The Arbitrageur System

Half Year ReportFive and half years ago when I discover the secret of arbitrage, I decided to first apply it to my retirement income portfolio (Roth IRA) but in a unique way because as a student of the markets and industrial engineer myself. I have a particular way of thinking when it comes to income investing. Today, I am going to share my results with you… holdings and performance for my Roth IRA as June 2015.


“Risk comes from not knowing what you’re doing.” – Warren Buffett [Read More…]

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November ReportOn June 2015, I continue to have open long positions on Apple and Disney.

As you already known I share my results with you mainly for three reasons:

  • The Benefit of Full Disclosure
  • Share the Knowledge
  • Track Performance

 Because “no one should talk about investing if they are not willing to show their actual holdings and performance.”

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Before walking you through the different steps required to build an Income Portfolio based Dividends and Distributions, I would like to talk to you about market expectations. In my opinion, the best asset portfolio in the United States is the one managed by the California Public Employees’ Retirement System (CalPERS), which is the nation’s largest public pension fund. In my opinion, CalPERS is the best and the benchmark for the industry because of its excellent management, fiduciary responsibility, size, time horizon, diversification, and sophistication not to mention the kind of investments that it is able to make and the pricing power it has, which regular investors don’t.

pension-buck-front-large calpers

Rule of 72

Years = (72 / Interest Rate)

To determine at what percentage or in how many years capital will double, you have to bring to mind the rule of 72.  Example: When the interest is 6 percent per year, 72 divided by 6 is 12, and in 12 years the capital will doubled. [Summa de Arithmetica (Venice, 1494. Fol. 181, n. 44) of Luca Pacioli (1445–1514).]

CalPERS, even with its virtues, understands that performance (capital appreciation) over a benchmark of 7.75% is very hard to achieve.

The number 7.75% sound familiar, doesn’t it?


However, the main goal of this post is to teach you how to create an income-producing portfolio by unveiling the biggest secrets on Wall Street.

However, critical to our income producing portfolio is opening a corporate brokerage account. Not any  brokerage account. Your provider must offer you low commission cost, good price execution, and competitive margin rates, to fully exploit the benefits of interest rate arbitrage.

The portfolio should be built by the end of your first corporate year. That’s because we want to be fully invested to start generating income as soon as possible, but not by buying everything at once. When prices are down (with the DJIA down triples digits, 1% or more) is when we buy our income producing assets.

Arguably, the Dow Jones Industrial Average (DJIA) is not a very accurate representation of the overall market performance. Most people prefer the S&P 500, and so do I.

sp500 vs dija

Now is probably a good time to talk about the following things:

Dollar-cost averaging is a very popular investing technique of buying securities in increments and not all at once.Reminiscences of a Stock Operator, by Edwin Lefèvre

There is what is called averaging cost down, when shares are bought while prices go down, and there is also averaging cost up, which is what the real pros do. Real pros buy shares while prices follow a steady trend up.

In our arbitrage portfolio, average cost down is only allowed if the fundamentals of the security you choose to accumulate remain sound.


For a better understanding of this technique, I encourage you to read Reminiscences of a Stock Operator.

Reminiscences of a Stock Operator, by Edwin Lefèvre; recounts the story of Jesse Lauriston Livermore, a famous stock trader on Wall Street. 1923. 

Before buying any type of security, you must understand its real value first. When arbitraging, use the following guidelines and  key metrics. Always do your homework before buying any shares and use limit orders only.

Learn more about it inside… The Arbitrageur Investing System.

arb books

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