Does anyone have experience in setting up a counterfactual portfolio?
For example, a portfolio of stocks that are notionally bought at the same time, price and volume as those stocks are actually sold in one's real life portfolio
My initial exploration, just started, suggests that this might have some salutory lessons
Follow up thoughts...The construction of a counterfactual portfolio is something that Stockopedia could offer as an automated product
Why not just set up a Folio and add stocks as you sell them with the same quantities and purchase prices? Isn't that exactly what you want? It's not automated but pretty simple to do.
That's what I am doing. But automated should be possible and would be less time consuming
I'm interested in what people may be learning from their counterfactual portfolios if they are using them
I don't run a "counterfactual portfolio" based on sells, but I do run several portfolios created using different screens or other rules to compare their performance against my real portfolio as a sanity check.
At the moment we seem to be in a period where factor-based methods as a whole are performing very similarly to the index. There is very little "edge" to be had from using factors just at the moment.
Follow up thoughts...The construction of a counterfactual portfolio is something that Stockopedia could offer as an automated productIt is true that I would be fairly easy to automate to the extent of putting any stocks that you sell from your "main" portfolio into a separate "sold" portfolio. To be honest though unless you are trading rabidly it would not be too hard to DIY.
I think though that would be something of an incomplete solution though - the "sold portfolio" would certainly give you some indication of whether your sells were good decisions or not in general.
However to really make sense of that you would also need to record the reasons for your sell (because you thought the price would now go down / because you had a 'better' opportunity to invest in / because you wanted to reduce overall market exposure / because it had reached your rule based holding period / because it had met your price target / etc)
You would also imho need to review the times you decided to hold rather than sell as those are also key decisions.
I don't think there is any easy way to "automate" this, but it is something I would highly recommend.
This is essentially what I am doing with my little mind experiment with £WGB .
In short, I have defined the conditions on which I will make a hold or sell decision and the criteria I will apply and I then record the rationale of my decision on each occasion - it is early days yet, but the plan is that even as and when I do decide to sell I will continue to review periodically to determine the outcome of my decisions.
One single stock, will not tell me too much of course but I am seeking to apply the same discipline to all of my holdings and as an aid to this I am looking a constructing a portfolio management / analysis tool that will make this easier - if I come up with something useful and shareable on this front I'll let you know.
I set something like this up retrospectively fairly recently, so now have folios buying everything I sold in 2017, 2018, 2019, and so far in 2020.
It didn't take too long, and TBH I think the time spent setting up manually (as with all analysis) is useful if only to help avoid the temptation to actually tinker with your portfolio and overtrade. Doing it manually slows you down a bit too so you actually eyeball the data.
Separating out the sells into time periods helps -- for example the bad performance of my 2017 sells folio makes me look a bit smarter than I am given it followed a generally strong market in 2016.
I am finding the accountability of the sells portfolio seems to help with the psychology of selling losing shares -- rather than just the catharism of cleaning up the folio, you get the longer term reward of seeing the share continue to fall -- and when you do get it wrong it does make you review your thinking which is where Gromley's point of keeping a note of the reason for buying/selling at the time really helps.
