Portfolio Management

Whenever the subject of trading comes up, many people often forget that it really is just a strategy designated to accelerate growth. Although you can use that strategy as a form of income to pay for your livelihood, it is also important to understand how vital it is to simultaneously grow a strong, diverse portfolio from the proceeds of the trades. Whenever you invest in the market, assuming you make good investment choices, you are bound to see your portfolio grow on its own over time. While trading generally takes active management, requiring your input and frequent attention, investments tend to have a more passive approach. This is why so many people describe to long-term investing as “set it and forget it”. Picking securities that are viable long-term takes quite a lot of skill, and depending on what you buy, you might actually have to do consistent research to keep up with the changes in the company. For example, if you are buying individual shares of a public company, it would be prudent to read earning reports at the very least and keep up with the guidance the company provides as well as with the stock performance so that you are on aware of how that investment performs. Remember, buying individual shares of a company is inherently risky to a certain degree. That risk varies across company to company. On the other hand, if you were to buy an exchange-traded fund(ETF), you wouldn’t really have to keep up with earning reports, stock performances or guidance as much, given that ETF’s are generally diversified. In this chapter, we will go over various individual investment ideas and how to set up your portfolio for success in a manner that feeds your goals, covers costs and minimizes trading risks over time.

Trading is a high-risk endeavor, the that risk is exponentially higher the smaller your account is, because any single trade on a $100 account will be significantly more risky than a trade the same dollar size on a $1,000 account. Taking a $50 trade on the $100 account implies a 50% risk where as the $100 entails a 10% risk on the $1,000 account. The ideal ratio of trading should be that the amounts you use to trade as both don’t account to more than 1% of your total portfolio and that they amount being used is less than what you generate through passive income. If you add up all the costs of buying assets in a given month, ideally speaking, that number should be less than the average return you receive via distributions. Now, this is much easier said than done, given that to achieve this, one would need to have an account worth over $300,000 on average.

Some quick math:

2,000×12=24,000 per year

Portfolio size=0.08 / 24,000​ = 300,000

Once you pass that $300,000 mark, you pretty much just cruise through trades, and the ability to accelerate growth really compounds because you are able to take on higher levels of risk on trades that could pay off big time. Even if those trades go bust, you still close each month green, assuming you keep managed risk tight. It is a long journey to achieving this goal, but I strongly believe that if you believe and follow the foundation that we carefully lay down on Trade Pass, your ability to get there is viable. Every journey begins with a single step, which is exactly what we are doing now. So, how do we get there? All journeys begin with a single step, and yours starts with the following: Remember this formula.

INVESTMENT GOAL = (AVERAGE WEEKLY GAINS * 4.33) / 3

Assume you make $500 a week. You multiply it by a factor of 4.33 to get your average monthly income. Then divide that by 3, because only a third of that amount is going to investments. The rest should be held cash or used for real life expenses. I understand most people have a slight variation of this, but I am speaking in generalities and frankly, this set-up will work extremely well assuming you stick to the program long-term.

Ideally, Trade Pass members generate at least $500 a week based on the trading signals provided by Cthulhu, Dragon and Sim. One week is really all you need to cover all expenses. Generating enough cash flow in your portfolios is key to setting up the most complex but ultimately crucial part of the program. All these trades are done with the intention of accelerating growth in your investments so that passive income can eventually substitute your current risked capital. Let me explain. If you were to add up all the premium you pay to trade options, you would likely be in the range of $1,000 to $5,000 per week. That is a lot of money to risk, especially for a portfolio with no deposits or other recurring income. Now, imagine what would happen if your portfolio all of a sudden began receiving massive income. Let’s say you started generating $500 per week via passive income distributions. Well, your risk is now significantly smaller, beholden to you follow the strategy and don’t increase your risk exposure until you have made enough gains. The more money you have invested, the less % of your account is exposed to trades, which generally carry more risk. The goal for Trade Pass is to generate at least $500 a week bare minimum and to grow your portfolio to where that same amount and more is generated passively per month from investments. Again, lets revisit that formula again:

INVESTMENT GOAL = (AVERAGE WEEKLY GAINS * 4.33) / 3

The reason this formula works is because it functions on the assumption that you are able to at the very bare minimum be able to generate $250 in profits per week. You take that number and multiply it by 4.33 to get your average weekly income and you get $1,082.50. That amount should more than cover Trade Pass expenses, be able to grant you enough capital to reinvest in the markets and still have some cash left over. A basic rule of thumb is as follows, I call it the 3 33 rule. That’s because you split 100% of your gains, into 3 equally sized portions. Take that $1,082.50 and divide it by 3 to get $360.83. You can take $360.83 to use to it repay Trade Pass or any other in-real life expense. I always have to remind traders and investors that they should never forget to reward themselves for doing good. Don’t live to work, work to live instead. So, you take 1/3 out to pay for things, then you take the other $360.83 and you reinvest it. We will get more detailed on reinvestment opportunities in a bit, but keep the general concept in mind. Lastly, you use the last 1/3 and keep it cash. This is not used to increase your risk exposure. Remember, you want to maintain those exposure levels as low as possible. Occasionally you will increase your exposure per trade, but at tactful and planned moments. Again, keeping with the plan means keeping your risk exposure management on point at all times, and understanding that increasing exposure every time you net a profit is not a good idea.

Regardless of the value of your account as it currently stands, earning $1,082.50 a month equates to $12,990.00 a year. 1/3 of that in cash amounts to $4,330. We are talking about investing for the most part, so much would this amount really stand to make you? Picking investments can be downright tedious. There is so much to consider and learn, from learning how to read an earnings report, keeping up with guidance reports and then the actual sector and industry in general. Stocks aren’t immune from overall market risk after all. As an investor, it’s important to remember that if you elect to invest in specific companies, it would be prudent to monitor their earnings and fundamentals a couple times a year. On the other hand, ETF’s provide a more passive way for investors. These funds are managed by professionals who weight in investments and diversify holdings so in different proportions to give balanced averages. The market generally yields 10% a year on average, so ideally you want to find ETFs or stocks that you believe can beat this average. If you are brand new to investing, I highly recommend you stick to ETFs, and especially if you have a relatively small account as well. It’s okay to buy individual stocks, especially for companies you follow, but for the most part, allocating your money to ETFs will be a lot safer for you. The last thing you want is to watch a lot of your hard work be significantly affected because of a miss on an earnings report by a single company. Concentration of portfolio allocation can be incredibly risky as well.

As a member of Trade Pass, given the structure and manner by which I developed and carry the working strategy of portfolio management, I believe that investing in the following list of ETFs would allow you to significantly beat the market:

ULTY
VUG
XLK
DVY
SPMO
QQQM
IGM

Some of these yield very high growth because they are very tech heavy, while others yield very high dividends. For example, ULTY currently yields around a 75% yield via cash distributions. I highly encourage you to take a day to research some of the best performing ETFs in the past 10 years. Look how they performed during strong market pullbacks, how fast they recovered, how diversified they are, the risks that each of them entail, etc. The more you know about your own investment, the more confident you will be about your own portfolio and investment strategy. Remember, although you will get growth, make sure to allocate a portion towards distributions. Following the 3 33s rule, investing $1,082.50 from what you derive from your trades would do you wonders. If you allocated all that capital towards an ETF that yielded cash-distributions and let’s assume you make 10% a year, that means that single monthly distributions makes you $100 per year. That money keeps compounding because you reinvest the proceeds you get plus what you keep adding every month and you get to the point where by the end of the year, you could be making anywhere between $1,000 to $1,500 per year in distributions. Keep in mind, this is very bare minimum numbers I am giving you. From what I have garnered, most of Trade Pass members make way more than $250 per week. It seems to me that most people are able to generate triple that amount, and the ones that actually follow through with the trades and guidance are able to significantly outperform this amount by multiples. Again, remember, the distributions are made to help you make cash to offset the risk you take every time you take a trade. That feeds into to process of limiting risk exposure and maximizing risk management, which over time will allow you to grow your trade exposure. Let me quickly explain what that means. Again, assume you have a small account and decided to allocate 5% of the value of your portfolio towards trades. Obviously, that is a large amount, and ideally you want to bring that percentage down. Imagine you keep trading the same cash amount, but all gains are reinvested. The portfolio value grows, but because you are trading the same fixed-dollar amount, the risk you take on per trade starts going down. As I said earlier, ideal allocation percentage of your portfolio should be less than 1% per trade. After some time, you will get there. Let’s say you get to the point where your trades now account for only 0.50% of your portfolio allocation. Now, you can actually go ahead and grow your trading cash allocation amount to meet 1%, or even higher. Although recommended portfolio allocation amount is less than 1%, I understand that for accounts worth less than $100,000, that can be too challenging, as the costs to trade options and other assets can be too high. As a result, it’s okay to run up that percentage, but never above 5%.

Bringing the topic of discussion back to investments, the choices of where and how to allocate your capital are very broad. Take a look at the following pyramid.

Investment and financial products can be categorized in various ways depending on their characteristics, particularly risk and return potential. One commonly used framework is the investment pyramid, which visually ranks financial instruments from the safest, lowest-return options at the base to the riskiest, highest-return investments at the top. Another common method is to classify investments into distinct asset classes based on their nature and behavior. These primary asset classes include:

• Cash and Cash Equivalents: This group includes highly liquid and low-risk instruments such as passbook savings accounts, checking accounts, money market accounts, money market funds, certificates of deposit (CDs), and Treasury bills (T-bills).

• Fixed-Income Investments: These are debt securities that offer regular interest payments and include corporate bonds, municipal bonds, Treasury bonds, bond funds, and mortgage-backed securities.

• Equities: This class comprises ownership interests in companies, including common and preferred stocks across various sectors and styles (e.g., growth or income), as well as stock mutual funds.

• Hard Assets: These are tangible investments such as real estate, precious metals, gemstones, and collectibles.

Each asset class responds differently to economic conditions and various types of risk. For this reason, diversified investments across different asset classes is a core principle you should prioritize when building your portfolio. For instance, fixed-income investments help protect against deflation, while equities serve as a hedge against inflation. To reduce market risk, investors may diversify across all four asset classes and further within each category. To manage interest rate risk, bond portfolios can be laddered with staggered maturity dates. To mitigate business risk, investors can hold mutual funds or broadly diversified portfolios. Finally, maintaining an appropriate share of cash or cash equivalents helps reduce liquidity risk, ensuring funds are available when needed.

The following idea is very risky, and thus must be carefully thought out and planned.

One of the investments I have been aggressively sizing-up is ULTY. YieldMax Ultra Option Income Strategy ETF(ULTY) is an exchange traded fund launched and managed by Tidal Investments LLC. The fund invests in public equity and fixed income markets of the United States. For its equity portion, it invests through derivatives in stocks of companies operating across diversified sectors. The fund uses derivatives such as options to create its portfolio. It invests in growth and value stocks of companies across diversified market capitalization. For its fixed income portion, the fund invests in short-term U.S. treasury securities. The funds payout structure is designated for it to disperse weekly cash distributions. These distributions, when added up, currently yield to a 75% yield per year. That means that for every $1 you invest, you get, more or less and for now, $0.75 back. Remember that total returns is a different concept. If the NAV of this ETF goes down, if the price goes down, then the total return would go down. So far, after some structure changes made in March-April, the fund has performed pretty well. There are very serious risks to this investment so I encourage everyone to read through the prospectus and research it. However, it pays high income at the moment and that could significantly help you yield high cash infusion in to your account. Remember, don’t invest all your money in any single ETF or stock, but rather aim to diversify your portfolio as much as possible.

For the last 4 years, I have been able to grow my portfolio and beat SPY returns pretty effectively. This is done by picking strong performing stocks related to the strongest growing industries in the market. Nvidia was a great example of this. I also bought into industries that were dormant for years before they exploded in popularity, such as the space industry. RocketLab has been my best performing investment by a long shot. However, even if you did not take these great investments into account, consider that investing your money in investments that generally beat the SP 500 and ones that also yield cash while remaining relatively positive and don’t drop much during market pullbacks will allow you to continue to outperform that benchmark.

Remember that growth takes time. Becoming inpatient and desperate to speed up the process can have you erase a lot of the progress you make. Be patient, focus on the longevity and your trades. Learn to master your day trades and play the swing trades recommended by the algo right. Your trades are supposed to help accelerate your portfolio growth. Don’t aim to bat a home run on every trade. Instead, aim to get to first base. After that, everything falls into place.