Pauling Portfolio Review: 21 February 2023

The Carson House, now a private club – Eureka, California

When the Portfolio Performance table was last updated on February 10, 2023, the Pauling portfolio nailed down position #15 in every column.  In other words, this is the worst performing portfolio of the fifteen I track here on the ITA site.  Pauling is a Dual Momentum™ portfolio and was expected to withstand market draw-downs better than most portfolios.  Not so.  Let’s see what the recommendation is for the portfolio moving forward.  I want to stick with this model for a few more months before switching to a different investment style.

As readers know, my two favorite models are the Schrodinger and Copernicus as they are the easiest to manage.  Simplicity has its advantages.

Pauling Dual Momentum Recommendation

When using the one-year look-back period, the current recommendation is to invest 100% of the portfolio in short-term treasuries such as SHY.  I have limit orders in to sell all shares of VEU and VOO.  With available cash, limit orders are set to purchase more shares of SHY.

Pauling Performance Data

Over the past 13.5 months the Pauling is trailing the AOA benchmark by approximately 6 percentage points, annualized.  It will be extremely difficult to make up this difference unless there is a very volatile market ahead and we see a major draw-down while the Pauling holds SHY.

Pauling Risk Ratios

The most recent 2.5 months have slammed the Pauling.  Check the Jensen Alpha values.  At this low point I will be looking for gradual growth in the Jensen and Information Ratios.  I need to see improvement in these two metrics over the next few months or changes are coming.  This performance is unacceptable.

The reason for the dips in the Treynor is tied to periods when the portfolio beta is very low.  I’m not a huge fan of the Treynor as it is too dominated by the portfolio beta value.  The Jensen Performance Index has many benefits missing in the Treynor Ratio.  I’ve discussed these differences in the past.  For more information as to how these different risk metrics are calculated, Google Investopedia or go this this site for useful information.