Friday is the regularly scheduled day to update the Millikan. This blog post is designed to walk readers through the process of how one controls portfolio risk using the Kipling spreadsheet. Risk management is an essential part of portfolio analysis, particularly in these uncertain economic times. Not all risk controls will be used by all readers.
Millikan Investment Quiver
The first risk control I use is to set the maximum percentage permitted or allowed to be allocated to each ETF. The Kipling default is to set all percentages to 100% and let the spreadsheet do its work. I prefer to limit the percentages, particularly to asset classes such as gold (SGOL) and the market short (SH). I may even remove SH from the investment quiver as I have not been all that successful using this ETF.
Millikan ETF Recommendations
There are several risk controls available within the recommendation worksheet. 1) What model will you use? In this example, I am using the most popular system, Buy-Hold-Sell (BHS). 2) How many ETFs to include in the portfolio? I’ve adjusted this to seven. I want to keep PCY in the portfolio and it is ranked #7. 3) Should the Target Filter be turned on? I have it turned off as turning it on in this situation would reduce diversification. Experiment with your own portfolio.
I would use LRPC if longer holding periods are desired. HA is the faster moving model. I’m testing the three systems with the Carson trio so search for Carson to see results. Keep in mind it is still early in the testing period.
Millikan Manual Risk Adjustments
This manual worksheet is linked to the Auto worksheet and it is in the Auto where I set the Maximum Trade Position Risk to 0.85% so as to keep the Maximum Portfolio Risk below 6.0%. That is the percent identified by the left red arrow. Even so, with the orders set in the 8th column from the right hand edge, the New Portfolio risk rises to nearly 6.6%. I can handle this risk as I have Trailing Stop Loss Orders (TSLOs) set using the guidelines found in the 8th column from the left edge. Setting TSLOs is the last risk control I use.
Note that the SD Multiplier has been lowered from the 1.65 default setting down to 0.75. I use this setting as I want the Stop Loss percentage for VTI to come in around 8%.
There you have a number of ways I use the Kipling to control portfolio risk.