UmarA's Halal Funds Algorithm

Salam,

Just sharing one of the algorithms I’ve built, which I’ve backtested back to 1989.

It uses technical analysis to pick from a selection of sharia-compliant assets each month to try to beat the market.

It will pick two assets per month.
(If there were more sharia-compliant funds, I would be able to pick more assets each month, whicih would be my preference.)

I have one for USA funds, and another for UK funds.
For the USA, I will compare performance to
a) a 100% investment in SPUS, and
b) a more conventional 60:40 stocks: bonds portfolio, using SPUS and SPSK.

For the UK, I will compare performance to
a) a 50:50 investment in HSBC Global Equities (DJ Islamic Titans Top 100 index) and ISWD (Global Equities)
b) a more conventional 60:40 stocks:bonds portfolio, using HSBC (30%), ISWD (30%) and Oasis Sukuk (40%)

Obviously, none of this is financial advice. I’m not a financial advisor.

FYI I am currently not investing in this strategy, as my penny stocks have been doing better…I have been sharing some picks here>> @UmarA's Penny Stock Picks

FYI…just because you backtest something to 1989, doesn’t mean it will work in the future. The economic regime (i.e. interest rate direction, inflation etc.) appears like it changing…which I’ve attempted to build into the algorithm.

FYI…this strategy can underperform the market slightly for years, and then something happens and it gets ahead and stays ahead of the market.

Let’s see how we go in sha Allah!

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Picks based on end Jan close price.

UK:
50% Oasis Crescent Property at 8.73
50% Japanese Yen at 0.00647

USA:
50% SPRE at 25.61
50% Cash

Clearly, the models have moved some funds to risk off assets given what happened in Jan. This is an intentional safety measure in case this dip turns into a bear.

Will update iA 1st March…

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Just pointing out that Gold is moving up at the moment.

Gold is known as a “risk-off asset”, and it tends to (not always) correlate with a negative real interest rate environment. So we have the perfect conditions right now.

I don’t own any gold, but I do keep an eye on it and would buy some in my real portfolio if it continued to rise.

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Picks based on close

US: Sell 50% SPRE.
Use the 50% cash position, and combined with the SPRE, put 100% into Gold

Current value, if starting with $100k…
Me $97k.
SPUS $95k
60:40 SPUS:SPSK Stocks:Sukuk (TBC need to work it out)

This is NOT financial advice.

This is just an algorithm I’ve built and backtested back to 1989. It switches between halal funds based on technical analysis to try and beat a 100% equities allocation, and a 60:40 equities:bonds allocation.

It’s easy to build an algorithm which does that in the past…the tricky thing is the future!

Love the idea! Really innovative

Picks based on close

Hold 50% GLD (Gold) and 50% SPRE (Real Estate)

Current value, if starting with $100k…
Me $99.7k.
SPUS $99.4k
60:40 SPUS:SPSK Stocks:Sukuk (TBC)

This is NOT financial advice.

This is just an algorithm I’ve built and backtested back to 1989. It switches between halal funds based on technical analysis to try and beat a 100% equities allocation, and a 60:40 equities:bonds allocation.

It’s easy to build an algorithm which does that in the past…the tricky thing is the future!

Assalam o Alaikum Umar,
Is GLD Halal to own?
Can you break it down, I couldn’t understand it fully . Jak.
Current value, if starting with $100k…
Me $99.7k.
SPUS $99.4k
60:40 SPUS:SPSK Stocks:Sukuk (TBC)

I see GLD as halal based on my brief research, and also this article

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I prefer the tried and tested millennia old method of Value Investing, as taught by the likes of Warren Buffett and Benjamin Graham.

Everyone is of course entitled to their preference.

Just bear in mind there are many many investing approaches (like value investing) that have millennia old track records, this approach being one of them.

The benefit of this approach is that it is entirely based on technical analysis and so is practically implementable by anyone.

This is compared to value investing (or growth investing, or daytrading etc. etc.) which almost 100% of people cannot successfully implement, particularly as you can’t buy Warren Buffett’s fund.

In saying that, no approach is without it’s risks and issues, including this approach. There is no magic bullet that I’m aware of.

Technical analysis is a measure of the crowd sentiments. Kodak was the market leader in photography for around a century. After it started its final decline, it became oversold according to Technical analysis indicators. No technician could fault someone who bought such a company, with magnificent history, when it was oversold, right? The result was disastrous for such a buyer, unfortunately.

In my opinion, blindly going with the crowds or against the crowd isn’t a sure way to success.

But you’re right. Value investing isn’t easy, either. That’s why Warren Buffett advises the masses to buy an index. Assessing individual companies isn’t easy for laypeople.

The bottom line is, there’s no sure and easy way to get rich quickly. If there was, everyone would be rich.

Technical analysis is a method which doesn’t need to be right every single time.

In fact, it can be wrong most of the time and still make money…but that requires knowledge of how to position size, plus various other things. So with Kodak, it would not have been “disastrous for such a buyer” as an experienced trader would have only risked probably 1% of the portfolio on it, therefore the max loss would have been 1%. It’s how they do it.

I know several value investors, who made huge wealths, following the millennia old sound principles of value investing, including Benjamin Graham, Charlie Munger and, of course, Warren Buffett.

Can you name me someone, who made substantial wealth, by purely following technical analysis?

I don’t remember their names as they are not as well known as Warren Buffet and co and I can’t be bothered to check on my kindle, but if you read some the Stock Markets Wizards series of books you will find some names.

Also look up Renaissance fund…they have the best results out there…that’s a technical analysis fund…they smash Buffett and all the other value guys out of the park.

You keep repeating you are not qualified…maybe read these books they will definitely widen your knowledge of financial markets investing. It’s more than just Benjamin Graham and value investing.

You’re right about Renaissance fund, but their techniques are secret. Are individual investors capable of replicating Renaissance fund results? I doubt it.

Regarding Market Wizards, I read that book, but still couldn’t see an actual person, who implemented those techniques and was able to consistently achieve exceptional results.

Besides, trend following techniques involve both going long with the uptrending stocks and shorting the down trending stocks. Now, is shorting stocks permissible? According to AAOIFI standards, it is not. So, will trend following work in one direction only?

Are individual investors capable of copying Buffett?

Am going to end this conversation now as we are going round in circles. You can have the last word after this comment.

You seem to believe that value investing is the only way. That’s fine go for it.

I am trying to explain there are other ways…
eg. quant funds like Renaissance. By the way, there are lots of quant funds. None of them explain - why would they! Can individuals do it? Well, individuals set them up so why not. If you think the people who run them are any smarter than we are, then you’ll find it’s not the case.

Let me just remind you of the question you asked…“Can you name me someone, who made substantial wealth, by purely following technical analysis?” So I said Renaissance. Your response - “but their techniques are secret. Are individual investors capable of replicating Renaissance fund results? I doubt it.”. I answered your question quite clearly…but for some reason I don’t understand you turned your question into a different question which was not the point. So I’m not really sure what your point is here - is it whether technical analysis can beat the market, or is it whether there are techniques individuals can implement. I’m confused so am ending the conversation.

Another example is macro, e.g. Druck, Dalio, Soros. I think all billionaires, therefore probably consistently produced results based on macro investing. But again, you’ll disagree and probably flip the question in another direction.

The facts about all these investing styles in individuals normally fail to implement. Even value investing most individuals fail. It’s not implementable by the average investor.

I don’t think you understand trend following and I’m not going to bother explaining that one, just for you to tell me I’m wrong and flip the question in some other random direction., as it would just be a waste of both of our times.

I wish you well. Peace, love and respect. I’m out.

Yes, I believe some individuals can copy Buffett’s principles. Not the masses though. In my opinion, one needs solid knowledge in accounting, finance and strategic management, to be able to correctly assess a business, both quantitatively and qualitatively.

For the masses, Buffett recommends investing in indexes.

Are you going to risk your hard earned money trying to emulate their hidden secret methods? Personally, I wouldn’t. I aim to catch fish in a barrel, not in an ocean. Of course, fish will not be available in a barrel all the time, so I’m prepared to wait until they are!

Yes, you did. I agree. You win the argument. But what’s the point? Can you implement Renaissance fund’s methods? Are going to risk your hard earned money trying?

Macro is very important of course. The problem is that it is very hard to accurately assess macro factors. They’re highly unpredictable. And has Dalio beat the market, since the inception of his fund till this day? Warren Buffett has.

I understand it very well, brother. They teach that we should buy as many uptrending stocks as possible, each with a tiny proportion of our investable cash (e.g , 1% for each stock). At the same time, we should short as many downtrending stocks as we can. Again with tiny percentage points. Then we should set selling targets and stop loss points for each trade and let it run automatically.

The problem is shorting is haram. Also, I haven’t seen or known anyone, who consistently been successful, following this method.

Anyway, all the best, brother.