Momentum Butterfly portfolio

[lordmetroid]

After a year of passive investment using the Permanent Portfolio I frew tired of loosing my hard earned money. So in November I switched to an Absolute Momentum Portfolio and begun worrying about my money on a daily basis. When the market tanked at the beginning of the year I sold. The following days I even tried out day trading for a couple of days where I lost 3% of my capital(ouch!). Watching a YouTube videos marathon about trading and investments for several weeks. I have come to a few conclusions.

1. Trends are real
2. Predicting the future of a trend is futile
3. Because of the above truths, active trading is futile
4. Only way to know what asset and when to buy and sell, is by re-balancing

So I am switching to a passive investment strategy for good this time!
I am combining my experience I have acquired over the past few months into what I a Momentum Butterfly Portfolio hybrid. I like Harry Browne's Permanent Portfolio but I like Tyler's Butterfly Portfolio even more as it has a higher CAGR for about an equal amount of volatility. The Butterfly Portfolio uses Large Cap Blend and Small Cap Value. However, I suspect this may simply be a back-testing bias and no one know what stocks the future will favor so I am combining the Momentum Theory with the cushioning of the Butterfly Portfolio asset allocation.

• 20% in the 1year% top ranked index fund
• 20% in the 1year% top ranked stock fund overall
• 20% in the 1year% top ranked long bond fund
• 20% in the 1year% top ranked short bond fund
• 20% Gold

Currently my allocation is following:

• 20% Japanese index fund
• 20% New technology sector fund
• 20% USA long Bonds
• 20% Corporate High Yield bonds
• 20% Gold in USD

[mukramesh]

After a year of passive investment using the Permanent Portfolio I frew tired of loosing my hard earned money. So in November I switched to an Absolute Momentum Portfolio and begun worrying about my money on a daily basis. When the market tanked at the beginning of the year I sold. The following days I even tried out day trading for a couple of days where I lost 3% of my capital(ouch!).

Dude, every time you post I think to myself, "This guy is going to lose a lot of money." I really think you are not cut out for any type of active investing; your posts are the epitome of 'buy high and sell low.' You should just stick your money in the Permanent Portfolio and just forget about investing.

[Dieter]

After a year of passive investment using the Permanent Portfolio I frew tired of loosing my hard earned money. So in November I switched to an Absolute Momentum Portfolio and begun worrying about my money on a daily basis. When the market tanked at the beginning of the year I sold. The following days I even tried out day trading for a couple of days where I lost 3% of my capital(ouch!).

Dude, every time you post I think to myself, "This guy is going to lose a lot of money." I really think you are not cut out for any type of active investing; your posts are the epitome of 'buy high and sell low.' You should just stick your money in the Permanent Portfolio and just forget about investing.

+1

Although I think a conservative single fund solution - for retirement accounts (has TIPS), Target Retirement Income.

30% stock

Hides the volatility of the individual components

[lordmetroid]

After a year of passive investment using the Permanent Portfolio I frew tired of loosing my hard earned money. So in November I switched to an Absolute Momentum Portfolio and begun worrying about my money on a daily basis. When the market tanked at the beginning of the year I sold. The following days I even tried out day trading for a couple of days where I lost 3% of my capital(ouch!).

Dude, every time you post I think to myself, "This guy is going to lose a lot of money." I really think you are not cut out for any type of active investing; your posts are the epitome of 'buy high and sell low.' You should just stick your money in the Permanent Portfolio and just forget about investing.

You are very correct. However, so far I have only lost 1% in total since I started investing in November of 2014.

I can't really do a Permanent Portfolio though. The longest bonds in Sweden is a mere 10 years, Gold is always bought in USD on the world market, though I found an ETF that buys Gold using JPY (ticker symbol GYEN) and I can't stop fiddling with my investments so I need to find something that is suitable to my personality.

[ochotona]

Currently my allocation is following:

• 20% Japanese index fund
• 20% New technology sector fund
• 20% USA long Bonds
• 20% Corporate High Yield bonds
• 20% Gold in USD

I think this is a terribly bad idea. #1 is I don't do single countries or single regions, except for my own (USA). Anything outside of my country I was diversified as widely as possible. #2 is high-yields are getting murdered. #3 is I don't know about high technology as a sector, but the larger question is why do you want to be in stocks at all at this time? How can you call yourself a momentum investor and be playing with stocks? There were very clear momentum signals on 31/12/2015 to get out of the stock market. Did you not get the message?

The gold is good. USA long bonds are good. Cash is good. Everything else is terrible right now. Please don't do it.

[mukramesh]

You are very correct.

Thanks for not taking offense at my comment

Some other thoughts:
1. Can you implement a US Permanent Portfolio from Sweden? You already hold Gold and US Long Bonds so you are only missing the US Stocks portion; maybe you can find an appropriate index fund. User LC475 believes the US PP is the only 'true' Permanent Portfolio due to the US holding world reserve currency status. Holding cash in your own country's money is probably fine.

2. Consider sticking 90% in a 'safe' portfolio and treat the other 10% as your 'play money' (a.k.a. Variable Portfolio). This play money should never be refilled by taking money from your safe portfolio. Hopefully this will quench your desire to fiddle and you never know, you could strike it rich with this portion.

[dualstow]

After a year of passive investment using the Permanent Portfolio I frew tired of loosing my hard earned money.
~

Dude, every time you post I think to myself, "This guy is going to lose a lot of money."
`

[lordmetroid]

I think this is a terribly bad idea. #1 is I don't do single countries or single regions, except for my own (USA). Anything outside of my country I was diversified as widely as possible. #2 is high-yields are getting murdered. #3 is I don't know about high technology as a sector, but the larger question is why do you want to be in stocks at all at this time? How can you call yourself a momentum investor and be playing with stocks? There were very clear momentum signals on 31/12/2015 to get out of the stock market. Did you not get the message?

The gold is good. USA long bonds are good. Cash is good. Everything else is terrible right now. Please don't do it.

The Japanese index fund is at +5,29% over the last 12 month.
The New Technology Sector fund is +33,27% over the last 12 month.
There is hence no signal yet to switch any of these to cash.

I concur, that high yield corporate bonds has been taking a real pounding and fallen -1% since the middle of October but there is only 0,5% fall left before a switch to a more stable bond fund which has been flat-lining since August so I will take my chances and go with the high yield fund until I get the signal to switch.

I know the stock market has been falling since the start of 2016, however it is impossible to know what will happen in the future. I have no idea if it will fall any further. Passive investing and re-balancing would be the only way to know what to buy and what to sell.

Some other thoughts:
1. Can you implement a US Permanent Portfolio from Sweden? You already hold Gold and US Long Bonds so you are only missing the US Stocks portion; maybe you can find an appropriate index fund. User LC475 believes the US PP is the only 'true' Permanent Portfolio due to the US holding world reserve currency status. Holding cash in your own country's money is probably fine.

2. Consider sticking 90% in a 'safe' portfolio and treat the other 10% as your 'play money' (a.k.a. Variable Portfolio). This play money should never be refilled by taking money from your safe portfolio. Hopefully this will quench your desire to fiddle and you never know, you could strike it rich with this portion.

I do not really want to have a US Permanent Portfolio as I live in Sweden. I am really uncomfortable holding gold and long bonds in another currency. Take a look at this example, the currency risk is huge!
IAU*USDSEK(green) compared to IAU(red)
TLT*USDSEK(green) compared to TLT(red)
However the longest duration of Swedish bonds are 10 years and gold is going to be USD no matter what, so I do not know what to do.


That is why I went with the Absolute Momentum Strategy to begin with. I got a lot of Stock Mutual Funds and Bond Mutual Funds available. I have been all-in invested in the mutual fund which is top ranked 12 month % yield as the strategy dictates. Which is the New Technology Sector Stock Fund which at the moment has at least a 30% fall before there is a signal to switch to a bond fund.

I didn't want to loose any money so I sold when the moving averages signaled a down-trend. Regrettably, I have end up as an active trader, something I definitely do not want to be doing. No one knows when we have reached the bottom but I am of forced to enter when the moving averages signals an up-trend yet again. Understandingly, I am very nervous to go all-in again. I will risk getting whipsawed along the way to the bottom if I do so but there is no way to know how long an up-trend will last.I suppose getting whip-sawed on the way to the bottom is better than getting decimated.

[ochotona]

Admittedly, we are probably looking at a different investment universe.

The Japanese index fund is at +5,29% over the last 12 month.
The New Technology Sector fund is +33,27% over the last 12 month.

Just make sure your performance figures are current, not back-dated to 31/122015. Nothing on my screen looks any good.

[lordmetroid]

Admittedly, we are probably looking at a different investment universe.

The Japanese index fund is at +5,29% over the last 12 month.
The New Technology Sector fund is +33,27% over the last 12 month.

Just make sure your performance figures are current, not back-dated to 31/122015. Nothing on my screen looks any good.

The figures are correct, it is over the last 12 month, id est since 2015-01-19. However, I really do concur with your advice, it feels really insane to buy any stocks now. The OMXS30 and S&P500 have been really divergent as of lately, they used to follow each other almost to the point but at the beginning of 2015 they greatly diverged.

However, no one knows the future, I got a green signal on EMA ( 3 ) today, now I will wait for SMA ( 8 ) to turn green as well. I might get whipsawed down to the bottom but at least I will not be decimated. No use worrying about it. I simply will have to take the risk.

[ochotona]

You are using 3 - 8 period moving averages? What are your periods, days? If you're doing that kind of short-term trading, it is going to end in more tears. You'll come back here begging to get into a lazy portfolio, but then you will refuse it.

I am not very excited about these.

[lordmetroid]

You are using 3 - 8 period moving averages? What are your periods, days? If you're doing that kind of short-term trading, it is going to end in more tears. You'll come back here begging to get into a lazy portfolio, but then you will refuse it.

I am not very excited about these.

I use every mutual fund available at my broker, not just index funds. The three day moving average do eliminate a lot of noise and the 8 day moving average catches the short term trend. Of course I keep track of the 50 day and 200 day moving average as well to show the long term trends.

I really do concur, the sentiment looks grimdark. This presentation of the Swedish index shows a shooting star candlestick in a yearly resolution. Which would suggest that we may have a long way to go before we reach the bottom.

I am going to wait a while with my investments in stocks and short bonds. I got 20% invested in Gold and TLT each and 60% in liquid cash. Hopefully I will gain a few points but I am still betting and trading rather than passively investing.

[ochotona]

If you use every available fund from your broker, you are at risk of buying into small funds, maybe lightly traded, with poor liquidity where it's difficult to sell in case of emergency, or the bid/ask spread is high, or the fees are high. The list I presented isn't as exciting as the brightest stars in the fund universe, but they have been screened for overall quality. The more a fund resembles individual stocks instead of sectors, the worse momentum works, so I have read.

[koekebakker]

I am really uncomfortable holding gold and long bonds in another currency.

As far as I know gold is gold, doesn't matter what currency the etf uses. The returns are the same when converted to your own currency. Holding IAU doesn't expose you to any currency risk.

I agree with the others, stick with something simple, like a desert portfolio with swedish fixed income and global stocks. Keep a small play money account on the side.

[mukramesh]

I am really uncomfortable holding gold and long bonds in another currency.

As far as I know gold is gold, doesn't matter what currency the etf uses. The returns are the same when converted to your own currency. Holding IAU doesn't expose you to any currency risk.

I agree with the others, stick with something simple, like a desert portfolio with swedish fixed income and global stocks. Keep a small play money account on the side.

This honestly might be the best you can do in your situation, and it's really not bad at all. I am not sure why your number one option is the Permanent Portfolio but because you cannot do it perfectly, your alternative is a momentum based active strategy. Have you considered creating your own static asset allocation with the 'spirit' of the PP (stocks, bonds, gold, cash)?

[lordmetroid]

I am really uncomfortable holding gold and long bonds in another currency.

As far as I know gold is gold, doesn't matter what currency the etf uses. The returns are the same when converted to your own currency. Holding IAU doesn't expose you to any currency risk.

I agree with the others, stick with something simple, like a desert portfolio with swedish fixed income and global stocks. Keep a small play money account on the side.

This honestly might be the best you can do in your situation, and it's really not bad at all. I am not sure why your number one option is the Permanent Portfolio but because you cannot do it perfectly, your alternative is a momentum based active strategy. Have you considered creating your own static asset allocation with the 'spirit' of the PP (stocks, bonds, gold, cash)?

I am compiling data for backtesting a pure Dual momentum investment-strategy right now. Sure the ride may be more bumpy than the steady ride of a Permanent Portfolio but I can not be allowed to be discouraged by a bumpy road.

[mukramesh]

The main draw of the PP is it's incredibly low volatility. This psychological benefit helps us stick with it (not change strategies) when it under-performs because we know it provides safety under different economic conditions.

You've already switched portfolios multiple times so I am wondering if you will have the same problem again when your momentum portfolio begins to under-perform. The 'bumpy' ride is actually a huge risk because it will cause you to sell low when you start believing your strategy is not working.

[ochotona]

Lord you completely misunderstand Dual Momentum. That is all I have to say. The absolute momentum makes it loss limited and low volatilty

[mukramesh]

Under-performance can be either due to larger than average losses or lower than average gains. Using absolute momentum could give rise to a situation where lordmetroid is out of an asset that is gaining due to not hitting a certain trigger, correct?

Investing is totally personal and while you might be okay with using an active strategy or other PP tweaks, based on lordmetroid's post history, I have doubts that he would be able to stick with such a strategy long term - and he even sorta agreed in his reply to my first post in this topic.

[ochotona]

I am compiling data for backtesting a pure Dual momentum investment-strategy right now. Sure the ride may be more bumpy than the steady ride of a Permanent Portfolio but I can not be allowed to be discouraged by a bumpy road.

HERE IS YOUR BACKTEST, MERRY CHRISTMAS!

[MachineGhost]

I can't really do a Permanent Portfolio though. The longest bonds in Sweden is a mere 10 years, Gold is always bought in USD on the world market, though I found an ETF that buys Gold using JPY (ticker symbol GYEN) and I can't stop fiddling with my investments so I need to find something that is suitable to my personality.

Yes you can.  Just adjust the bond allocation upwards so the volatility matches the stocks and gold.

[MachineGhost]

Lord you completely misunderstand Dual Momentum. That is all I have to say. The absolute momentum makes it loss limited and low volatilty

The price you pay is whipsawing up to 9 times in a row.

[ochotona]

I think I have found a way to get rid of some whipsaws. Often the buy/sell emerges due to an anomaly at the beginning of the look-back period... maybe the security hit an air pocket a year ago, 6 months ago, whatever.

I am going to smooth through the time series. But my smoother will be double-sided... it will use values in the future and past relative to the past date. It's not predictive... it's purely descriptive.

[ochotona]

If you don't do a smoothing operation on the time period prior reference date, you're going to get the crap beat out of you when we start doing year-ago compares between late August 2015 and 2016 ! Your buy-sell signals will go NUTS.

If I do a linear fit on +/- two months from the reference date, I get reasonable de-noised results.