SCV+Momemtum Permanent Portfolio

[InsuranceGuy]

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[MachineGhost]

I did UPI = (CAGR - RFR)/UI like a daily Sortino which made sense to me based on what I have read.  It seems like when using nominal returns you should subtract the RFR at a minimum to avoid giving too much influence to older years where inflation was higher.  Thoughts?

It makes sense if you're calculating it during higher inflation years, but since you do it at the end (i.e. right now), current RFR doesn't have that much negative impact.  Perhaps a better way is to subtract the RFR from each year's return before calculating the total CAGR/UI at the end?  That makes more logical sense.  If it were possible to use dynamic interest for UPI in my backtests outside of Excel, I would do it that way.

Top3 Dual Momentum has really got me interested and all just once a year!  What we really need to do next is a robustness check by varying the monthly rebalancing date just to make sure there's no calendar flukes.

I agree on some level, but am apprehensive to be too exhaustive as things tend to settle down around year end when people tax loss harvest and then take a break for Christmas/New Years which I think makes it an attractive time to rebalance.  Spring and Fall months may be a good place to start while the summer months with low trading volume maybe not be ideal test candidates imho.

Apprehensive to be too exhaustive = behavioral bias.

So, I'm concerned it's exploiting the size effect in January which doesn't exist in the other months.  I will do the backtests on all the other months today to settle the issue.  Based on my previous HBPP backtesting, it will hold up because the PP concept is solid, but the downside risk will vary significantly (there was a fight at one time where I was told to prove the -25% MaxDD but it wasn't asked in a nice manner so I ignored the cretin).  The point here is to have realistic expectations so you won't get a) oversurprised b) prematurely think a system is failing when it isn't.

Speaking of which, I am going to see if I can get the OHL into the cleaner daily data for the SPX.  It occured to me that the intraday extremes are still missing so the MaxDD is likely being understated.  The data I sent you is daily because it is a synthesis of available investment vehicles not the SPX, although I think even mutual funds don't have OHL prices.

[InsuranceGuy]

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[stuper1]

IG,

I sent you a PM.

[InsuranceGuy]

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[stuper1]

stuper - since you asked, here is what the PP+SCV looks like using the same data only trading semianually.  For those of you at home, this is still a 12 month lookback just trading 2x/year instead of once.  The patterns and ideal pick are very similar across the two scenarios.  Could be worth it if you like that kind of thing.  Maybe I'll start investing my 1st half of the year 401k money in July instead of just leaving it in cash until the end of the year.



Anyways, back to finding better daily return data...

Looks to me like it's hardly worth the effort to trade semiannually for the TOP2 version, which seems the best.  The CAGRs and UPIs are virtually the same.

[MachineGhost]

Anyways, back to finding better daily return data...

You won't find anything better than what I got, but I don't expect you to believe me.   So check out Quandl and if they don't have it, you likely won't find it via Google.

[InsuranceGuy]

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[MachineGhost]

I probably won't find anything better, but it's interesting trying to piece everything together.  I think at a minimum I can improve on the older TBond returns.  Maybe I'll confirm your 25%DD claim. 

I'll race you on the bonds!  j/k  I'm burned out.  It shouldn't be that hard to use 20-year + RFR + inflation, etc. to impute 30-year yields with a linear regression.  Whoops, I even forgot that was built into Excel!

Of course, all this is going to do is increase the MaxDD even more.   How much more pain can we take?

[InsuranceGuy]

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[stuper1]

Whatever the true MaxDD for the PP, the recovery time is about half what it is for a lot of other portfolios.  It's good to know beforehand that 20 to 25% drawdown is possible.  That way if it happens, you can just clench your fists and hold on, rather than capitulating and locking in losses.

[MachineGhost]

No pain no gain right? 

It probably can't be anymore painful knowing the true MaxDD... I'd rather know the exact diagnostics for an investing portfolio than be surprised down the road.

Much ado about nothing <wipes sweat>.  TBonds v2 knocks .10% off the return and ups the MaxDD by .10%.  R^2 was 99%.

[InsuranceGuy]

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[InsuranceGuy]

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[InsuranceGuy]

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[ochotona]

InsuranceGuy, that is some really nice work. I like how you explore Top1, Top2, Top3.,,, for PP and GB. This is very useful.

One thing that would be useful too is a simulation holding gold fixed, because owners of bullion aren't inclined to trade in and out as with ETFs.

So

1. PP buy and hold
2. Gold + Cash + best of (stocks or long Treasuries)

or,

1. GB buy and hold
2. Gold + best 1, 2, or 3 of (LCB, SCV, LTT, STT)

[InsuranceGuy]

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[InsuranceGuy]

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[InsuranceGuy]

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[MachineGhost]

I'll have to post some more results when I have something more pretty and life slows down a bit.  I've been evaluating some additional assets like REIT and International stocks for "crash" protection and it seems promising that when many assets are performing badly together you should pull money out of your risky (TopX) assets and put it in short term treasury bonds.  Seems to help with drawdowns but I want to pull some more data for other assets to see if I can improve on what I have.

I suspect its a roundabout way to get at market internals that dictate whether investors are "risk on" or "risk off".  Potentially, there's an ETF out there to cover every possible market internal.  What's surprising is how long-term bonds are the worst "risk off" asset.

[stuper1]

InsuranceGuy, can you give us some more details?  It sounds like you are testing a monthly checking strategy.  Is it a 12-month lookback period each month?  You mentioned some consistency tests to avoid whipsawing.  What are those tests?

[InsuranceGuy]

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[stuper1]

So, the buy/sell signal has to repeat itself two months in a row before you act?

[InsuranceGuy]

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[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.