MZO/ZUR: had been definitely discarted (they’re still in the DD and reached at least -40%).
FLQ/ITN/WDE: the trader had given up in his first DD (EQ=0; before reaching the SL).
New and discarted:
BQK: some boughts done and this last week the trader gives up (EQ=0). Will be sold on monday.
QRK*: already in the favourites list, I think it deserves a second chance (sold at -25% and has done a significant recovery).
BNF/VMS: some bughts done.
EDH/HSB: waiting for the first entry (with new version of selection criteria).
Actual Var: 1,18%
Potential final performance (closed p/l + rebates + PF paid + potential colsed at SL (invested darwins)) = -10,17%
This part is a detailed reflexion about what happened, possible causes and possible improvements in the management. If you’re not interested don’t waste your time.
Due to the potential final performance (-10%) is aprox the half allowed (-20%), it’s time to analize and make improvements.
The target of this portfolio was (and is) choose random darwins, the survivors remain and the losers are discarted and replaced by new random (It requires to try a high number of darwins before find by luck one winner). Being aware of the potential high rotation menwhile the process of “searching the good one” lasts, it was (and is) necessary start conservative and assume low risk to avoid a disastrous performance.
Another target was (and is) start with simple rules of management (risk/timing), make what I think that are wrong decisions (expected and unexpected) and show them and evolve the rules to my actual management (that I’m doing in other portfolios). But, I need a winner portfolio if I want to evolve the managament or, at least, a not sistematic loser.
Till now I have tried and discarted (with losses) 9 Darwins, but only 2 are clear losers (ZUR and MZO), the others simply had been abandoned in their first DD.
And my impressions related to the 7 darwins that I’m actually invested: I think only 2-3 maybe will be able to solve their actual DD, the others probably will be discarted soon or late (with losses).
Note 1: Only 2 Darwins had suffered a significant DD (let’s say -7,5% aprox) and made new ATH BEFORE I made the first buy (that’s probobably because the rule of “lenght of TR < 3 months”). It implies that I started buying a Darwin in his first DD with a really short TR (a risky decision!).
Note 2: Only 1 Darwin had made a new ATH AFTER the first entry: KEA, first buy at -5,5%DD with the old entry rules, now is in -12% in another DD and I will be really surprised if the trader solves it (EQ=joke, poor La and Cp, Rs “meh”, the trader has 9 darwins and his nickname is “inexperted78” ).
Posible reasons of why the majority of the selected darwins “had given up in their first significant DD” (the main problem till now):
- Really low Equity accounts (<1K). Posible sign of a noob trader and/or lack of trust in the strategy.
- Too many darwins. Posible sign of a trackrecord farmer (some can be included in “1”, but a provider with 8 darwins, all of them with 1K, but with a VaR of 0,5% for me it’s also suspicious).
- Bad Rs. Posible gambler.
- “Kamikaze” VaR. The Darwin is in a “normal DD”, but the DD of the underlying account is a disaster.
There may be other reasons, but in general the discarted darwins (and some of the actuals) had one or more of them. I know there are successful darwins with some of them, but I think they are the exceptions, and invest in a darwin with short TR+unkown trader+ one of this signs it’s just gambling.
What I’m going to do:
Now I have 2 options:
A) Keep doing the same, and each time I discard a darwin and select a new one reduce the risk assumed for the new darwin (if I want to avoid a -20% performance meanwhile I survive selecting a bunch of bad darwins it’s the only way). The main problem is: it will be necessary a lot of time (maybe years)…
B) Modify the selection rules, trying to avoid darwins with high potential to be dead in few months.
The point of this option is keep the randomess in the process of selecting, but without making stupid selections.
I prefer the second option, it implies a little intervention by me, but selecting again and again new darwins that I wouldn’t invest even drunk it’s getting boring.
So the uptdated rule of selecting new darwins:
Default filter “NEW” (ordered by default) + the first darwin that has:
a) Unknow trader (and now I won’t discard if it already has investors).
b) Equity and equity at risk (Equity*VaR) are not a bad joke (the trader trust the strategy with his own money).
c) No kamikaze/dangerous VaR (no undercapitalized darwins).
d) No trackrecord farmer (I will check the length, the equity and equity at risk of the others darwins provided). And none of his others darwins can had been closed in a DD with investors on it.
e) VaR of the underliyng strategy moves in a defined/stable range (the trader has well defined wich range of risk he feels comfortable) (no noobs and clear gamblers).
f) If La or Cp are “RED”, must have “GREEN” Rs.
g) The darwin must have suffered at least a 5,5-7% DD (aprox) and after did a new ATH (all in NATIVE trackrecord) (the restriction of maximum lenght of TR is removed, and now I allow migrated darwins).
If a Darwin is selected and in the future won’t pass the rules, I’ll keep it.
With this rules I’m not trying to select good darwins, I’m only trying to select darwins randomly with a minimum of potential, or at least select darwins that won’t be abandoned/dead in few months.
he actual 7 darwins invested remains.
3 new should be selected with the new criteria. Only 2 darwins of the “NEW” filter fits the criteria: EDH and HSB. I’ll check weekly the filter till I find the one that is missing.
About the managing:
Due to the new change in the Risk Manager, the “expected normal DD” in a Darwin should be smaller. It implies that the SL and the range of levels of entries could be tighter. I’m going to do that, but just a little bit, because I don’t have data for real behavioral expectations.
The past update of the rule of entry (fixed sizes in fixed levels discarted -> wide range of levels on the DD and size in fuction of the % of risk previously assumed and of the margin of fall available) has permitted to get a better average price of entry, be better positioned in case of recovery and avoid assume the maximum risk prematurely (with the previous rules the performance of these last 3 months would have been worst).
I don’t expect updates till the update of the risk management.
As I said in the previous post, sell a Darwin because it’s performing bad in some darwins could be a good decision (MZO and ZUR), but also can be bad (botton seller with QRK). MZO and ZUR had been definitely discarted, but I re-bught QRK because I think it deserves a second chance. But I’ve made the “mistake” of “sell low and rebuy high” (missing part of the recovery). I don’t like it, so the criteria of “not risking all at the first chance in order to, if the darwin reaches the SL and recovers, have a second opportunity” is discarted. Won’t be a second chance anymore, but the SL will be more tolerant and the total risk/potential lost availible for each darwin will be progrssively decreasing in function of the rotation/number of darwins discarted of the portfolio.
Note: the SL will be more tolerant in terms of fixed VaR at 10%, then will be corrected to the new risk manager conditions.
The rest remains the same. I don’t expect updates till the update of the risk management.
No news. I don’t expect updates till the portfolio makes profits (fingers crossed), or the proportion of survivors in the portfolio increase, or I have a better vision of the effect of the new Risk Manager.
I will update the topic when somthing “interesting” happens.
Thanks for reading