SCV+Momemtum Permanent Portfolio

[ochotona]

Ok, so in a strange turn of events I found that adding SCV or other assets only give marginally better results on top of my momentum based modification of the HBPP. 

That would be the same conclusion that Gary Antonacci makes in recommending that one US Equity index fund is as good as his US sector asset rotation scheme... Jack Bogle would agree too, though not with dual momentum.

[ochotona]

I will look into adding what you are asking for into my model, but I am guessing that fixing the gold percentage would be a huge detriment to both returns and drawdowns as MG did some work to show that gold was the best candidate in the HBPP to move from B&H to a momentum approach.

This makes sense. Maybe the point is hold 5% physical next to your bitter religion and guns, and 15% ETF.

[InsuranceGuy]

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[MachineGhost]

So what does this all mean?  Well, it seems you can add 2% in returns or lower drawdowns 6% by using an efficient momentum algorithm.

So which "efficient momentum algorithm" do the above results reflect and at what rebalancing interval?

I agree it is pretty tough to beat the PP with any kind of risk control.  I've long suspected that too much giveback from a peak on stocks is unprotected by bonds or gold.

[InsuranceGuy]

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[InsuranceGuy]

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[MachineGhost]

Could you clarify for us again what each of the portfolios mean exactly? It's been awhile.

In my backtesing to 1996, I did not find it was advantageous to diversify into size, foreign or bonds compared to market timing on the S&P 500 alone. The problem is everything but the S&P 500 seems to have underperformed. Even back to 1958, the model still clears over 11% a year without relying on any relative momentum. This makes it really tough to justify using anything more complex. Antonacci may have been onto something, but it feels like survivorship bias to me.

[InsuranceGuy]

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[MachineGhost]

I'm not sure what the goal of backtesting to 1996 was as that seems a short time period, but I see that if you overweight stocks in the PP to 40/20/20/20 for a fair comparison you would be better off in all S&P500 in the 1990s, but better in S&P+SCV in the 2000s, and it looks like a tie for the 2010s. Going back further in both the 1970s and 1980s it would be better to be in S&P+SCV.

Thanks! I was limited by the start date of a Vanguard fund. But that is good to know that S&P + SCV holds up beyond 1996. However, you need to be clear about what you used for the data. Are you using the junky annual returns from the Simba spreadsheet or are you using French-Fama? All the way or with point-in-time funds including that garbage SCV fund from Vanguard? It makes all the difference for real world implementation going forward.

When the Golden Butterfly (GB) is used with French-Fama all the way, I only get about a .50% outperformance vs PP or 40% S&P 500 GB, so I think neither the small nor the value factors played one iota of a role in the 1970's. I'm not even sure what the point of the GB is now other than as a pointless exercise in data mining using junky data. At least Tyler admits it is more about the robustness of the PP concept than anything else.

What model are you using that gives 11% back to 1958 without momentum? I am not looking at anything before 1969 for lack of gold pricing, but was curious.

It's proprietary. I'm just informing you that it is possible. Think outside the technical analysis jungle.

[InsuranceGuy]

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[MachineGhost]

That's fine, at this point most of what I'm looking at falls in a similar category. What kind of drawdown/UPI are you seeing for that return? Just trying to benchmark with some of my better scenarios.

Off the top of my head, it was 10%-11% CAR with -19% MaxDD.

[InsuranceGuy]

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[MachineGhost]

That's fine, at this point most of what I'm looking at falls in a similar category. What kind of drawdown/UPI are you seeing for that return? Just trying to benchmark with some of my better scenarios.

Off the top of my head, it was 10%-11% CAR with -19% MaxDD.

Thanks, I see about the same thing.

So let us know how much momentum adds to it, if at all. I'm curious.

[InsuranceGuy]

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[MachineGhost]

Thanks, I see about the same thing.

So let us know how much momentum adds to it, if at all. I'm curious.

Roughly an additional 1% return or 3% drawdown reduction.

Hmm, is that gonna make up for the increased transaction costs and taxes? It seems tempting not to bother. I know even a fraction of a percent compounds but there's the emotional issues in having to do additional transanctions beyond just the macro aspect.

[InsuranceGuy]

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[ochotona]

I tried Dual Momentum on the oldest SCHV and MCB mutual funds which date back 20+ years, and it didn't work, but Large Caps worked with DM.

[InsuranceGuy]

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[ochotona]

I will find the symbols I ran through portfoliovisualizer.com

[ochotona]

Here are two small and mid cap mutual funds with a long history.

SWSSX and VIMSX, for example, are two symbols that don't behave the same way in the PortfolioVisualizer Dual Momentum calculator as, say, SWPPX, an SP500 mutual fund with a long history.

I don't know why DM doesn't work as well for these funds.

[InsuranceGuy]

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[InsuranceGuy]

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[ochotona]

Just as an aside, I notice in my 401k and HSA some of the non-US equity fund offerings are closing in on the US funds, on a 1 year lookback momentum basis. Emerging markets has been hot.

[stuper1]

Hey InsuranceGuy,

How often do you have to check in on your portfolio with your new strategy? Is it monthly?

[Kbg]

Well I wanted to do some exhaustive testing before I sharing after the results from my latest scenarios came out so well. I can't find any reason to not believe the results other than that it seems too good to be true. I have tested out of sample using my conceptually simple model and continue to see fantastic results.

My goal was to get roughly double the HBPP returns with HBPP drawdowns while not using leverage as I'm too risk averse to gamble with my money. I'm not going to reveal the exact details but I have laid out the framework in my Equity Returns with 1/2 HBPP MaxDD thread, and as the title of this thread indicates I add a small value twist and a couple of model enhancements.

My full backtest from 1970-2015 gives:

Code: Select all

CAGR      18%
MaxDD    -23%
UPI       3.4
Trades/yr 5.4

*Note trades/yr count both entering a position and exiting a position so really 2.7 round-trip trades which seems reasonable

So basically double the HBPP returns with only slightly higher MaxDD and a high UPI. I am satisfied with the results and will begin trading the strategy this coming month. I'll post performance updates over time for those interested.

OK you caught my attention...proprietary?