Quantzilla.com is a relatively new web site (copyright 2010) that claims to use a 20-dimension quantitative model to recommend individual company stocks to buy (and when to sell those that have been purchased). It costs $99/mo or $49/mo depending on which plan you choose.
Quantzilla has two models, “Pro” which maintains a portfolio of 10 stocks and makes weekly recommendations to buy and sell; and “Basic” which maintains a portfolio of 15 stocks and makes monthly recommendations.
When backtesting their quantitative approach over the period 2001-2010, Quantzilla claims that their Pro model has generated average annual returns north of 60%, and their Basic model has generated average returns north of 20%. Frankly, these returns are truly mind-boggling and defy understanding.
So, I opened a free trial subscription and have decided to do my own evaluation for the education (and perhaps amusement) of my readers. I have devoted $10,000 of my own portfolio to the weekly Quantzilla Pro model, and I will share with you in future blog posts how it goes.
There are three major differences between Pro-Folio and Quantzilla: 1) the investments, 2) the buy/sell discipline, and 3) the portfolio risk profile.
1) The investments. Where Pro-Folio invests in only 5 broad index ETFs (6 ETFs for Pro-Folio PLUS), with each ETF holding the equivalent of many other investments, Quantzilla invests in only a handful of individual company stocks. These stocks may change every week or month. For Pro-Folio, the investment ETFs don’t change, the only thing that changes is whether you are holding each ETF or an equivalent amount of cash. Pro-Folio doesn’t invest in different ETFs over time.
2) The buy/sell discipline. Where the Pro-Folio model buys and sells based on just one indicator, the 10-month simple moving average for each ETF, Quantzilla claims to use a discipline based on 20 different mathematical indicators.
3) The risk profile. One obvious difference between Pro-Folio and Quantzilla is what happens in the bad years. In 2008, the Quantzilla Pro model lost 16% and the Base model lost 36%. In both models, the “max drawdown” (this is the loss from the highest peak to the lowest immediately subsequent trough on the portfolio-value graph) over the 10-year evaluation period is a loss of more than -60%. So while average performance may be off the charts, get ready for a wild ride.
By contrast, Pro-Folio’s max drawdown over the period 1973-2008 was -9.5%. And Pro-Folio’s only losing year was 2008, characterized by a loss less than 1%. As I’ve said before, Pro-Folio is a safe, easy, low-risk way to achieve solid positive returns year after year. It is not designed to take risks and chase high returns. This is a fundamental difference vs. Quantzilla.
That’s all for today – as noted, I’ll be posting occasional updates on my Quantzilla evaluation portfolio, and you all will get to see how it goes.