Let me make sure you know what each term here means:
By drawdown, I mean the amount your portfolio will drop in value from any given high point. So drawdown does
By drawdown, I mean the amount your portfolio will drop in value from any given high point. So drawdown does NOT mean how far the portfolio went down from the start of the year. It’s how far it went down from its high point. So for example, the portfolio might have gone up 100% and then had a 20% drawdown, its biggest of the year.
From where you’re sitting now, that might not sound so bad (“hey I can handle the portfolio shrinking some after I make a bunch of money”), but I can assure you that in the moment it can be very hard to see the funds that you thought were yours start to slip away in a drawdown. So if your portfolio goes from 50k to 100k for example, be cautious with your celebration, because your account soon may be back at 80k as part of the normal ebb and flow of these portfolio results. If you can survive the 20k drawdown from this example (from 100k to 80k), then you might be well-suited for this program.
Median Historical Drawdown
This is looking at the 21 years of back tests and each year’s maximum drawdown. If you sort those 21 drawdown amounts, the median one is the one right in the middle. So I think of it as the typical drawdown you should expect in any given year.
I use this term a lot on the website. When you go and buy a stock (or a futures contract in our case), you are buying it from someone else out in the world (you never know who exactly). It’s referred to as a trade. So any time I talk about making a trade with the automated system, I’m talking about making a transaction to buy or sell a futures contract. The automated system will make trades throughout the year in your account. We look for the automated system to do trades where the amount we buy the futures contract for is less than the amount we sell it for, so that we can make a profit.
When someone first told me about meditation, I thought it was a religious practice of some sort. In some religious there is a meditation practice involved, but the meditation I’m talking about is not spiritual.
Meditating is simply practicing mindfulness. I personally sit down each day and close my eyes to meditate, but even being mindful in normal life is being meditative.
When I meditate, I choose something to focus on. Sometimes I choose the humming sound of my computer. Sometimes I choose to focus on my body as a whole. You can pick anything you want. All I do is sit there and focus as intently as possible on that one thing. I try to be as aware as possible of when my mind starts “thinking”, and I nonjudgmentally make note of the thought and re-focus.
The meditation helps me get better at being mindful and also at holding my focus. When I step back and think about the big picture, I don’t want to spend time being, for example, really angry about a drawdown or about anything else for that matter. I can choose what I want to focus on. So when there is a drawdown, I can notice the emotion and even explore it with nonjudgmental curiosity if I want, but I don’t have to dwell on it. I have a choice. I would choose not to act out any anger emotions and instead to focus my awareness on something other than being steaming mad about a drawdown. Meditation is way of practicing to get better and better at that.
And speaking of practice, that’s a great way to describe meditation. No one is perfect. I’m never going to be able to be perfectly mindful or perfectly focused at all times. I just keep practicing to get better.
Whenever I say “the market”, I’m referring to the stock market, where stocks, options, and futures are traded.
One of my favorite authors, Jon Kabat-Zinn, defines mindfulness like this: “Mindfulness means paying attention in a particular way: on purpose, in the present moment, and nonjudgmentally.” Another way to define it is as “nonjudgmental awareness”.
So when you have a trade going and it’s in the middle of a big loss, if you can be aware of your emotions and kind of “witness” them nonjudgmentally, it helps a lot. Instead of “being” the emotion and acting it out, it’s as if you step aside from the emotion and just watch it. It’s taking a posture of “let’s see how my mind reacts to this loss” instead of spiraling deeper into the emotion by engaging in an inner dialogue about the lost money.
Having mindfulness also applies to trades where you’re up a lot of money. If you can get in the habit of noticing the emotions and being curious about them rather than being a slave to your emotions, then you’re going to be setting yourself up for some major success (not just in the market, but in life too).
Average Annual Return: This tells the average percentage return the portfolio has gotten each year in back tests over the last 21 years. So if the percentage return says 100% for example, it means that it would have doubled your money (before taxes) on average each year.
Max Historical Drawdown
This is looking at the 21 years of back tests and each year’s maximum drawdown. If you sort those 21 drawdown amounts, the max one is the very largest one. So I think of it as the worst case scenario drawdown that the portfolio has faced.
This is an important number. You have to envision that your account goes down that amount, and envision how you would feel. I suggest you literally close your eyes and try to physically sense how you would feel if your account went down by that max amount. For many people, they feel sick to their stomach.
And then on top of that is this fun nugget: statistically speaking, it’s highly likely that there will be an even larger drawdown than that at some point in the future. It might happen this year or in 20 years, who knows, but it’s likely to happen at some point. So as tasty as that annual returns look in these portfolios, make SURE you are going to be able to live through the drawdown, because if you pull the plug in the middle of the drawdown, you’re actually pulling it at the worst possible time! That’s exactly when you should hold on since there are high odds at that point that the portfolio will bounce back. For me, the key to living through the drawdowns is to practice mindfulness and to treat it as a game instead of a life-or-death endeavor. I personally can handle a drawdown of these magnitudes, but I know many people who cannot. That’s what you have to ask yourself before you subscribe to one of these portfolios.
Suggested Starting Capital
This is the amount that is likely going to be enough money to put in your account without later needing to add more to the account. Right when you first go live with the automated system, there might be immediate wins and you never look back. But you might also start off in a drawdown of some sort. If the amount you initially fund your account with is the suggested starting capital amount, then you have good odds of being able to withstand any initial drawdowns without your account going below the bare minimum starting capital.
Bare Minimum Starting Capital
This is the amount you must have in your account for any trades to be executed. If you have less than this amount, there will be no trades. The reason is because the compounding formula that I built into the automation codes uses that specific dollar amount as a divisor in the formula. The bottom line: it doesn’t make sense to subscribe to a portfolio unless you can invest that amount of money bare minimum. And you should expect that if your account goes below this amount, you’ll need to add more funds for the system to work.
This just reports how many years the portfolio had a positive return and how many years it had a negative return. In 21 years of back tests, none of the portfolios that I offer had a negative return.