Pauling Portfolio Review: 5 October 2023

Stressed Trees at Crater Lake National Park.

Pauling is the portfolio scheduled for review this morning and it is one of the poorest performing accounts tracked here at ITA.  Last spring or summer I altered the investing model.  To see if the change is having an impact on the return/risk ratio, pay special attention to the Jensen Performance Index and the Information Ratio.  The former is particularly important.

I noticed that the “risk-free” interest rate for SHV moved from 3.66% up to 3.93%.  This increase places downward pressure on the Sortino and Omega Ratios as well as the Jensen.  Is the Pauling able to buck this increase is a critical question?

Pauling Security Recommendations

The following worksheet comes right out of the Kipling spreadsheet.  Using the LRPC investing model, SHV, VOO, VTI, and SPY are recommended for purchase and in that order.  See the Rank column which is 3rd from the left.

Pauling Manual Risk Adjustments

In the following manual risk adjustment worksheet I am overriding the above recommendations to a minor degree.  I set multiple limit orders to pick up additional shares of VOO and VTI.  One order for each ETF was set close to the current price while the second limit order for each ETF was set at a lower price.  I expect the close limit order to be struck for both, while the second limit order is likely to remain unfulfilled.

I would not be using multiple limit orders if commissions were not free.  I recall the days when a $1500 investment cost 1% in commissions.  And that was considered a good rate.

Pauling Performance Data

Over the past 21 months the Pauling lags the SPY benchmark by a wide percentage.  This is no surprise as the Dual Momentum™ model was not working well for the Pauling.

Pauling Risk Ratios

Rather than getting down in the dumps over the poor Internal Rate of Return (IRR) percentage, I am paying close attention to the Jensen Alpha or Jensen Performance Index.  Despite the higher interest rate for SHV, the Pauling has been showing improvement since last April.  The change is not dramatic, but it is measurable and that is key.

If the Jensen trend continues, the slope should be positive early in 2024.

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