Portfolio Changes up to 6/1/2015

Below are the initial holdings in the PRI account for the current research project to test the efficacy of using PMPT to manage a single portfolio.  The investment objective is to maximize the potential to exceed an 8% DTR relative to the risk of falling below 8%:

Initial Positions

As market conditions deteriorated and the proprietary PRI statistics caused the Sortino Index to turn black on our May 15th posting we became increasingly defensive by reducing equity exposure:

                                                         Table 1

  1. 4/1/15 sold ACWX and invested proceeds in AAXJ.
  2. 4/10/15 sold approximately half of JKH & JKG.
  3. 4/24/15 sold half of VWO.
  4. 5/15/15 sold remainder of VWO,JKD,JKE,JKG,JKH,JKI,JKJ,JKL

The result was to move from approximately 45% in fixed income (CSJ,GSY and FLOT) and 6.7% cash to an additional 15% in cash on June 1st

Blog posting 7-8-15

What was happening during this period to U.S. Equities ?

(See Table 1 above for corresponding numbers on Graph)

PRI US Equity

What was happening to Foreign Investments

PRI Foreign & Fixed

Note:  While we purposefully avoided holdings in EPP and ACWX we did invest in AAXJ and added to it at #1.  We did sell all of VWO near the highs for this period.  I have tried to document the reason for these changes in previous postings.  The best holding during this period was the fixed income positions constituting 45% of holdings.

It is worth noting that ADRA has far outperformed Asian stocks and FGFLX has far outperformed European stocks but I have chosen not to invest in mutual funds that I recommended elsewhere because I do not want to introduce the active manager abilities of PMPT into this research project.

I believe these actions have been the antithesis of a Robot or a buy and hold strategy.  However, performance should not be measured relative to either of these strategies.  Performance should be measured relative to the DTR of 8% and we are currently slightly below that line .








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I regret to inform you that I have found it necessary to dissolve Sortino Investment Advisors LLC.  I will continue to work on my research project at PRI and will keep you informed as work progresses.  I intend to license Jim Kaffen and Ron Surz, as well as Lisa Leonard, to use the PRI software to construct and manage portfolios.


Frank Sortino

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ALERT! Sortino Index is Now Black

  • All high flying domestic ETFs return to base!

The SNI Color CodeThis morning all domestic equity ETFs flying higher than the S&P 500 were liquidated in the PRI account at Schwab.  Why?  The Upside Potential statistic Dr. Hal Forsey and I developed with Professor Robert van der Meer at Groningen University, The Netherlands, is forecasting an average downside return of -10% or more for all 9 Surz U.S. equity indexes www.ppca-inc.com. There are also these reasons for concern:

  1.  China has started a competitive financial system to the one the U.S developed at Bretton Woods after WW II. It is called The Asian Infrastructure Investment Bank (AIIB).  Now that Japan, the UK , Brazil, Russia, India and 50 other nations have joined the AIIB against America’s specific instructions, the AIIB may become the tool that will eventually force us to live within our means. Former Secretary of the Treasury, Larry Summers says on Larrysummers.co/015/04/05, “This may well be remembered as the moment the U.S. lost its role as the underwriter of the global economic system.” He goes on to say, “We cannot expect to maintain the dollars primary role in the international system.” That does not bode well for America’s future.
  2. Governments around the world are debasing their currencies in an effort to bring their economies back to life and the patient is not off of life support after seven years. We’ve stopped talking about our spendthrift government but the problem is now $18 trillion and growing. Professor John Taylor at Stanford University in his blog, Economics One, says “The Fed’s policy of holding the fed funds rate at 1% in 2003 when inflation was 2% was a key factor in the 2008 financial crisis.” Here we are again. Only this time the Fed funds rate is 0%. On May 6th,, Federal Reserve Chair Janet Yellen said, “even though risks to financial stability are moderated, stock prices are still quite high right now”. We believe these warnings should be taken seriously.
  3. ETFs are a great innovation for investors but John Bogle says they are being misused by speculators and high speed day traders. Many have developed computer programs that few if any understand. Off board trades already account for more than 50% of the daily volume of trading and are feeding the current investment frenzy for ETFs. According to the Investment News Editorial, April 27, 2015, the 2010 “flash crash” may have been initiated by Mr Sarao’s spoof trades in the S&P 500 futures contracts but were “worsened by computerized high frequency trading programs.“ This may be an unrecognized risk of ETFs.
  4. Yale University’s Robert Shiller, who called the 2007 top in high tech stocks, says his adjusted price-earnings ratio for stocks is again way too high at 27 times earnings. He now believes the stock, bond and real estate markets may be a bubble waiting to pop. However, there are those like Matt O’Brian at the Washington Post who say, “sure, stock prices are elevated but so are earnings and really, where else are you going to put your money?” Mr. O’Brian’s kind of reasoning scares me!

I close with these words of wisdom from Professor Robert Schiller: “Those who predict avalanches look at snowfall patterns and temperature patterns over long periods of time before an actual avalanche event, even though they know that there may be no sudden change in these patterns at the time of an avalanche. It may never be possible to say why an actual avalanche occurred at the precise moment that it did. It is the same with the dramatic movements of stock markets and other speculative markets.”




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PRI 1st Quarter Performance

This is the way we believe performance should be shown.  The graph shows where the fund is relative to the investment objective of compounding at 8%.  My thanks to Ron Surz, President of http://www.ppca-inc.com for creating this graphic for me.

Performance 3

If an investor started when the fund began on February 1st they would be down $58. 55 for every $100,000 invested.  The asset allocation at the end of the 1st 3 months of operation was 54.8% in short term fixed income.  The fund invests only in ETFs.  Where the fund is relative to the S&P 500 or any other index is irrelevant.  The goal is not to beat the market.  The goal is to achieve a payout of 8% compounded.  The investment objective that supports that goal is to maximize the potential to exceed 8% relative to the risk of falling below 8%.  The investment policy is to solve for the optimal asset allocation of active and passive managers based on current market conditions.

Our quantitative statistics indicate the stock market is over due for a correction.  If and when that happens we intend to employ portfolio navigation to increase equity exposure.

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Robo Mania

Hiring a robo-advisor makes as much sense as flying on Drone Airlines.  You don’t really need someone in the cockpit…until you really need someone.

This is the captain speaking: We have descended to a safer altitude by selling half of our positions in JKG & JKH

Blog JKH & JKG sales


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Do you really want to trust a Robot with your life?

The star in the following graph indicates that on 3/25/15 I increased the holdings in iShares Oil & Gas ETF (IEO) by 50%.  Also, as mentioned in the previous posting, on 4/1/15 I sold ACWX and invested the proceeds in AAXJ.  These actions are the antithesis of a Robot managed portfolio.  I would liken them more to the navigator interrupting the auto pilot setting to make adjustments based on new information from ground control.

I personally do not want to get on an airplane if no one is in the cockpit and rely on some robot to get me to my destination.  It may save me a few bucks but it is not worth the downside risk.

ps. The PRI portfolio value is currently $101,516 and therefore is temporally back on course for compounding at 8% annually.

Auto Pilot-Blog 4-6-15


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The World is Not a Safe Place, So Get Out!

There has been an earth shattering event.  No, I am not talking about a deal with Iran to play nice, I am talking about a new world banking system with head quarters in Asia and led by China.  Its latest members include our old friends, Japan and the UK. This is the biggest change since the Bretton Woods agreement established the World Bank, IMF and International Bank for Reconstruction, which provided the financial base for America to become the World Super Power.  Two books you should read to grasp what is going on in this new world order are: “The Accidental Super Power” by Peter Zeihan and, “The End of Power” by Moises Nasim.  In the old days, if America said, “Don’t do business with country X”, it was the kiss of death.  Those days are over.  We no longer have the power.  We are sharing it with some people who do not admire us and others who hold a grudge.  Below are the performance results as of March 31st.

PERFORMANCE First 2 months

We should have earned .6434% each month to compound at 8% annually.  That means the portfolio value should have been $101,290.94 on March 31st.  Instead, Graph 1 below shows it was $100,665.91, a shortfall of $625.03.  The market decline on the last day shown below did not help,  the PRI portfolio was only -.18% while the S&P was -.88%.  No, the short fall was due to Pursuing a 6% heading instead of an 8% heading; a 40% equity position instead of a 60% equity position.  However, given the fact that the world is worse off than when we started on February 2nd, with Iran supporting an insurgency against the Saudi’s, and Europe unwilling to get Greece to behave, I am content to stay the course.  The Sortino Index remains BLUE.

Graph 1

First PRI Graph 3-31-15

Graph 2 shows the performance of the PRI ALTS and Fixed income holdings.  Real Estate has been the best performer while gold has been  the worst.

Alts & Fixed 3-31-15

Graph 3 shows the performance of all PRI foreign holdings.  Asia X Japan has performed best.  We do not hold EPP but I put it in for comparison purposes.

PRI Foreign 3-31-15


The world has too many hot spots to want to hold it.  Therefore, I liquidated ACWX this morning and put the proceeds in AAXJ.

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