How IDT Software Works

 
investments, investment advisors, portfolios

As a Broker-Dealer 

there are several options for you to use the IDT Software as a profit center. 

One is for the BD to add the option for portfolios to be selected and managed by the BD staff following the IDT recommendations. The BD receives all the platform fee. 

Another option for you as the BD, is to select advisors within the company to be on your managed account platform.  They create and manage portfolios for other company advisors.  They create and place portfolios on your managed account platform and manage them using the recommendations sent to the advisor daily.  You receive the regular platform fee and the advisor receives theirs.  

The last option for you as the BD is to open up the opportunity for all your IARs to use our system.  We will educate your staff until they completely understand the system and are comfortable recommending that your advisors, who manage money, look at the product. Use of the IDT product has the potential to reduce fees to the clients, free up the advisor’s time to find new business and service their existing clients and to produce above average portfolio returns.

The following is a description how the system works in general.  More detailed information can be provided to serious inquiries.

IDT’s Investment Decision Technology is a cutting-edge collection of algorithms that can be considered the beginning stages of artificial intelligence. There have been many naysayers that believe that no technology can manage investment portfolios. With what I understand about the algorithms that hedge funds and other large institutions use, I can understand why someone would conclude that algorithms do not work. This is because these money managers probably use the same pool of investments and the same algorithm. Therefore, when one institution gets a sell or buy signal, all of them get a sell or buy signal. This, in many instances, is what causes the markets to have major market swings. IDT software has taken a different approach.

 Each investment advisory firm using the IDT software will have a unique pool of investments, completely different from anyone else’s. Also, when an advisor receives a buy or sell signal, it does not mean that other advisors are receiving the same buy and sell signal at the same time. Therefore, one advisor can receive a sell signal for an investment asset and will have few, if any, competing advisors receiving that same signal. Thus, the risk of having major losses due to the inability to sell out at an appropriate level is greatly reduced. Likewise, the opportunity to buy an investment at an appropriate level should not be lost due to other advisors using IDT software purchasing that same investment at that same time.

The breakdown of how the investment decision-making technology algorithms work is very complicated. The short version of how the IDT Decision-Making program works is as follows:

  • As the Investment Advisor their most important role in this process is the selection of the assets for their investment pool for the investment decision-making technology algorithms to use. The old adage – garbage in, garbage out – applies here. If their objective in a growth portfolio is to beat the performance of the underlying benchmark, investments (mutual funds, ETFs and/or stocks) must be provided for the algorithms to use other than money markets. Each asset selected should be in the top quartile of its peers in performance. We recommend that the investments selected fill the asset category list provided by Morningstar and choosing as many additional sector categories desired.

  • Determine how many open positions are normally held in a portfolio. Most advisors use between five and ten, but you can use more if you want. The entire investment pool should consist of between five and ten investments for every open position in the portfolio (example, 7open positions times 7 pool assets = 49 assets in the pool. You would send us the symbols by email.

  • The more open positions allowed in each portfolio will produce more transactions over time. On average, with a ten-position limit, there will be one transaction per month per portfolio. Using the IDT program, an advisor should  normally spend around thirty minutes per day managing your clients’ portfolios while eliminating the time needed to perform investment and market research.

  • We will run a three-year performance and benchmark back-test for up to five portfolios. The results will be emailed to the advisor upon completion. 

  • When you subscribe to the service we will build out up to twenty portfolios which is our basic package.

  • The five algorithms that the IDT program uses will begin to run nightly after downloading the closing price and other asset data to use in making the investment selection and sell decisions.

  • The ranking algorithm will rank all the investments in the pool from best to worst based on their performance over three time periods, moving averages, volatility, weightings for each and some proprietary tweaking factors for each portfolio.

  • If there is a position to be filled in a portfolio, the selection algorithm will choose the best investment from the ranking list. However, it will kick out any investment that is classified as violations, such as, category limits met. overbought, performance, volatility or moving average violation. This algorithm also takes into consideration whether the market is overbought or oversold. Just like in the individual investment selection process, we don’t want to buy into an overbought market or sell out in oversold market. We want to buy low and sell high. This algorithm also protects the performance of a portfolio in a bear market yet avoids getting whipsawed in short-term market swings by following the algorithm rules without the human emotions of fear and greed that normally hinders the investment management process.

  • The profit-taking algorithm protects the profits of an investment that may have reached its peak. For instance, if an investment has become overbought based on its RSI level and has turned down and reached a set RSI level, this algorithm will produce a sell signal. The reason an investment is being sold will be displayed in the daily position report.

  • The sell algorithm determines an outright sale. A stop loss point, moving average or performance violation may have been reached. IDT creates its own volatility calculations and our stop loss points are determined by this calculation. It’s not a standard guess.

  • The replacement algorithm kicks in when an investment position is not performing as well as another investment asset in the pool. This algorithm will, not only, determine the selling asset, but also, the identify the investment asset in the pool to be purchased. Again, all the selling reasons will be shown in the daily position report.

  • All the algorithms operate using reasoning rules that we share with our active clients as they occur. The objective of sharing these reasoning rules with you is to provide the advisor the information needed to explain why the algorithms are making the decisions recommended and why the advisor is doing what they are doing.

The algorithms used by the investment decision-making technology program are usually successful at producing investment returns equal to or exceeding the underlying benchmarks of the portfolio for several reasons.

  • It does not try to predict the future

  • It does not rely on past performance

  • It makes its decisions without emotions

  • Decisions are based on what is happening in the now time period relating to each investment and the overall markets.

  • There are predetermined investment rules that dictate, without emotions, what and when to buy along with what and when to sell.

  • The only thing that is lacking to produce the results needed for your advisors is for you to have advisors select a pool of quality assets and send us the symbols.  There is no obligation to try out the program.

You may want to select a list of assets yourself to try it out before the advisors try it.  All you need to get started with your back-testing is sending in your list of symbols to paul@idtsoftware.com.   Contact US: and lets talk

 

Learn more by Contacting Us below