0.88 Sharpe (last 35 yrs)

A place to talk about speculative investing ideas for the optional Variable Portfolio

Moderator: Global Moderator

User avatar
pugchief
Executive Member
Executive Member
Posts: 3987
Joined: Tue Jun 26, 2012 2:41 pm
Location: suburbs of Chicago, IL

Re: 0.88 Sharpe (last 35 yrs)

Post by pugchief » Tue Feb 10, 2015 3:36 pm

azmat9 wrote: Thanks for the feedback.  I have gone back and corrected the errors.  Final numbers are CAGR = 14.2% and sharpe = 0.91.  All data is from the Simba sheets:

Code: Select all

Year	Annual	Stocks	Bonds	Gold
1973	22.3	-26.7	-1.4	71.2
1974	38.1	-25.4	4.1	72.0
1975	-9.4	57.1	8.9	-27.6
1976	28.3	40.1	16.5	-4.5
1977	1.4	3.8	-1.0	22.2
1978	23.6	10.7	-1.5	36.5
1979	78.9	32.2	-1.5	125.6
1980	23.5	32.2	-4.2	14.7
1981	-15.3	2.2	1.6	-32.9
1982	31.5	23.0	40.0	14.5
1983	12.0	23.5	0.4	-16.6
1984	8.2	1.2	15.2	-19.5
1985	31.2	31.7	30.7	5.3
1986	21.1	17.9	24.2	20.8
1987	9.3	0.0	-3.2	21.7
1988	2.0	19.5	9.2	-15.6
1989	22.0	26.0	17.9	-3.2
1990	-3.0	-11.7	5.8	-1.9
1991	3.5	41.2	17.4	-10.4
1992	11.8	16.1	7.4	-6.1
1993	15.4	14.0	16.8	17.2
1994	-4.7	-2.3	-7.0	-2.6
1995	17.3	34.1	30.1	0.6
1996	8.7	18.7	-1.3	-5.0
1997	21.3	28.7	13.9	-21.7
1998	11.5	9.9	13.1	-1.2
1999	3.2	15.1	-8.7	0.4
2000	18.9	18.1	19.7	-5.8
2001	1.9	-0.5	4.3	0.4
2002	1.0	-14.6	16.7	25.0
2003	18.4	34.1	2.7	19.1
2004	13.7	20.4	7.1	4.5
2005	10.3	13.9	6.6	17.8
2006	7.7	13.6	1.7	22.0
2007	7.6	6.0	9.2	30.6
2008	13.7	-41.8	22.5	5.0
2009	32.1	40.2	-12.1	24.0
2010	27.4	25.5	8.9	29.3
2011	3.7	-2.1	29.3	9.6
2012	5.0	15.8	3.5	6.6
2013	3.3	35.0	-13.0	-28.3
2014	19.4	13.6	25.3	-2.2
Made the table more readable.
"Congressmen should wear uniforms, you know, like NASCAR drivers, so we could identify their corporate sponsors."
Pet Hog
Executive Member
Executive Member
Posts: 218
Joined: Tue May 28, 2013 4:08 pm

Re: 0.88 Sharpe (last 35 yrs)

Post by Pet Hog » Tue Feb 10, 2015 4:12 pm

I have tried modeling this portfolio using numbers from peaktotrough.com.  The numbers don't match the Simba numbers exactly, but it's good to get a second opinion.

Code: Select all

Year	Stock	Bond	Gold	Top 2	Add 10%
1972	18.2	5.6	39.7		
1973	-15.6	-8.0	75.6	30.0	26.2
1974	-27.5	2.1	66.1	34.1	28.0
1975	36.1	7.1	-24.8	-8.9	-4.4
1976	22.5	17.8	-4.1	20.2	17.7
1977	-8.6	-1.9	22.6	-5.3	-2.5
1978	5.0	-1.9	37.0	17.6	16.3
1979	16.7	-2.5	126.6	71.6	64.2
1980	30.7	-6.1	15.2	22.9	20.0
1981	-6.3	-0.6	-32.6	-19.5	-17.6
1982	19.8	47.3	14.9	33.6	31.7
1983	21.3	-2.0	-16.3	9.6	7.0
1984	4.8	16.2	-19.4	10.5	7.5
1985	30.5	36.6	6.0	33.5	30.8
1986	17.7	31.4	19.0	24.6	24.0
1987	4.3	-8.0	24.5	8.3	7.9
1988	15.4	8.7	-15.3	0.1	0.9
1989	30.4	21.4	-2.8	25.9	23.1
1990	-4.1	5.0	-1.5	0.5	0.3
1991	29.5	19.3	-10.1	4.6	7.1
1992	6.8	7.9	-5.7	7.4	6.0
1993	9.3	22.1	17.7	15.7	15.9
1994	0.5	-11.7	-2.2	-6.9	-6.2
1995	36.8	35.8	1.0	18.9	20.6
1996	22.3	-2.8	-4.6	9.7	8.3
1997	32.8	17.4	-21.5	25.1	20.5
1998	28.1	19.3	-0.8	23.7	21.3
1999	20.7	-13.5	1.0	3.6	3.3
2000	-9.4	22.0	-6.1	-7.7	-4.7
2001	-12.2	5.3	1.4	3.4	1.8
2002	-22.5	13.7	24.0	18.8	14.7
2003	28.1	1.4	21.4	11.4	13.1
2004	10.3	8.5	4.7	7.5	7.6
2005	4.3	7.9	17.8	6.1	7.3
2006	15.1	1.3	23.9	12.6	12.9
2007	4.9	11.1	31.6	18.3	17.5
2008	-37.5	41.4	4.0	22.7	16.7
2009	26.3	-28.4	25.9	-1.2	1.5
2010	14.4	9.5	28.5	21.5	20.3
2011	1.4	33.8	10.1	5.8	8.6
2012	15.1	1.6	8.1	4.9	5.9
2013	31.6	-14.7	-28.0	1.8	0.1
2014	13.0	28.7	-1.9	20.8	18.5
Rebalancing with the top two performers (50:50:0) from the previous year gave a CAGR, over the 42 years from 1/1/1973 to 12/31/2014, of 12.3%, with six down years; over the last 10 years it has been 11.6% (one down year).  For fun, I considered a version where 10% of the worst-performing asset was also added (45:45:10) for hedging and to make it more PP-like: here, the CAGRs over 42 years (five negative years) and 10 years (no negative years) have been 11.0 and 10.7%, respectively.

azmat9, it looks to me like you have averaged your annual returns, rather than compounded them.  I think that's why you are getting such a large CAGR of 14.2%.
azmat9
Junior Member
Junior Member
Posts: 21
Joined: Wed Jan 07, 2015 11:56 am

Re: 0.88 Sharpe (last 35 yrs)

Post by azmat9 » Tue Feb 10, 2015 7:22 pm

Thanks.  I did do the average annual return and mistakenly used this for CAGR.  Overall, this seems like a good strategy, but the potential drawdowns in 1981 may be too much to handle. 
D1984
Executive Member
Executive Member
Posts: 441
Joined: Tue Aug 16, 2011 7:23 pm

Re: 0.88 Sharpe (last 35 yrs)

Post by D1984 » Tue Feb 10, 2015 10:03 pm

azmat9,

Perhaps this is a stupid question but I am curious...how did you come up with a 32.1% performance for 2009 for this strategy? If you had picked the best two assets from 2008, you'd have picked gold and LTTs. In 2009, gold returned a little less than 25% IIRC and LTTs (the ETF TLT) returned -21.8%. Averaged out (since this strategy would use 50/50 of each), that comes out to roughly 1.7%. That's nowhere near 32.1%...it's off by more than an order of magnitude.

Am I just missing something really simple?
azmat9
Junior Member
Junior Member
Posts: 21
Joined: Wed Jan 07, 2015 11:56 am

Re: 0.88 Sharpe (last 35 yrs)

Post by azmat9 » Wed Feb 11, 2015 5:48 am

No, you are correct.  Some of my values after 2000 were still off and I think it was happening from the copy and paste into here.  I have manually corrected them as below.  The annual return is at 14.1% w/ the new values -

Code: Select all

Year	Annual	Stocks	Bonds	Gold
1973	22.3	-26.7	-1.4	71.2
1974	38.1	-25.4	4.1	72.0
1975	-9.4	57.1	8.9	-27.6
1976	28.3	40.1	16.5	-4.5
1977	1.4	3.8	-1.0	22.2
1978	23.6	10.7	-1.5	36.5
1979	78.9	32.2	-1.5	125.6
1980	23.5	32.2	-4.2	14.7
1981	-15.3	2.2	1.6	-32.9
1982	31.5	23.0	40.0	14.5
1983	12.0	23.5	0.4	-16.6
1984	8.2	1.2	15.2	-19.5
1985	31.2	31.7	30.7	5.3
1986	21.1	17.9	24.2	20.8
1987	9.3	0.0	-3.2	21.7
1988	2.0	19.5	9.2	-15.6
1989	22.0	26.0	17.9	-3.2
1990	-3.0	-11.7	5.8	-1.9
1991	3.5	41.2	17.4	-10.4
1992	11.8	16.1	7.4	-6.1
1993	15.4	14.0	16.8	17.2
1994	-4.7	-2.3	-7.0	-2.6
1995	17.3	34.1	30.1	0.6
1996	8.7	18.7	-1.3	-5.0
1997	21.3	28.7	13.9	-21.7
1998	11.5	9.9	13.1	-1.2
1999	3.2	15.1	-8.7	0.4
2000	6.1	18.1	19.7	-5.8
2001	1.9	-0.5	4.3	0.4
2002	20.8	-14.6	16.7	25.0
2003	10.9	34.1	2.7	19.1
2004	12.4	20.4	7.1	4.5
2005	10.3	13.9	6.6	17.8
2006	17.8	13.6	1.7	22.0
2007	18.3	6.0	9.2	30.6
2008	13.7	-41.8	22.5	5.0
2009	6.0	40.2	-12.1	24.0
2010	27.4	25.5	8.9	29.3
2011	3.7	-2.1	29.3	9.6
2012	5.0	15.8	3.5	6.6
2013	3.3	35.0	-13.0	-28.3
2014	19.4	13.6	25.3	-2.2
TPG edit: Hey azmat9... try the [nobbc]

Code: Select all

...
[/nobbc] tags. :)[/color]
Last edited by azmat9 on Thu Feb 12, 2015 8:06 am, edited 1 time in total.
barrett
Executive Member
Executive Member
Posts: 1533
Joined: Sat Jan 04, 2014 2:54 pm

Re: 0.88 Sharpe (last 35 yrs)

Post by barrett » Wed Feb 11, 2015 6:44 am

So it looks like azmat's numbers are slowly getting corrected and maybe we can start drawing some basic conclusions. What jumps out for me is that following the "Azmat II" strategy, an investor is largely in step with long-term bull markets. I agree with his original thinking that the first few years should probably not be considered (people for all practical purposes were not free to buy and sell gold prior to 1972, so we don't really know what the free-market starting point might have been). If we start with the 1981 data, it looks like one would have been in stocks 17 of 20 years between 1981 and 2000, and then in gold for 12 of 13 years between 2001 and 2013. Put another way, this strategy would seem to take advantage of long-term momentum while also putting an investor at risk of having 50% of their assets in a winner when it at last comes to a screeching halt (see gold in 2013).

Considering how crucial sequence of returns is for someone close to or in retirement, it's not an old person's game, but might it have merit for someone younger?

A big question for me is whether or not the future can be counted on to produce long-term bull markets. I think not but would be curious to hear what others have to say.
iwealth
Executive Member
Executive Member
Posts: 409
Joined: Thu Apr 26, 2012 5:45 pm

Re: 0.88 Sharpe (last 35 yrs)

Post by iwealth » Wed Feb 11, 2015 9:00 am

So it's a momentum based trading system that features infrequent asset-switching/rebalancing and only holds two assets at a time. These types of trading systems suffer from significant trading start date performance variability. For instance, if you started trading on February 1st using trailing 12-month returns instead of January 1st, the selected assets can be entirely different and this effect would ripple forward throughout the years completely altering the future performance. And since you are holding only two volatile assets for an entire year, that can lead to massive differences. The only way to fix this is to trade more frequently in an attempt to catch the momentum swings as they occur.

The PP suffers from this to some extent but not nearly as much because there's no asset switching. Everyone hits their rebalance bands at different times. Think about a person lucky enough to hit the 35% gold rebalance band at the 2011 peak vs. someone only hitting 34% and riding it down to where it is today. That can cause some fairly significant portfolio performance variability amongst PP holders but it tends to balance out over time because everyone is holding the same assets all of the time.
Last edited by iwealth on Wed Feb 11, 2015 9:02 am, edited 1 time in total.
azmat9
Junior Member
Junior Member
Posts: 21
Joined: Wed Jan 07, 2015 11:56 am

Re: 0.88 Sharpe (last 35 yrs)

Post by azmat9 » Wed Feb 11, 2015 9:18 am

This was a fun exercise to see what the results would be.  The final CAGR is 13.1%.  I believe the sharpe ratio would be slightly lower than that of the HBPP.  I do think this strategy was lucky in certain years, especially in 2008 (if stocks outperforms bonds by a mere 3% in 2007, we have a loss of 18% instead of a gain of 13%).  Like most people, what drew me to the HBPP was the high annual returns coupled with the low drawdowns.  This strategy is nice, but the drawdowns could be high.
User avatar
Kbg
Executive Member
Executive Member
Posts: 1807
Joined: Fri May 23, 2014 4:18 pm

Re: 0.88 Sharpe (last 35 yrs)

Post by Kbg » Wed Feb 11, 2015 8:24 pm

There are variations on this as well. For example, you could have a core PP of say 15 or 20% per asset and then use momentum to over and underweight.
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: 0.88 Sharpe (last 35 yrs)

Post by MachineGhost » Thu Feb 12, 2015 8:10 am

Kbg wrote: There are variations on this as well. For example, you could have a core PP of say 15 or 20% per asset and then use momentum to over and underweight.
Have you made any progress on backtesting this yet?  Still on the backburner over here.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
azmat9
Junior Member
Junior Member
Posts: 21
Joined: Wed Jan 07, 2015 11:56 am

Re: 0.88 Sharpe (last 35 yrs)

Post by azmat9 » Thu Feb 12, 2015 10:35 am

Backtesting using an 80% HBPP and 20% Top 2 strategy yields the following results.  Essentially, a 1% CAGR increase for the HBPP with the same STDEV increase.

1973 14.3
1974 19.5
1975 7.3
1976 17.8
1977 6.0
1978 14.9
1979 49.1
1980 16.0
1981 -5.2
1982 25.7
1983 5.5
1984 3.5
1985 22.3
1986 19.1
1987 6.7
1988 4.1
1989 14.2
1990 -0.4
1991 12.4
1992 7.1
1993 14.0
1994 -3.4
1995 18.8
1996 5.1
1997 9.7
1998 8.1
1999 2.4
2000 9.4
2001 2.8
2002 11.2
2003 13.8
2004 9.1
2005 10.1
2006 11.8
2007 14.4
2008 1.2
2009 11.9
2010 18.7
2011 8.5
2012 6.3
2013 -0.6
2014 11.4
User avatar
Kbg
Executive Member
Executive Member
Posts: 1807
Joined: Fri May 23, 2014 4:18 pm

Re: 0.88 Sharpe (last 35 yrs)

Post by Kbg » Thu Feb 12, 2015 9:32 pm

MachineGhost wrote:
Kbg wrote: There are variations on this as well. For example, you could have a core PP of say 15 or 20% per asset and then use momentum to over and underweight.
Have you made any progress on backtesting this yet?  Still on the backburner over here.
No. Here is something to chew on. http://www.logical-invest.com/will-ever-kill-bug/
Post Reply