-mail reminders as to when it’s time to re-balance based on the parameters you set, but you can choose to ignore them if you wish.)
Here’s what I get after clicking on “Make Current.”
Now that Portfolio123 and the user are in agreement that as to the timing of this re-balancing, we can click on “Get Recommendations.”
These are the Buys and Sells the model wants you to execute. Remember, though, it’s your money. As with the initial portfolio setup, you have the last word. If you’re satisfied with the recommendations, you can click on “Commit.”
We’re almost finished. Make sure you click on Edit (in the left-side menu) and input your actual execution (shares and price) data.
The rebalanced has been completed. Now all you need do is review your performance (using the same presentations as we saw with Simulation) and wait till the next re-balancing occasion.