How You Can Create a High-Performance Portfolio on eToro Using piScreener
December 26, 2023
Thanks to the Popular Investor (PI) programme by eToro, anyone can now replicate the performance of another trader. However, it can be hard to find the best PI(s) to copy due to the large number of them to choose from. That is where piScreener comes in handy, by making it possible to perform an in-depth analysis of a PI’s portfolio.
It’s important to note that piScreener is a third-party tool separate from eToro. This means you can’t directly copy PIs from piScreener to your eToro account. Instead, the service provides you with deeper insights you can then use to set up your portfolio on eToro, most of which you won’t find on the eToro platform.
eToro’s built-in features will allow you to get started with the basics of selecting a PI as we’re going to see in the next section. Then, piScreener will show you more details about the PI’s portfolio and help you compare one with another so that you get a clearer picture of its performance.
Step 1: Set Your Investment Goals
Every investment journey begins by clearly defining your goals, which will guide you on all future decisions. Only you get to set your goals, but there are a few questions you must ask yourself to help you determine what you should choose:
1. What’s Your Reason for Investing?
Your primary reason for investing influences a lot of your decisions. For instance, if you want to make large profits, then assets such as cryptocurrencies would be the best choice. But if the goal is to save for long-term growth, stocks would be ideal as popular investors like Warren Buffett have proven.
2. How Much Risk Are You Willing to Take?
All investments involve risk, but some are riskier than others. Typically, the greater the potential returns, the greater the risk you have to take. Cryptos, for example, can generate triple-digit returns but also wipe out your entire capital in one day. So, if you opt for more risk, make sure to only use capital you’re willing to lose.
On eToro, you can filter PIs by the asset class they typically invest in. As you can see from the screenshot above, higher returns are also accompanied by a higher risk score as we have discussed.
3. For How Long Do You Want to Invest?
When investing for the long-term, you generally want to avoid any high-risk investments such as cryptos because the aim would be to secure your investment.
However, you have some freedom to take bigger risks during the early months/years of a long-term investment plan to increase the compounded returns in the long run.
With eToro, you can make these adjustments and find the best PI by investment duration too along with other metrics.
Step 2: Find Popular Investors Who Fit Your Goals
As a registered eToro member, you can browse the platform to find the PIs you need to achieve your investment goals. Using the above criteria, you should use the various filters provided by eToro to narrow your list of potential PIs before proceeding to piScreener for further analysis of their portfolios. While doing this, here are a few guidelines to remember:
1. Do Not Be Blinded By Big Numbers
Huge returns and a large following are very enticing. After all, who doesn’t want to make the most money or follow the most popular PI? However, this is a very short-sighted approach that doesn’t capture the nuance required when finding an ideal PI.
Take this snapshot of the top gainers over the past 12 months until the date of publication. These are very impressive numbers, but upon closer inspection of one of the PIs, you will notice that only about 50% of their trades were profitable while the drawdown was quite significant.
Thus, the huge gains may only be temporary and you’re going to suffer long drawdown periods when copying this particular PI.
2. Don’t Put Your Eggs In One Basket
A successful investment strategy requires investment in diverse asset classes. This way, even if one market sector fails, your portfolio does not suffer a catastrophic drop in value.
By looking at this PI’s portfolio, it’s clear that most of the capital is invested in a single asset class – stocks. Although it has been generating high returns, there is going to be a dramatic drop when the equities market falls for one reason or another.
How to Make Use of piScreener
By following the above guidelines, you should have a shortlist of potential PIs to copy from. eToro doesn’t allow you to compare these PIs head-to-head, but you can do so on piScreener by following these steps:
Step 1: Create a Portfolio on piScreener
Once you are registered on piScreener, you should create a portfolio consisting of the PI(s) you want to analyse. From the piScreener app page, go to Manage portfolio > Create new portfolio and type in the portfolio name. Then click on Insert and type in the eToro username of the PI, a hypothetical amount to allocate and set a timeframe. Complete this step by clicking on Save Portfolio.
Step 2: Analyse the Portfolio
Go back to the Simulate your PI portfolio tab and load the created portfolio in the first section of the page. When you click on update, piScreener will compare the portfolio with the default benchmark (S&P 500), after which you will be able to see how well it performed in a chart.
Further along the page, you will find more details about the portfolio’s performance including standard deviation, Sharpe ratio, alpha, and beta.
Step 3: Compare Portfolios
Begin by creating another portfolio from the Manage portfolios including the other PI you want to compare with the first. Then head back to Simulate your PI portfolio and select the second one as the benchmark.
When you click on Update, the two portfolios will be compared against each other and you will be able to see their performances.
You will note that the benchmark produced far greater returns compared to the other one. Nevertheless, the latter was more consistent over a longer time period. With this information, you should be able to decide which one is better for you based on the new information glimpsed on the piScreener app.
piScreener is free to use, meaning that you can keep simulating and comparing different portfolios multiple times until you find the best one for you. Furthermore, you can include several PIs in a single portfolio to find out how such combinations would perform against your benchmark.
This is the beauty of piScreener and how you can use it to create not just a high-performance portfolio, but also one that is diversified and fits with your investment goals.