Building a Billionaire-Class Stock Portfolio

By Keith Kaplan

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Like many new investors just starting out, I used to buy stocks on a whim.

There was no careful process or due diligence. Sometimes I’d hear a tip and act on it before I even knew what the company did.

Rarely did it work out. Most often, it very much did not and I’d wind up holding a dud.

Sometimes I’d be right… but be too quick to sell and miss out on a much bigger future return, like I showed you recently with AMD.

In other words, I learned that the difference between success and failure is simple. If I have a plan and stick to it, I succeed. If I don’t… I usually wind up failing.

I’m happy to say that, nowadays, I don’t have this problem… because I use a system. And I consistently stick to it, which has made a massive difference in my returns.

This plan is deeply rooted in the TradeSmith Volatility Quotient (VQ) we talked about recently.

As a refresher, VQ is TradeSmith’s proprietary measure of the inherent movement potential in a stock.

You can use VQ to know exactly when to buy, how much to buy, and when to sell. And you can use it for any stock, fund, or cryptocurrency.

But sometime after we introduced VQ to TradeSmith, we realized it was only the starting point for a revolutionary investing system…

So, we integrated VQ as the foundation for what we call the Pure Quant Portfolio Builder.

With it you can put in a few key variables – like which market or sector you’d like to buy stocks from, how many you’d like to own, and how much capital you’re willing to put to work. Then, it automatically creates a diversified portfolio recommendation down to the number of shares you should buy.

Automatic… easy to execute in your own brokerage account… but also based on smart diversification, position sizing, and risk management.

In the process of building this tool, we tested a ton of other, similar systems. None of them come close to what Pure Quant is capable of.

Pure Quant is like the holy grail of investing. With it, you can quickly build a portfolio that can weather tough periods in the market and grow over time while minimizing losses. And that’s just the start of what it can do.

Let me show you how it works…

Pure Quant’s Secret

When we started building Pure Quant, we knew we needed a few things to really make it rewarding for everyday investors.

A world-class diversification algorithm was at the top of this “must-have” list.

The idea was to take advantage of assets with “uncorrelated” performance. That way, when some assets in your portfolio inevitably fall, the others are likely to rise and cushion the blow.

In a real raging bull market, you don’t have to worry about this as much. Often, most risk assets are rising at the same time. But in a bear market, this is super important. Diversification can protect you from loss and generate gains at the same time.

So, if you want a portfolio that can weather both bull and bear markets long-term, then being diversified at all times is critical to your success as an investor. I cannot emphasize that enough, and that’s why we prioritized it for Pure Quant.

Just take my last essay on VQ, for example.

When I wrote you about VQ, I talked about Tesla (TSLA) having a VQ of around 44%. Johnson & Johnson (JNJ), on the other hand, has a VQ of around 12%.

So if you had $10,000 and wanted to invest in Johnson & Johnson and Tesla, you wouldn’t just put $5,000 in each. You’d want less money in the more volatile name and more money in the stable name.

Instead, you could put about $7,800 into Johnson & Johnson and about $2,200 into Tesla. (You get that by reducing the position size of TSLA by 44% – its VQ – and adding it to the JNJ position. It’s a simple but effective way to do it.)

So, this way there’s no need to avoid investing in risky stocks. Often those have major profit potential.

However, you do need to consider risk when you invest, so your portfolio doesn’t get chopped up along the way.

Now, you can imagine that designing a VQ-based portfolio any larger than two stocks can quickly become difficult.

That’s one more problem Pure Quant helps you solve. It uses each stock’s VQ as a guiding light toward its weighting in the portfolio.

But Pure Quant isn’t just about limiting risk and diversification. It’s also about tapping into invaluable insights from the world’s wealthiest investors…

Building a Billionaire Portfolio in Seconds

Our system also uses a dataset covering about 30 billionaire investment portfolios from the likes of Ray Dalio, Warren Buffett, Bill Ackman, and more.

We do this by scanning their publicly released 13F reports to pull all of their trades into our system.

In total, our system includes thousands of big money trades from the world’s greatest investors.

These three factors – diversification, VQ, and billionaire holdings – are just some of what you can use to build a Pure Quant portfolio. There are many more.

But to show you just how powerful this tool is, let me demonstrate how you can build a portfolio using these qualities.

I used the Pure Quant Portfolio Builder tool to draw 10 diversified, risk-adjusted positions from the pool of billionaire investments we track and spread them across a $50,000 portfolio. I also limited it to S&P 500, Nasdaq 100, or Russell 2000 stocks, because I only want companies that qualify for these major indexes.

Here are the results…


You can see these stocks are well-diversified across the consumer staples, communications, financials, health care, consumer discretionary, and materials sectors.

They also cover a wide spectrum of volatility – with VQs as low as 15.68% and as high as 38.65%. Pure Quant takes both this and the stock price into account to recommend a specific number of shares to buy for each stock and spread out your risk.

All of the stocks in the list above are owned by billionaire investors like Ray Dalio, Andreas Halvorsen, and Lee Ainslie.

And most important of all, they’re all in our Green Zone – our proprietary measure of a healthy uptrend. So, you can skip squinting at a bunch of stock charts, too.

The Pure Quant Portfolio Builder takes what would normally be hours of work and reduces it to just seconds.

It picks the healthiest stocks from those sources, diversifies them, and builds a perfectly risk-adjusted portfolio, based on the VQ, that you can model in your own account.

Now, I’m not saying you should run out and buy all of these stocks. To be clear, some of them are long-term holdings that the billionaires got into at much better prices. Most importantly, you need the stocks that are right for your specific situation, so always look under the hood.

But overall, I’m sure you can see why I love Pure Quant. It’s so powerful, yet works so quickly that you can have a lot of fun tinkering with it to suit your needs. And we’re constantly fine-tuning the algorithms to make it even better.

I look forward to sharing more about what Pure Quant can do in future letters.

All the best,

Keith Kaplan
CEO, TradeSmith