Schrodinger Portfolio Review: 10 March 2022

North Head Lighthouse – Near the mouth of the Columbia River in Washington State.

Schrodinger is the portfolio up for review this morning.  This is the “do nothing” portfolio that is housed at Schwab where it is classified as an Intelligent Portfolio.  I think of it as a Robo Advisor portfolio that is managed by a computer algorithm.  It is a “do nothing” portfolio in the sense that the owner does nothing except invest money and specify the stock/bond ratio.  If you scroll down to the third screenshot you will see from the current allocation that the Schrodinger is set up with an 80/20 stock/bond ratio.  This might be somewhat risky for older investors, but this is a small and experimental portfolio.  Not a problem for the owner.

As a review, the sixteen (16) portfolios tracked here for different individuals, break down into these basic investing models.

• Robo Advisor or computer managed.  The Schrodinger is the lone example.
• Relative Strength or Relative Momentum model.  Numerous portfolios use this model.
• Buy-Hold-Rebalance where there is little rebalancing.  These portfolios are set up so the dividends are used to purchase more shares.  There is very little selling.
• Dual Momentum™ models of which there are four accounts using this approach.

How is the Schrodinger performing when compared to other investing models.  Follow along for more information.

Schrodinger Investment Quiver

Below is the current investment quiver for the Schrodinger.  Recent dividends were reinvested in FNDX, SCHA, and SCHX.  As I’ve pointed out before, my lone complaint with the Schwab Intelligent Portfolio model is the amount held in cash.  Schwab loans this money through their banking system and that is how they are able to manage these accounts without charging any fees.  So it is a tradeoff.  Either pay to have the account managed or carry 7% to 8% in cash.  In down markets the cash is an advantage and in up markets it is a disadvantage.

Schrodinger Security Recommendations

Were I using the Relative Strength model with the Schrodinger I would be entirely in cash or SHV as all the recommendations, if using the LRPC model (green arrow), call for a Sell.  The look-back combination (red arrow) is set for a one-year time frame.  Since the Schrodinger is on “automatic pilot” this worksheet from the Kipling spreadsheet is only included for information purposes.

Schrodinger Performance Data

How has the Schrodinger performed over the past 15 months?  Using the Investment Account Manager (IAM) commercial software, the Internal Rate of Return (IRR) is 11.2% while the three benchmarks lag by a considerable margin.  I just checked to see the Schrodinger performance over the past five years or the length of time I’ve been using the IAM software.  Over the past five years the Schrodinger generated an IRR of 9.2% or more than double either of the Vanguard Target Funds.

With an 80/20 stock/bond ratio, this portfolio might be considered rather risky.  Check the last screenshot to see how well the Schrodinger is performing if risk is part of the investing equation.

Schrodinger Risk Ratios

Below is the risk information for the Schrodinger.  Pay most attention to the Jensen Performance Index as it includes the portfolio beta, a benchmark value, the interest rate of a short-term treasury, and the IRR of the Schrodinger.  While off its January (13.5) high, a value of 7.8 is still quite respectable.  Over the last year the slope (0.47) of the Schrodinger is very strong.  Anything above zero is very good.

With this update the Schrodinger now ranks #5 based on IRR values and #10 when risk is part of the calculation.  Of the portfolios generating higher IRR values, one is a Dual Momentum portfolio, two come from the ranks of Relative Strength or Relative Momentum, and one is a Buy and Hold portfolio where income is prized and the investment quiver consists strictly of Closed-End-Funds (CEFs).

What is somewhat of a surprise is that the CEF portfolio was struggling a few months back and that was one reason for making the switch to a different investing model.  That move to a different investing model resulted in a move from the bottom third to the top third in both performance and lowering the risk.  That is a winning combination.

Several other “CEF” style portfolios, not shown anywhere within this blog, are also testing the CEF model.  Should this approach work out to be beneficial, I may be shifting models for those portfolios not performing as well.

Another benefit of this computer managed model (Schrodinger) is that it serves as a benchmark on its own.  If you are actively managing a portfolio, it better be outperforming a “do nothing” portfolio.