Diversification Email at C2?

I am a huge fan of diversification if you are talking about good broad mutual funds etc. However, emails like this are one of the reasons I avoid spreading the word about C2 to friends and family. I think I have a great strategy for long term success. You can of course agree or disagree.

But C2 isn’t really a place for safety imho. I have seen so many strategies explode. I don’t want friends and family to come here and diversify into strategies like these that have exploded: (Please Don't Comment!) Log of Lessons Learned From Closed Strategies - #2 by DwightSchrute

Email below:

Sure, the trading strategy “Patience is a Virtue” is great.

But is it wise to put “all your eggs” in one basket?

You came to Collective2 because you were interested mostly in “Patience is a Virtue.”

But Collective2 has thousands of other trading strategies. We’ve made it easy to find the top ones. Just go to our “Leaderboard.” The leaderboard uses a mathematical formula to rank all of the trading strategies on Collective2.
The Leaderboard
The “Leaderboard” shows the top-ranked strategies as selected by a mathematical algorithm we call the “C2 Score.”

Diversify your portfolio

Here’s what’s cool about Collective2. You can trade multiple strategies in one brokerage account. It doesn’t matter if strategies trade the same things. It doesn’t matter if they trade in opposite directions. It doesn’t matter is one strategy trades on Monday, and the other on Tuesday.

In other words, at Collective2 it’s easy to diversify your portfolio. First, visit our Leaderboard. Then, just pop another strategy (or two, or three) into your brokerage account, and suddenly you’ve built yourself a miniature personalized hedge fund.

Keep on loving “Patience is a Virtue”

Sure, keep on following Patience is a Virtue. But think about the other eggs that you want to put in your basket.

Not sure what you find objectionable in the text above. That you shouldn’t “put all your eggs in one basket?” That seems a pretty good rule of thumb, in many aspects of life, except maybe marriage.

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I agree with @MatthewKlein in that I did not find the email objectionable and I agree that diversifying into multiple C2 strategies does tend to smooth out one’s equity curve (I subscribe to several C2 systems). I also agree with @InteractiveAssets in that C2 could do a better job with promoting safer systems and not promoting potentially unsafe ones. Today’s Trading Strategy of the Week is a prime example:

Dialing the leverage up to 18-to-1 on a drawdown is definitely not what I would consider a safe strategy.

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I 100% agree with not putting all your eggs in one basket. However, I find that the average C2 strategy is worse than a traditional index fund etc. If the email was saying diversify into index funds - great!

Many C2 strategies have a propensity to explode. I don’t want people I bring to C2 getting swayed by strategies that are destined to explode due to irrationally large leverage etc.

I do agree that investing in a large set of C2 strategies rather than just one does diversify and reduce the chances of a sudden loss. However, I think it increases the chances of a long slow bleed of high fees and internal blow ups.

I guess it boils down to I don’t trust the average C2 system and wouldn’t want my friend to come to the site then start subscribing to the average C2 system because “diversification is good.” Honestly the email probably is fine, but it still bothers me. :slight_smile:

This screenshot from another thread has some numbers to why I feel this way about the popularity board. It’s a short period that was tested but I would bet longer term tests would show a similar pattern.

Patience is a Virtue max drawdown 61% , yup dont diversify your investments.


I think the average popular strategies in C2 has an expected return much lower than say SPY. So diversifying into the average popular c2 strategies I don’t think is particularly beneficial. If the emails pointed to the oldest strategies or a board that has better performance on average like IRA or old-timers I think that would be much better for users. Those boards had returns roughly 10 times better than popularity board in that period measured.

You are welcome to hate on my strategy but that strategy was in the top 15 before the drawdown. So it would have previously been one of the first strategies an email like this would have pointed to. One of my other strategies (Roth IRA PIAV) is also in the top 15 now. Should it really be recommended to users just because it is young and had a few good months?

Unlike an advisor telling someone to sell part of a large concentrated position in an individual stock and diversifying into an index fund I think the benefit is less clear when pointing to the popularity board.

Of course diversifying into the top 15 strategies or so would dramatically reduce the chance of a full 100% drawdown etc. but as that test linked above I dictated to me it isn’t necessarily a great investment with a 3.9% return vs a 36% of the S&P over that period.

Side note:
Imho a long term return of 30% or so over a decade etc. is highly unlikely to be attainable without large drawdowns like 60%. I do think my strategy is likely to have a higher overall rate of return than the SPY. Overall though I think my personal performance is irrelevant to whether a broad based mix of the popularity board is advantageous to users.

Studies have shown that the average index (or mutual fund) investor underperforms the stock market overall, sometimes by a large margin, even if the trading strategy is sound, Collective2 has absolutely nothing to do with this problem.

You’re right about that.

I do think it would be better for users in the long run though if leaderboards such as IRA and old-timers were promoted over popularity which seems to be a pretty bad board on average comparatively.

Perhaps, but the Collective2 study conducted by the trader you mentioned earlier lasted less than a year.
so it is almost impossible to draw any statistically meaningful conclusion, to say the least.

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Fair but seems to match my experience I’ve seen over a handful of years. I’ll probably try to update that study soon too.

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Please do, and keep us posted, when you have a chance.
Thank you.

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Everyone likes to mention how much the sp500 did over a period of time but they always fail to disclose the enormous drawdown of the spx .


True, but the S&P500 is NOT a system, it has a built-in upside bias (like all the other stock indexes, US or otherwise).

In the long run, it will beat inflation AND put some extra money in your pocket, simple as that.

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The more drawdown an investment vehicle have the less money you can invest in it .

For example unlike bonds you cant really put your whole money in SPX because of its bad drawdowns, maybe 20% or so but not more . Now multiply that with the spx returns you get the real returns. Hardly beating inflation not even close .

Stocks markets dont have an upside bias thats a myth , look at the Nikkei decades and decades without making a new high , same goes with many western stocks indices .

Actually stocks indices are systems , the index is just a portfolio of stocks that meet a certain criteria which keeps changing from time to time . For example the dow jones now is not that same dow jones decades ago .

Is that a fact?

Here is the 100 Year Historical Chart just for the US Dow Jones, inflation adjusted.

You didn’t get my point , these returns are meaningless because you cant invest your whole savings in the Dow . Only a portion of your money will get these returns, which is meh at best .

No, because a system can go to zero (you lose all your trading capital) and even become negative (if you trade on margin), while an index like the S&P 500 cannot possibly experience a 100% drawdown.
This has never happened, no matter what the economy is doing.

You said that the upside bias of the market is a myth, which is not true of course, how you structure your portfolio is irrelevant here.

Who says you have to be long only?

If we go to the grid we can see that half of these Old Timer strategies have a 45% drawdown or more (so far), and some of these drawdowns can exceed 70% , so it is not certain if Old Timers systems are safer bets as far as risk is concerned.

Brings this video to mind

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