Aggressive Portfolio Retired After 18 Years of Faithfully Generated Returns

By on April 6, 2009

About 10 days ago a decision was made to bring an end to the aggressive portfolio. The decision was partially based on economics. The aggressive portolio was held in a Tradeking account. Tradeking inexplicably raised their margin rates by about 33% from 4.5% to 6.0%. This, at a time when the Fed had lowered rates to record low levels. Having a much larger account at E*trade grandfathered in at extremely low Brownco margin rates (currently 4.0%), it only made sense to consider a merge.

The decision was also influenced by the relative underperformance of the aggressive vs. conservative portfolio over the past 10 years. Both portfolios had beaten the S&P 500, but the conservative portfolio had outperformed the aggressive version by approximately 1.5% per year. This with substantially less volatility.

The aggressive portfolio was, in many minds, extremely aggressive, utilizing margin to enhance returns. However, the returns were also enhanced to the downside, given the deep bear markets experienced this decade. The drawdown at the depths of the 2002 bear market was an astonishing 66%. The portfolio made a massive comeback and went on to new heights a couple of years later. From its 2002 nadir, the portfolio had gained 300% peaking in the summer of 2007 only to fall approximately 68% from that summit in the latest brutal bear market, which may have ended on March 9, 2009 (doubtful). Over the next 16 days it would rise 56% as the market made an impressive comeback. The end occurred on that date, March 25, 2009, when the merger was effected.

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