Is Dynamic Investment Theory Too Good to be True?
No, It's True
On this site I describe the characteristics and benefits of using Dynamic Investment Theory (DIT) and the unique investment that DIT creates called Dynamic Investments (DIs). The information presented here may sound too good to be true. Below are just a few facts about DIs that will bring skeptics out of the woodwork:
Why People Are Skeptical
- The simplest DI possible, one that rotates only between a Stock ETF and a Bond ETF, earned an average return of 30% + per year during the period from 2007 to 2016 and without excessive risk.
- In the DI world of investing, higher returns do not require exposure to higher risk, they come by adding more ETFs to the DI's Dynamic ETF Pool, giving the DI a larger area of the market to search for positive returns.
- DIs are comprehensive portfolio "products." They not only specify the ETFs to work with but how they will be managed on an ongoing basis.
- DIs change the ETF they hold based on empirical observation of market trends - there is no human-decision element involved. And data show that the "market" is a far better predictor of future market prices than any one or group of human analysts.
- DIs bring about the "Holy Grail" of the financial world, namely the "productization of investing." DI's have a universal goal of finding and harvesting positive returns where ever and whenever they exist in the market. MPT portfolios have as their goal matching each investor's risk tolerance. Thus while MPT portfolios are customized creations, DIs are consumer products that can be bought off-the-shelf from a variety of vendors. No customization is needed.
- DIs are the market's first "active" investment that is "passively" managed - providing the best features of both methods.
- Dynamic Investment Theory (DIT) can be seen as a replacement for the decades old, and increasingly obsolete, Modern Portfolio Theory (MPT) that does not work in modern markets.
......... and much more
Many people who encounter this information will simply shake their heads and just assume that DIT is a "trading system" or even a "scam" and stop reading. They will say to themselves that these benefits and results are just not possible in today's investing world. These people would be wrong.
On this Web page I discuss why Dynamic Investment Theory is truly an evolutionary step forward for the world of investing. And when the world of investing changes at a fundamental level, i.e. from MPT to DIT based, all manner of new and better results are possible.
Ignoring DIT and DIs based on "knee-jerk" impressions can put skeptics at a major disadvantage in the future of investing. Let's look at what the skeptics may say and address each point.
Is DIT a Trading System?
Some who read about DIT here will believe that this must be some type of trading system that may work for a short time and then doesn't. They could not be more wrong. Dynamic Investment Theory (DIT) was produced based on over 5 years of research and development using the most stringent scientific methods.
The creation of Dynamic Investment Theory started with the empirical observation that assets, markets and market segments are all cyclical. Their prices trend up and down over time and the price cycles for various asset types move up and down at different times. This leads to the hypothesis that at all times, in all market conditions, there exist in the market positive returns. The NAOI's goal was to develop an investment type that could automatically search for, identify and capture these returns. Years of testing showed us that creating such an investment type was possible - we called it the NAOI Dynamic Investment. With the creation of DIs we could transform our hypothesis into a theory that we called Dynamic Investment Theory. This process is how science works.
The reasons why DIs can produce returns far higher than MPT, asset-allocation portfolios is based on a solid foundation of logic backed up by a decade's worth of testing and empirical observations. This testing has shown that DIs worked in all economic conditions for the last ten years, work now and will continue to work far into the future. As long as asset and market prices are cyclical, DIT will work. Anyone who digs deeper into how Dynamic Investment Theory was developed and how it works will quickly see that this is not a trading system by any definition of the term. This is a scientific theory that represents a true evolutionary step in the world of investing.
After reading this page and this site, if you believe that DIT is a "trading system" then you must conclude that Modern Portfolio Theory (MPT) is a trading system as well - and not a very good one.
Major Objections to the use of Dynamic Investments
Financial mavens today will say that the buy-and-sell strategy used by Dynamic Investments does not work for two reasons. First the tax consequences of short-term gains over long-term gains make frequent trading not worth it. And second, no human stock-picker can "time" the market and make successful trades for any length of time. Their conclusion, then, is that DIT cannot work. Lets look at why the "experts" are wrong in both areas:
The Tax Objection
- The Short Term Capital Gains Issue. The performance of DIs using a buy-and-sell strategy is so superior to that of buy-and-hold MPT portfolios that the marginally higher taxes related to short-term gains are dwarfed by the higher returns generated by DIs. Even after higher short-term gains taxes are deducted, DI returns will beat MPT portfolio returns very time - and not by just a small amount.
- The Tax Issue In General. Most investing by the public today is done in tax-deferred accounts, such as 401k plans, in which all profits are taxed at personal income rates when money is withdrawn. Thus there is no tax penalty for frequent trading. In fact, the full power of retirement plans is not exploited unless an investor does buy and sell to take advantage of market movements.
Taxes are NOT a reason to avoid the use of NAOI Dynamic Investments!
The Active Trading Objection
- The "Human" Factor. It is true that frequent trading by human analysts is usually not a good thing. Timing the market successfully for any length of time is not within their capabilities. But with DIs, humans don't make the trading decisions - the "market" does. Testing and empirical observations show that "the market" is a lot smarter and far more successful at predicting future price movements than any one, or group, of human analysts.
- Trading Costs. And of course some will try to say that the trading costs involved with a buy and sell strategy are excessive. This is not the case. For the NAOI Basic DI that earned 30% + per year from 2007 to 2016, there were, on average, a little over 4 trades per year (a buy and a sell for each time the ETF was changed). Using an online broker this would cost about $30 per year - an insignificant number.
The bottom line is that a buy-and-sell strategy works wonderfully well in the DIT-based world discussed on this site. Don't let the "experts" tell you that it doesn't. Their frame of reference is stuck in 1952 when MPT theory was introduced. They are still using a portfolio design methodology that simply doesn't work in the 21st century. More on this topic next.
The Industry "Fear" Issue
Despite the advantages of using Dynamic Investments, some in the financial services industry will see them as a threat. Even the simplest Dynamic Investment outperforms the most sophisticated MPT portfolio they are currently selling - and this will be disruptive to current revenue streams. Thus, there will be many who question the claims presented in the information I provide for purely selfish reasons.
I am more than willing to debate any skeptics of the Dynamic Investment approach in any venue or format. I have the hard data to back up my claims. I hope that my intuition is wrong when it tells me that this invitation will not be readily accepted.
Change Is Not Optional
As much as change of this nature may be resisted, it will not be optional for the financial services industry. The NAOI is deploying its education and marketing divisions to inform the public about the benefits of Dynamic Investments. Many of our students are using, and benefiting, from them now. And feedback from these field-testers has shown us that when people learn about DIs, they will demand them.
Organizations that meet this demand will thrive; those that don't will fade away. That's the power and effect of investing evolution. And the sooner that the financial services industry sees what is coming the sooner they can prepare for it in their strategic planning.
Yes, there will be skeptics of NAOI Dynamic Investment Theory and the use of Dynamic Investments. But read the quote box above. The existence of skeptics is a sure sign that significant and evolutionary change is happening with the introduction of this new, dynamic approach to investing.