Pythagoras Investing in Action

Pythagoras Investing is a subscription recommendation service in the business of predicting share price behaviour using maths.  It is a new way of investing in shares for investors of all experience levels.

To assist people to understand how it works we run a paper “portfolio” of 5 stocks using our recommendations.  The stocks are Orica, Worley, ANZ, Rio Tinto, and Incitec Pivot (descriptions below).  All are large Australian listed companies across a diversity of businesses. 

I watch the level of capital invested (otherwise known as capital employed), compared to the stock market with interest.  The portfolio reflects the buy and sell recommendations by Pythagoras.  For simplicity we invest $10,000 per buy.  When a sell is recommended we sell all of the capital invested in that stock.  

The portfolio has made almost $17,000 since April 1.  That’s an 18.8% return on the average capital invested over that time.  The strike rate or wins versus losses is 89%.  It’s a strike rate we love! Of the 56 trades, 89% of trades produce a profit of 3.4% each.  The other 11% return -1.9% each.

Key points:

  1. The increase in capital invested peaks about $190,000 just prior to the market hitting its high (shown in a maroon dotted line).  The market level is shown in the solid blue line.
  2. At the market peak there was a lot of selling which brings the investment level back by 40%+ to $110,000.  Mainly in Orica and Incitec.
  3. As the market fell from its high, the buy recommendations begin to flow again.
  4. Today (23/8/2018) we are closer to $260,000 invested.  Perhaps we aren’t at the bottom of the market yet, but it is forming.

The inverse correlation of total capital invested against the stock market performance is what I follow – and I like what I see.  Selling ahead of the market peak and buying into the falls is exactly what Pythagoras does.  Anticipating share price behaviour (through changes in volatility) and acting ahead of it is the basis of Pythagoras.  We often buy when share prices are looking weak and a little scary for investors.  This is intuitive investing – buying low/selling high. 

After a fall the buying is in anticipation of rising share prices – it’s what we call the smile.  It’s the shape of a capital gain!

Therefore, we are now waiting for the rise.  We know there is a little white-knuckle time for the investments that have been bought in the last 2-3 weeks.  This is normal when you are using market fear and uncertainty – but once it recovers, as I expect, the corks will start popping. 

Stock Descriptions:

Orica: A provider of commercial explosives and blasting systems to the mining and infrastructure markets, the global leader in the provision of ground support in mining and tunnelling, and the leading supplier of sodium cyanide for gold extraction.

Rio Tinto: Producers of copper, gold, iron ore, coal, aluminium, borates, titanium dioxide and other minerals and metals.

ANZ Bank: Provides various banking and financial products and services to individuals and business customers.

Worley Parsons: A global provider of professional (engineering) project and asset services in the energy, chemicals and resources sectors.

Incitec Pivot: Producers of the infrastructure, food, clothing, shelter and energy requirements delivered to the mining and agriculture industries. 

Michael Dee 0419726

Disclaimer: The information in this document (“Information”) is not intended to constitute advice. It is for general information only and does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and seek professional financial advice before relying on or making investment decisions based on the Information. Investment products are subject to risk including the loss of income or capital invested. Past performance is not an indicator of future performance. Neither Pythagoras Investment Timing Index Pty Ltd ACN 147371113 (AFSL 431 238), its directors, employees and representatives (collectively, “Pythagoras”) warrant the accuracy or completeness of the Information. To the extent permitted by law, Pythagoras disclaims all responsibility and liability for any loss or damage of any nature whatsoever which may be suffered by any person directly or indirectly.