Labor of Love
The Einstein portfolio poses particular problems and is an interesting test of the Sector BPI investing model. Details to follow. Due to the owner needing cash from this account in the near future, the Einstein will be managed differently.
Einstein Security Recommendations
Below is the current holdings within the Einstein. Normally VTI and VOO would hold many more shares as no sectors are currently oversold so potential sector ETFs are left unpopulated. VPU was recently sold out of the Einstein and a TSLO is in place to sell 10 shares of VGT as the Technology sector was overbought mid-week. That leaves VDC as the single sector hovering in the neutral zone. The loan share of VDE is a “shard” holding that needs no attention.
Einstein Manual Risk Adjustments
Limit orders are in place to add shares of VTI and VOO while continuing to hold approximately $100,000 in a cash reserve.
As readers will recall, when I first began developing the Sector BPI investing model I worked strictly with sector ETFs. However, it soon became apparent that a potential weakness showed up in the model. The potential weakness goes like this. Assume a sector is overbought and a TSLO is set for the sector ETF. When sold, cash becomes available and one waits for another sector, or the same sector, to drop back into the oversold zone so one can use the available cash to pick up shares of the oversold sector ETF. But what if the sector, instead of dropping down into the oversold zone instead moves back up into the overbought zone? If this happens, and it is highly likely, we miss out on such a rebound. To counter this highly probable event we introduced U.S. Equity ETFs such as VTI, VOO, and ESGV. When cash from a recently sold sector ETF becomes available, we reinvest that cash in one of the three U.S. Equity ETFs, giving preference to VOO as the goal is to top the S&P 500.
Since the Einstein owner needs cash within the next six months this option of investing in U.S. Equities is limited. Therefore, we are relegated to investing only in sector ETFs or operating much closer to the original Sector BPI idea. Readers who have been following the Sector BPI investing approach recall when I called this model the Sector BPI Plus where Plus accounted for adding the option to use ETFs such as VOO, VTI, and ESGV.
In the following table, VTI and VOO are recommended for purchase. If holding back cash were not necessary, this would be the time to boost VTI and VOO positions.
Einstein Performance Data
Since 12/31/2021 the Einstein trails all possible benchmarks. Although the Einstein has been using the Sector BPI model for nearly eight months, holding nearly 82% in cash has definitely been a drag on performance. As a result, the Einstein is an outlier and we will need to wait another year before we will see how the Sector BPI model really works with this portfolio.
Einstein Risk Ratios
One lesson to learn is that holding cash in a bull market dramatically impacts performance. While one might reason that cash mitigates risk, the following Jensen data does not support this position.
My recommendation for those using the Sector BPI model is to add fresh cash each month, if possible, and continue to buy shares of VOO if no sector ETFs are recommended for purchase.
Einstein Sector Portfolio Report
Since the Einstein will continue to focus, for the most part, on sector ETFs only, the following report will be most useful over the next six to twelve months. Right now, the sector report shows the Einstein in a dead heat with the SPY benchmark and holds a slight lead over the S&P 500 index.
Modified Kipling Workbook with Risk Ratios
The Argument for Self-Management
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