Ask Mike:
Would you tell us your favorites?

Question:

Timothy from Las Vegas, asks:

Mike,

Now that you have moved the ETF Total Return to 10 positions, can you provide us with the best 5 of the 10 positions?

Highlighting your 5 favorite trades would allow smaller investors to participate and possibly increase subscribers? Can you do the same thing for the Stock and Option portfolio, too?

Sincerely,

Timothy

Mike's Response:

Hi Timothy,

Thanks for writing. I completely understand. There is always struggle between keeping the portfolios small enough for smaller investment amounts, and large enough for proper diversification.

There is not a single, simple answer. In the past, we attempted to solve this problem by offering two types of portfolios for almost every strategy. We even had some portfolios that were structured as a somewhat happy medium where they were larger than the small portfolios but not as large as the big portfolios.

This meant we ended up with 3 stock portfolios and 3 ETF portfolios and 2 Covered Call portfolios. Having small portfolios and large portfolios for all three of our strategies proved to be completely unwieldy. We ended up with more than 140 positions across all 8 portfolios.

The biggest problem had to do with the quality of the positions... The difference in quality of holding between the 1st position and the 140th position was just too large, resulting in poorer stocks in the portfolios. This was hurting performance across the board.

It was a tough decision to consolidate the portfolios, but in the end I believe our solution is far better. We now have our portfolios and our investment strategies completely in sync. We have 3 investment strategies:

• Covered Call Strategy
• Stock Investment Strategy, and
• ETF Strategy

And, we have 1 portfolio for each of these strategies:

• The Stock and Option Portfolio
• The Market Trend Portfolio, and
• The ETF Total Return Portfolio

Now, instead of 140 positions, we will have 50 or fewer positions at any one time. I would rather own the top 50 best positions rather than the top 140 best positions. I much prefer to have the higher quality, even though that may cause us to sacrifice some flexibility for smaller investments.

Now, to your question... As simple as it may sound to just highlight the top 5 ETFs in a 10-position ETF portfolio, it is just not that simple. In a 10-position ETF portfolio, I either want all 10 to be performing well, or if I will either replace the weak positions or go to cash. And, don't forget the benefit of stronger diversification in 10 positions, as opposed to only 5 positions.

As far as the Stock and Option portfolio... we are working out of a $100k investment basis and if someone wants to match us, trade-for-trade, it would be difficult (probably impossible) to proportionately match up with us with less than $100k. Sure, if we were putting on 2 contracts, a $50k portfolio could put on 1 contract.

But, the problem comes in when we do one contract. The $50k portfolio might not have enough money (proportionately) to be able to put that trade on, or if there is enough money, it would be disproportionate to the rest of the portfolio and the portfolio would get out of sync with the $100k portfolio from an asset allocation perspective.

But, Timothy, please remember this: This discussion is purely theoretical... How you invest in the market is entirely up to you and your financial situation. There is certainly no requirement that you follow our trading on a trade-for-trade basis. Even if you decide to autotrade with one of our autotrade brokers, your instructions to them about how to autotrade your account is entirely up to you. If you want them to match what we do on a percentage basis (which is what autotrading is), but you don't have enough money to put the trade on, then they won't be able to put that particular trade on. We don't give brokers advice on how to autotrade on your behalf. That is something you must work out with them directly. Autotrading is strictly an agreement between you and your broker. You are in charge, so you should set the rules.

One more point on autotrading... Please consult with a licensed professional financial advisor before trading any securities. We are not licensed to provide financial advice. Our service is informational and educational only. We tell you what we plan to trade, which does not, in any way, mean that we are recommending that you trade those same securities. Trading securities involves significant risk, as I am sure you know.

Best regards,

Mike