Although the return of 39% p.a. seems dramatically higher than the overall market (S&P500), it no longer seems so unrealistic when compared with the best stocks on the US market over the last 20 years. Stocks such as Nvidia (+23% p.a.), Apple (+34% p.a.), Monster Beverage (+40% p.a.) and Amazon (28% p.a.) have achieved annual returns of more than 30% in some cases over this period - per year! And that is pure share price performance. Dividends paid and reinvested are not even included here. Unfortunately, share price performance is not simply a straight line and in the rear-view mirror it is of course easy to find the winning stocks while ignoring all those companies that may have disappeared from the market.
The specific example of Nvidia shows very clearly how our algorithm identifies those phases in which shares record strong gains in order to profit from them. Since the beginning of 2011, the share price has risen by more than 4000%. The key point, however, is that if you take a closer look at the price trend, the share has not risen evenly, but in large waves. These phases are repeatedly interrupted by sometimes severe corrective phases of 50 - 70% price losses. We can now look at the phases in which Penta Trading was invested in Nvidia profited to a large extent during these major upward movements, achieving triple-digit returns three times (the latest in 2023 from February to August) - even when the entire rally was not fully utilised.
So Penta Trading invested almost half of the time in Nvidia (and only 20% of the total portfolio), left part of the return at the beginning of upswings and still beat the stock?
If you now compare Nvidia's share price performance with that of Penta Trading, it becomes clear why. Consistency is key! The key to the ultimate long-term superiority of the Penta portfolios over basically all stocks lies in looking at Nvidia's downward phases. There were 3 of these, all of which led to losses in value of 56 % and almost 70 %. At no time was the Penta portfolio invested here. In addition, there was a phase of several years in which the share bobbed along and the Penta portfolio was invested in higher-yielding shares. Although over such a long time, the performance is comparable, our Penta US Portfolio features a much lower volatility and risk.
In the long term, there is another factor that will inevitably slow down each individual share: the limit to growth. The ability to react flexibly to such reversals is the great long-term strength of Penta Trading. And the best thing is that you don't have to go trough the trouble of identifying them as they are systematically filtered out. This is certainly a smart way to profit from tomorrow's trends in a relaxed manner.
Consistency is key
Taking advantage of the momemtum while avoiding downward phases
How is the outperformance achieved?
Historical returns too good to be true? Have a look at how we achieve the outperformance.
Return expectactions
Aiming to the green, even during periods of uncertainty
Our goal: To beat the market and generate added value compared to a simple ETF portfolio, while using an investing strategy easy follow with no emotions involved. As our back-tests show, there is an impressive outperformance over a long period of time. But that does not mean it is always achieving a higher return than the market for every single month. We have calculated the monthly return of the Penta US portfolio and compared to the S&P500.
What you see below is a summary of every single entry and exit scenario in a color map. A green color means the performance was better than that of the SP500 for this month. This doesn't automatically mean it was a positive month in absolute terms. For example, if Penta US yielded a return of -5%, but the S&P500 of -10%, then it's a positive relative performance of +5%. From this 2 things become clear.
1: There was no single scenario in which our Penta US Portfolio was beaten by a simple S&P500 ETF after 3 years. On average, the outperformance was 16% after 6 months. In 85% of all cases, Penta Trading was better than a simple ETF after 1 year. So all you need is a bit of patience, even if you start with poor timing.
2. There are re-occurring phases of underperformance which can last for several months and up to 2 years. But these extreme drawdown phases so far occurred only 3 times within 22 years.
What does that mean for you? First of all, that you have to be aware of an existing risk and there is no guarantee of profits or even getting rich quick. The algorithm used to determine the portfolio has been optimized to maximize the return over a 20-year period. However, this also means that at any given time there is likely another combination of parameters that works better for that precise moment. Such short-term optimization makes no sense insofar as one would always be chasing after the markets and would only recognize afterwards when the rules would have to be adjusted again. Phases of weakness are therefore no proof that the algorithm no longer work, as the basis for Penta Trading is a concept that was already researched and described in the 1960s. You can find out more about the theory under the knowledge section. What follows from this is that it is very unlikely that Penta Trading will no longer work overnight. Although there is no guarantee that the historically calculated of 30-40% p.a. will be achieved, especially for shorter periods, the probability of achieving an excess return over the benchmark is quite high.
Conclusion: Even if things don't go as expected. Stay calm and relaxed. There have always been crises and sooner or later they will be over.