Tactical Asset Allocation + HBPP an intriguing combo

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

Moderator: Global Moderator

HappyMan
Senior Member
Senior Member
Posts: 132
Joined: Thu Nov 09, 2017 7:01 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Sat Jan 06, 2018 6:56 am

ochotona wrote:They say it was due to too many round trips in and out of mutual funds. I did trip in and out of the SP500 fund and the international fund, and I have bought and sold in order to rebalance, so that's probably how they're accounting for it.

But it's really not a big deal, the ETFs are fine.
I wonder if there is a secret rule for the number of round trips for index funds at Schwab. I count three in your story.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sat Jan 06, 2018 6:44 pm

I'm sure I also did smaller rebalancing trades over the last few months; not complete round-trips, but maybe they put miles on the odometer. Not to worry, it's not a big huge deal.
HappyMan
Senior Member
Senior Member
Posts: 132
Joined: Thu Nov 09, 2017 7:01 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Sat Jan 13, 2018 5:13 am

The market is bullish, and some expect more from stocks in 2018 than in 2017. I am curious how GEM will behave on bearish market?

Also, IIRC, the maximum loss from GEM was about 20%, as opposed to 40% from S&P. When is that possible?
Mr Vacuum
Executive Member
Executive Member
Posts: 164
Joined: Tue Jan 19, 2016 11:51 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by Mr Vacuum » Sat Jan 13, 2018 12:51 pm

It depends on the specifics of the bear and there is no one answer. Is there a long discernible downward trend to rise or is the market jumping up and down causing whipsaws in and out? Are the US and ex-US markets facing the same stress or is one stronger than the other? I’m sure there are other factors affecting the answer.

Check out the performance tab at optimalmomentum.com and play with the market timing calculators at portfoliovisualizer.com to get an idea how it has responded in the past.

2009 is a textbook case for your second question. Looking at the graph you can see GEM got out after a few months of downturn while the market kept dropping a few more months. Other times there is no clear trend and GEM can whipsaw in and out and miss upturns.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sat Jan 13, 2018 4:46 pm

If we have a slow, gradual, rounded stock market top, the GEM will get out with a smaller drawdown, because 1-year look-back momentum is a slow-acting signal. If it's like Black Monday 1987, well, we won't get out before damage is done. It just depends on the actual trajectory.

Given my age (8 years to retirement) and high stock market valuations measured by CAPE & price-to-sales, high levels of leverage, high sentiment, and a very long time with no corrections, and more than a year with no down months, I am sitting close to the exits... 50% GEM and 50% cash, bonds, and gold. I am not a doomer, I still applaud when we have a great day / week / month in the markets. But I also know it's going to end.

I chose 50% GEM because I asked myself two questions:

1. "What is the maximum stock market allocation I'd want if as in 1987 there was no sell signal and we just face-planted"? What is the maximum drawdown I'd tolerate and not be kicking myself later?
2. "What if the sky isn't falling, and Chicken Little is wrong, what is the minimum stock market investment I'd tolerate? Any lower and I'd be kicking myself years later for missing out?"

50% fits for me. It also fits with my Mom's adherence to a 1/N allocation, in this case 1/2 allocation. When she was a young faculty member at a University, she had to choose between TIAA-CREF stock and bond options. Being a physician, not a stock analyst, she chose 1/2 of each. She retired to Hawaii.

But if we do have a gully-washing bear market, like back to S&P500 1000-1400, I'm 100% GEM or as close as I can get when the buy signal comes.
User avatar
InsuranceGuy
Executive Member
Executive Member
Posts: 425
Joined: Sun Mar 29, 2015 1:44 pm

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by InsuranceGuy » Sat Jan 13, 2018 11:50 pm

[deleted]
Last edited by InsuranceGuy on Mon Mar 08, 2021 9:08 pm, edited 1 time in total.
Mr Vacuum
Executive Member
Executive Member
Posts: 164
Joined: Tue Jan 19, 2016 11:51 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by Mr Vacuum » Wed Jan 17, 2018 8:41 pm

InsuranceGuy wrote:Ocho -

You could always measure the daily volatility for the prior month and if it is over some target threshold (maybe 20% annualized) scale your GEM holdings down based on that. That could possibly prevent losing too much during a flash 1987 event.

IG
Thanks for the suggestion, IG. When ocho mentioned adjusting his stocks percentage after the bubble pops, I thought it was intriguing but there would have to be a rule to prevent intuition and bad timing causing big trouble. I tested scaling the stocks portion of a basic HBPP-GEM core-satellite portfolio using PE and CAPE, but those made no discernible difference in the long term returns in my tests.

Various parameters of volatility had the same non effect compared to a static allocation set to the average allocation of the dynamic one. In 1987 it did get out in November and avoid losing that month, but it stayed out a couple more months and left good rebound returns on the table. The best result I came up with added only 30 basis points CAGR while holding volatility and max drawdown about the same (except when I accidentally ran the scaling with perfect foresight using the same month's volatility and returns--then it added maybe 1% CAGR O0 ) . GEM seems to do just as well on its own with less trading if you just crank up a fixed allocation and let it run.

Maybe it needs the full magic of your momentum/value/min-vol portfolio to get bonds and gold out of the way most of the time. I still can't believe the incredible backtest result you posted generated no discussion.
HappyMan
Senior Member
Senior Member
Posts: 132
Joined: Thu Nov 09, 2017 7:01 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Thu Jan 18, 2018 12:00 am

Mr Vacuum wrote:2009 is a textbook case for your second question. Looking at the graph you can see GEM got out after a few months of downturn while the market kept dropping a few more months. Other times there is no clear trend and GEM can whipsaw in and out and miss upturns.
Mr Vacuum wrote:GEM seems to do just as well on its own with less trading if you just crank up a fixed allocation and let it run.
Sounds like GEM does get out, thought a little late, but there is no real alternative. Did I get this right?
Mr Vacuum wrote:Check out the performance tab at optimalmomentum.com and play with the market timing calculators at portfoliovisualizer.com to get an idea how it has responded in the past.
How come the "monthly" do not add up to the "annual" there?
User avatar
InsuranceGuy
Executive Member
Executive Member
Posts: 425
Joined: Sun Mar 29, 2015 1:44 pm

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by InsuranceGuy » Fri Jan 19, 2018 12:39 am

[deleted]
Last edited by InsuranceGuy on Mon Mar 08, 2021 9:07 pm, edited 1 time in total.
Mr Vacuum
Executive Member
Executive Member
Posts: 164
Joined: Tue Jan 19, 2016 11:51 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by Mr Vacuum » Mon Jan 22, 2018 5:01 pm

HappyMan wrote:
Mr Vacuum wrote:2009 is a textbook case for your second question. Looking at the graph you can see GEM got out after a few months of downturn while the market kept dropping a few more months. Other times there is no clear trend and GEM can whipsaw in and out and miss upturns.
Mr Vacuum wrote:GEM seems to do just as well on its own with less trading if you just crank up a fixed allocation and let it run.
Sounds like GEM does get out, thought a little late, but there is no real alternative. Did I get this right?
That's how I read it. The idea is it gets out a little late and it gets back in a little late, but on the whole saves about half the drawdown vs. buy and hold in corrections that exhibit sufficient trend to trip the triggers.
Mr Vacuum wrote:Check out the performance tab at optimalmomentum.com and play with the market timing calculators at portfoliovisualizer.com to get an idea how it has responded in the past.
How come the "monthly" do not add up to the "annual" there?
I can't say without reviewing the specific results. The monthly results should match the annual results when compounded, not added. If you already compounded and they still don't match, that would merit further study.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Mon Jan 22, 2018 7:21 pm

Mr Vacuum wrote:Maybe it needs the full magic of your momentum/value/min-vol portfolio to get bonds and gold out of the way most of the time. I still can't believe the incredible backtest result you posted generated no discussion.
Is the monthly asset allocation from this method straightforward to compute? I'd be willing to take a look at it. But what I don't want to do is get myself into a lot of trading. I like that GEM has been steady since June 2017, and no change in sight.
HappyMan
Senior Member
Senior Member
Posts: 132
Joined: Thu Nov 09, 2017 7:01 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Tue Jan 23, 2018 6:42 am

ochotona wrote: Is the monthly asset allocation from this method straightforward to compute? I'd be willing to take a look at it. But what I don't want to do is get myself into a lot of trading. I like that GEM has been steady since June 2017, and no change in sight.
No kidding. I have to mentally stop myself from making any more moves and let GEM to carry itself. My only concern is, how long it will grow.
User avatar
InsuranceGuy
Executive Member
Executive Member
Posts: 425
Joined: Sun Mar 29, 2015 1:44 pm

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by InsuranceGuy » Wed Jan 24, 2018 12:57 am

[deleted]
Last edited by InsuranceGuy on Mon Mar 08, 2021 9:07 pm, edited 1 time in total.
Mr Vacuum
Executive Member
Executive Member
Posts: 164
Joined: Tue Jan 19, 2016 11:51 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by Mr Vacuum » Wed Jan 24, 2018 11:37 am

InsuranceGuy wrote:It's pretty straightforward, just need the last 10 months and the last 20 trading days of returns for each asset class.

It does trade a little bit more than GEM, but not a terrible amount, roughly 3x per year. On the other hand you are in 2 asset classes nearly all the time so there is less risk of big dip with all your eggs are in 1 asset class for GEM.
Incidentally roughly 3 trades/year is about what you would get running GEM for the stocks and trend following bonds and gold independently. My test shows right around 1.25 trades/year for each, so closer to 4 for the total.
Mr Vacuum
Executive Member
Executive Member
Posts: 164
Joined: Tue Jan 19, 2016 11:51 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by Mr Vacuum » Wed Jan 24, 2018 11:46 am

I love the PP, but for the investor who does not prefer to set it and forget it until each January, I think GEM makes a great pair with gold for dealing with the ebbs and flows of the dollar. Are we about to see a several year run of ex-US stocks outperforming? Who knows. GEM doesn't care.

This article points out some of the questions in the current economic and political climate. https://www.cbsnews.com/news/why-trumpi ... he-dollar/
For one, a weaker dollar makes U.S. Treasury bonds less attractive to foreign buyers, providing an upward lift to yields and thus pushing borrowing costs higher for consumers. And two, a weaker dollar will boost inflation pressures by raising the cost of imports and commodities like crude oil, which is traded globally in U.S. dollars (chart above).

The latter, when mixed with the inflationary pressures of a rapidly tightening labor market, could push the Federal Reserve into a much more hawkish monetary policy stance in 2018. That would surely prick the sentiment bubble among the cheap-money junkies who call themselves investors these days.
After Antonacci said on his blog that the performance of US vs. ex-US stocks is driven primarily by dollar flows, I tested it with the ACWI ex-US/S&P 500 ratio flipped, which revealed a symmetry that still takes me aback. RTM is from Bogle's tell-tale chart/reversion to the mean: ACWI ex-US cumulative returns divided by S&P 500 cumulative returns.
Image
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Wed Jan 24, 2018 1:21 pm

That relation of the dollar index to US versus ex-US stock returns is remarkable.
HappyMan
Senior Member
Senior Member
Posts: 132
Joined: Thu Nov 09, 2017 7:01 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Thu Jan 25, 2018 12:45 am

Mr Vacuum wrote: After Antonacci said on his blog that the performance of US vs. ex-US stocks is driven primarily by dollar flows, I tested it with the ACWI ex-US/S&P 500 ratio flipped, which revealed a symmetry that still takes me aback. RTM is from Bogle's tell-tale chart/reversion to the mean: ACWI ex-US cumulative returns divided by S&P 500 cumulative returns.
Image
Thank you for pointing it out. Your graph illustrates much better what Gary Antonacci is saying on his blog,

"When the U.S. dollar is strong, U.S. stocks tend to outperform non-U.S. stocks. Non-U.S. stocks outperform when the U.S. dollar is weak. Our simple relative momentum strategy takes advantage of global macro-economic trends. Just as it does not make sense to be simultaneously long and short the U.S. dollar, so it not the best idea to be long U.S and non-U.S. stocks at the same time. It would be better to own U.S. stocks when the U.S. dollar is strong, and to own non-U.S. stocks when the U.S. dollar is weak. Relative momentum automatically puts us on the right side of this macro-economic trend. There is no need to pay for global macro management."

I wish there was a system on this forum to highlight or upvote posts based on their worth. I'm sure many here would give your post a "+1".
modeljc
Executive Member
Executive Member
Posts: 271
Joined: Sat Feb 04, 2012 11:52 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by modeljc » Fri Jan 26, 2018 3:42 pm

I read the GEM approach with interest. Any way to check the number of WIPSAWS over the 45 year backtest? It looked like 2015 was nothing but false trades. It does seem that being in the right asset class make up for the wipsaws and also makes up for being late in and late out.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Fri Jan 26, 2018 6:51 pm

If you simulate the GEM at PortfolioVisualizer.com, you can go back into the 1980s with old mutual funds, you can get a sense of the whippiness. Yes, Winter of 2015 - 2016 was frustrating, for sure. And GEM is much less whippy than 200 day moving average. But it does deliver over time.
modeljc
Executive Member
Executive Member
Posts: 271
Joined: Sat Feb 04, 2012 11:52 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by modeljc » Fri Jan 26, 2018 7:31 pm

ochotona wrote:If you simulate the GEM at PortfolioVisualizer.com, you can go back into the 1980s with old mutual funds, you can get a sense of the whippiness. Yes, Winter of 2015 - 2016 was frustrating, for sure. And GEM is much less whippy than 200 day moving average. But it does deliver over time.
Thanks. I be happy knowing the last 10 years. So 2015 is bad. How many wipsaws in that year? Do you know the last 10 years for the number of false trades? I am not lazy but I am 80 years old and do not trust myself. And I know someone has looked at this. Hoping to find a quick answer.

Thanks
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Fri Jan 26, 2018 8:09 pm

modeljc wrote:
ochotona wrote:If you simulate the GEM at PortfolioVisualizer.com, you can go back into the 1980s with old mutual funds, you can get a sense of the whippiness. Yes, Winter of 2015 - 2016 was frustrating, for sure. And GEM is much less whippy than 200 day moving average. But it does deliver over time.
Thanks. I be happy knowing the last 10 years. So 2015 is bad. How many wipsaws in that year? Do you know the last 10 years for the number of false trades? I am not lazy but I am 80 years old and do not trust myself. And I know someone has looked at this. Hoping to find a quick answer.

Thanks
Wow, you're an intellectually active octogenarian like my Mom! Congratulations. Honestly, when I'm 75 I hope to have all of this Momentum stuff packed away and automated. But, because you asked, here it is, for ONE mutual fund which I owned for many years in the 1990s when I had little children, the famous Schwab 1000 Fund, SNXFX. This is not "dual" momentum, just single absolute momentum for this one fund. so in 25 years you have 19 trades, or one trade every 1.3 years.But, some periods only last one month, or two, or three.

There is a trend-following ETF that does this, VMOT from AlphaArchitect. I have gotten to know the people at that company somewhat, they seem very competent. The fund is somewhat expensive at 0.79% net expense ratio, it is untested through a downturn, but there is no reason to think it won't work as designed (trend-following triggers a switch to a downside protection scheme using options). It has been great in the bull market. It holds something like 160-200 different US and International stocks, so it's diversified as to industry, sector, country, currency. I don't know what to tell you. If I were you, and I thought the whole trading thing was getting to be too much, I'd take a chance and buy some, yes. The risk of missing an important trade is not something to dismiss, if you've decided momentum is what you want to do.

Maybe 25% VMOT, 25% S&P500, the rest your choice of bonds, gold, cash?

1 Jan 1993 Mar 1994 15 100.00% Schwab 1000 Index (SNXFX) SNXFX: 5.19% 5.19% 5.19%
2 Apr 1994 Apr 1994 1 100.00% Cash (CASHX) CASHX: 0.27% 0.27% 1.14%
3 May 1994 Jun 1994 2 100.00% Schwab 1000 Index (SNXFX) SNXFX: -1.53% -1.53% -1.53%
4 Jul 1994 Jul 1994 1 100.00% Cash (CASHX) CASHX: 0.28% 0.28% 3.21%
5 Aug 1994 Sep 1994 2 100.00% Schwab 1000 Index (SNXFX) SNXFX: 1.83% 1.83% 1.83%
6 Oct 1994 Feb 1995 5 100.00% Cash (CASHX) CASHX: 2.03% 2.03% 6.03%
7 Mar 1995 Nov 2000 69 100.00% Schwab 1000 Index (SNXFX) SNXFX: 186.87% 186.87% 186.87%
8 Dec 2000 Jul 2003 32 100.00% Cash (CASHX) CASHX: 6.74% 6.74% -20.21%
9 Aug 2003 Jan 2008 54 100.00% Schwab 1000 Index (SNXFX) SNXFX: 52.04% 52.04% 52.04%
10 Feb 2008 Oct 2009 21 100.00% Cash (CASHX) CASHX: 1.46% 1.46% -21.37%
11 Nov 2009 May 2012 31 100.00% Schwab 1000 Index (SNXFX) SNXFX: 33.59% 33.59% 33.59%
12 Jun 2012 Jun 2012 1 100.00% Cash (CASHX) CASHX: 0.00% 0.00% 3.82%
13 Jul 2012 Sep 2015 39 100.00% Schwab 1000 Index (SNXFX) SNXFX: 50.26% 50.26% 50.26%
14 Oct 2015 Oct 2015 1 100.00% Cash (CASHX) CASHX: 0.00% 0.00% 8.05%
15 Nov 2015 Jan 2016 3 100.00% Schwab 1000 Index (SNXFX) SNXFX: -6.81% -6.81% -6.81%
16 Feb 2016 Mar 2016 2 100.00% Cash (CASHX) CASHX: 0.04% 0.04% 6.74%
17 Apr 2016 Apr 2016 1 100.00% Schwab 1000 Index (SNXFX) SNXFX: 0.38% 0.38% 0.38%
18 May 2016 May 2016 1 100.00% Cash (CASHX) CASHX: 0.01% 0.01% 1.87%
19 Jun 2016 Dec 2017 19 100.00% Schwab 1000 Index (SNXFX) SNXFX: 31.45% 31.45% 31.45%
20 Jan 2018 Jan 2018 1 100.00% Schwab 1000 Index (SNXFX) -
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Fri Jan 26, 2018 8:35 pm

AlphaArchitect will also run the GEM strategy for you, by the way. They license a proprietary version from Gary Antonacci. They can be reached at AlphaArchitect.com, of course. I had my money with them for a while, but I got bored I suppose, I had to pull it back to Schwab and run it myself. It did cost 0.90% per year too, it didn't seem worth it, since I knew basically what they were doing.
modeljc
Executive Member
Executive Member
Posts: 271
Joined: Sat Feb 04, 2012 11:52 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by modeljc » Sat Jan 27, 2018 9:08 am

ochotona wrote:AlphaArchitect will also run the GEM strategy for you, by the way. They license a proprietary version from Gary Antonacci. They can be reached at AlphaArchitect.com, of course. I had my money with them for a while, but I got bored I suppose, I had to pull it back to Schwab and run it myself. It did cost 0.90% per year too, it didn't seem worth it, since I knew basically what they were doing.
Thanks for all the work. I am a happy camper in the PP but fear the low level of Interest rates have ruined any remaining sanity in the various asset classes. I fear that the market at 32 CAPE will cause a long period of bad returns and possibly a large drawdown.

I will check out Alpa ARchitect. Thanks again!
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sat Jan 27, 2018 10:14 am

Best wishes. I think there will be more and better trendfollowing products in coming years, especially after the next crash. Ironically, that will be the time when they are least needed. HBPP popularity will also be surging.
modeljc
Executive Member
Executive Member
Posts: 271
Joined: Sat Feb 04, 2012 11:52 am

Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by modeljc » Sat Jan 27, 2018 6:15 pm

ochotona wrote:Best wishes. I think there will be more and better trendfollowing products in coming years, especially after the next crash. Ironically, that will be the time when they are least needed. HBPP popularity will also be surging.
I want to THANK you for the link of the Portfolio Visualize. I have been there before but never got to the dual monentum. The late signals look OK. The whipsaws look ok. If you are lucky like me, you have all your stocks in non-taxables.

NO downside in a Vanguard IRA Account:

Commissions: none

Taxes: none

False signal: out too soon and missed gain is no problem in the account

Late to get in: got all your cash

Over time: VEU or SPY will produce the missed gain.
Post Reply