Tactical Asset Allocation + HBPP an intriguing combo

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ochotona
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Thu Mar 07, 2019 8:33 am

https://www.zerohedge.com/news/2019-03- ... oming-days

McElligott has similar 1 year look back concerns as I do, that the year-ago recovery in equities raises the probability of sell signals being issued in the present day. I had no idea the CTAs were using look-backs for a year; I just assumed they were into much shorter duration high frequency trading.

If everyone does something, it stops working.

I broke discipline and didn't get in on March 1, because I figured this was a risk. The lookbacks on different month scales are just clobbered to hell. GPS is great, but don't drive into a lake, I suppose... unless you have an amphibious vehicle.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Thu Mar 07, 2019 4:14 pm

ochotona wrote:
Thu Mar 07, 2019 8:33 am
https://www.zerohedge.com/news/2019-03- ... oming-days

McElligott has similar 1 year look back concerns as I do, that the year-ago recovery in equities raises the probability of sell signals being issued in the present day. I had no idea the CTAs were using look-backs for a year; I just assumed they were into much shorter duration high frequency trading.

If everyone does something, it stops working.

I broke discipline and didn't get in on March 1, because I figured this was a risk. The lookbacks on different month scales are just clobbered to hell. GPS is great, but don't drive into a lake, I suppose... unless you have an amphibious vehicle.
As I mentioned earlier, pro trend followers are diverse. This stuff is NOT stationary. Just about everything compared to the US stk market since 2009 has not outperformed it. It’s unusual but not unprecedented. Some day this will change...no idea when but it will.

Update: CTAs love big long term trends that is where they make the majority of their money due to how they position size...the longer the trend the more money will be on that position. You don’t hook those on ST measurements.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by pmward » Tue Mar 19, 2019 8:47 pm

After ocho posted about the strategy in the other thread I took a look into it, then came back and read this thread. I have a couple thoughts:

1) I'm not sure I like having an anecdotal date once a month to receive signals. I also do not like having no buffer on whether a buy or sell signal is triggered. This is too rigid for my tastes, and the poor response from December until now could have been less poor if the system were more robust. Trend following systems are always going to have whipsaws, there's no getting around that. But the December snafu was inexcusable. In a robust system you should have been taken out prior to December 31st, and should have been back in much earlier, imo. You would have gotten whipsawed to a degree, but not that bad.

2) One way to make the system more robust, that would also address my two peeves above, would be to receive daily signals. If a daily signal triggers, then you fall back on bands to have a buffer. So, for example, on the very day that a signal is triggered you could implement a stop loss or stop buy at something like 3% away from current price, cancelled upon the signal clearing. Obviously this is not something I've backtested, so it would require some due diligence, but might be an idea worth considering.

3) I'm also not ecstatic about there only being the single signal of 12 month last year. That's once again, very anecdotal. You are not just reliant on the markets performance this year, but markets behaving last year at this same time as well. If last year did something strange (like it did) it's going to effect you this year if you only have one look back window. I think that looking at multiple time frames like you were would probably help. I think using a combination of indicators might help to. Like say 3 month momentum, 12 month momentum, above/below 200 day moving average, above/below 10 day moving average and triggering buy/sell on 3 of the 4 signals combined. There are x number of signals that could be tested and taken into account as well, but a good combination of short and long dated would be important, imo.

4) The most important part of a rules based system is that you follow the rules. If you bring emotions into a rules based system it won't work. Sometimes a rules based system will burn you, other times it will reward you. If you believe in the model then you gotta stick with it all or nothing. Every time the system does not provide the desired result does not mean the whole system needs to be redesigned. If sticking to a rules based system is stressful then buy and hold might be a better option. So if you're going to stick with trend following, I think the best thing to do is to iron out the rules and write them down before you get back into the market. Then from that point forward, the rules are the rules.

HTH.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Tue Mar 19, 2019 8:55 pm

Yup
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Sat Mar 23, 2019 10:22 am

I don't know how many times I can say this...diversify signals.

Momentum is one of the strongest known factors there is. It's as rock solid as it gets academically. This does not equate to outperforming always and in fact it has not been all that great for the past decade as it was not great during the 1990s.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by HappyMan » Tue Mar 26, 2019 8:59 am

Hi all,

The last trade day of this month is this Friday. Momentum, so far, points to stocks. Bonds have outdone them. Where will you invest for April?
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Tue Mar 26, 2019 2:51 pm

HappyMan wrote:
Tue Mar 26, 2019 8:59 am
Hi all,

The last trade day of this month is this Friday. Momentum, so far, points to stocks. Bonds have outdone them. Where will you invest for April?
I'm looking for an entry point at or below February's close (SPX 2784), when I got buy signals from both GEM and Economic Pulse portfolios. I tried to second-guess the signals, thinking we were looking at a bull trap. I still think that way, but I'm willing to accept that after a month at this level it's time to go back in.

But I'm going back in at HBPP allocation levels, 25%, very lightweight. I don't want any more whipsaws to drag around a whole bunch of capital. When things settle, I'll get back to my normal allocation. In 1994, GEM whipped for 11 months, then took off to the upside. I'm resigned that we could be whipping for much of 2019 before we decide... up or down?
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by pmward » Tue Mar 26, 2019 3:04 pm

ochotona wrote:
Tue Mar 26, 2019 2:51 pm
HappyMan wrote:
Tue Mar 26, 2019 8:59 am
Hi all,

The last trade day of this month is this Friday. Momentum, so far, points to stocks. Bonds have outdone them. Where will you invest for April?
I'm looking for an entry point at or below February's close (SPX 2784), when I got buy signals from both GEM and Economic Pulse portfolios. I tried to second-guess the signals, thinking we were looking at a bull trap. I still think that way, but I'm willing to accept that after a month at this level it's time to go back in.

But I'm going back in at HBPP allocation levels, 25%, very lightweight. I don't want any more whipsaws to drag around a whole bunch of capital. When things settle, I'll get back to my normal allocation. In 1994, GEM whipped for 11 months, then took off to the upside. I'm resigned that we could be whipping for much of 2019 before we decide... up or down?
Let us know the day you buy back in, so we all know to sell, hahaha.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Tue Mar 26, 2019 7:14 pm

pmward wrote:
Tue Mar 26, 2019 3:04 pm
Let us know the day you buy back in, so we all know to sell, hahaha.
That's about how it works, isn't it?
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by HappyMan » Tue Mar 26, 2019 9:25 pm

Thanks, ochotona-san! You are a true samurai. You honestly share your thoughts, ups and downs, and your plan of action. I always appreciate it in people.

As for HBPP, among which assets do you spread the capital by 25%?
ochotona wrote:
Tue Mar 26, 2019 2:51 pm
HappyMan wrote:
Tue Mar 26, 2019 8:59 am
Hi all,

The last trade day of this month is this Friday. Momentum, so far, points to stocks. Bonds have outdone them. Where will you invest for April?
I'm looking for an entry point at or below February's close (SPX 2784), when I got buy signals from both GEM and Economic Pulse portfolios. I tried to second-guess the signals, thinking we were looking at a bull trap. I still think that way, but I'm willing to accept that after a month at this level it's time to go back in.

But I'm going back in at HBPP allocation levels, 25%, very lightweight. I don't want any more whipsaws to drag around a whole bunch of capital. When things settle, I'll get back to my normal allocation. In 1994, GEM whipped for 11 months, then took off to the upside. I'm resigned that we could be whipping for much of 2019 before we decide... up or down?
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Wed Mar 27, 2019 5:37 am

After I reenter this will be my allocation

Stocks 28%
Gold 12%
Cash 13%
Intermediate Treasuries 47%

....for a smooth ride until it's time to truly go on the offense again.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by HappyMan » Wed Mar 27, 2019 9:38 am

ochotona wrote:
Wed Mar 27, 2019 5:37 am
After I reenter this will be my allocation

Stocks 28%
Gold 12%
Cash 13%
Intermediate Treasuries 47%

....for a smooth ride until it's time to truly go on the offense again.
Thanks for the numbers! What do you use for gold? Which option for gold do you recommend at Schwab?
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Wed Mar 27, 2019 3:10 pm

HappyMan wrote:
Wed Mar 27, 2019 9:38 am
ochotona wrote:
Wed Mar 27, 2019 5:37 am
After I reenter this will be my allocation

Stocks 28%
Gold 12%
Cash 13%
Intermediate Treasuries 47%

....for a smooth ride until it's time to truly go on the offense again.
Thanks for the numbers! What do you use for gold? Which option for gold do you recommend at Schwab?
More than 11% is physical gold, less than one percent is GLDM ETF at TD Ameritrade in my HSA. Trades for free. SGOL trades for free at Schwab, and they lowered their expense ratio massively.

I'm going to use all of my dividends and bond coupons to slowly buy SGOL at Schwab. I am completely not liking how the US budget deficit projections look. Thank you Mr. President and Congress. I am moving my mind from the low end of the Rickards / Schiff 10%-20% gold range to the high end, which also make Golden Butterfly territory easily implementable.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Thu Mar 28, 2019 10:20 am

PMWARD if you had to make an investment in stocks now, but you could alter the allocation, anywhere from 5% to 40%, how much would you tolerate?

5% is what I have now. 40% is what I had last year.

I'm thinking HBPP levels (25%-ish) then fahgetabouddit

Maybe buy 5% April, 5% May, 5% June, 5% July then I'll be up to 25%?
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by pmward » Thu Mar 28, 2019 11:23 am

ochotona wrote:
Thu Mar 28, 2019 10:20 am
PMWARD if you had to make an investment in stocks now, but you could alter the allocation, anywhere from 5% to 40%, how much would you tolerate?

5% is what I have now. 40% is what I had last year.

I'm thinking HBPP levels (25%-ish) then fahgetabouddit

Maybe buy 5% April, 5% May, 5% June, 5% July then I'll be up to 25%?
Well there's a couple ways it could be done. You could scale in like that. If you want to continue to trend follow with your entire stock allocation you could also buy up to your PP level now and put in a stop loss below the last short term swing low, which was 2722, to limit losses. That way you would only sell if we were setting a lower short term low, which would be an indication of at least a new short term secondary down trend. I would wait to closer to the close today though to get an idea of whether we hold 2800 or not, I would not buy in with any variable funds if we lose support at 2800. If you think we are going to get a next leg up though, buying as close to 2800 as possible would be a good bet as it's just above a support level that has been tested quite a bit recently and proven to be quite resilient, at least in the short term.

I think if I were you I would set an allocation for a hard PP that you always keep, then use a variable portfolio for your active management. So for instance, if you decide to do 80% of your portfolio allocated to PP then you could just buy another 15% of stocks now and just accept that they may go up or down, and the rest you could keep cash until you get an urge to market time back in. That's what I would do at least. I think it's a happy medium, where you always have your set allocation for stocks/PP that will always be held (so you don't miss out entirely on upside if you are wrong), and your allocation that you can actively manage to try to chase alpha. That also gives you some leeway to get back in and not miss the upside if we break out, yet allow you to sit on some cash, put on some shorts, or buy some defensive assets to wait for a more tempting buy in point for stocks in case we break down instead.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Thu Mar 28, 2019 3:02 pm

My concept since starting this thread has been to hold somewhere between 40%-60% VP, and 60%-40% PP. So never less than 10% equity, never more than 70%. Which means I have to go out and buy and hold equity so I have from 10-15%.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Thu Mar 28, 2019 10:36 pm

HappyMan wrote:
Tue Mar 26, 2019 8:59 am
Hi all,

The last trade day of this month is this Friday. Momentum, so far, points to stocks. Bonds have outdone them. Where will you invest for April?
Not sure, I will run my data and do what it says to do. Over the past two months there has been a lot of research using the basic GEM methodology and measuring momentum. Personally I have been convinced by it that having a single signal is not a good long-term strategy. I have moved to 10 different signals based on months 3-12. So each month gets 10% of the port and I might have something like 50% US 10% Intl and 30% bonds. I will most likely be trading every month, but I already like the fact that my portfolio is no longer binary. Under classic GEM a typical trade is a 100% commitment to whatever the signal is, whereas under this approach using the example I noted above, a typical trade may be a simple 10% allocation tweak to 40% US, 20% Intl 30% bonds.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by InsuranceGuy » Thu Mar 28, 2019 10:58 pm

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Last edited by InsuranceGuy on Mon Mar 08, 2021 6:13 pm, edited 1 time in total.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Fri Mar 29, 2019 8:34 pm

The GEM Dual Momentum is in equities for April 2019.

I tried to sit out March in order to get a better price, but I was unable to take advantage of the dips I did get. I'll be going back in with a very light 25% allocation to the Schwab dividend ETF, SCHD.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Sat Mar 30, 2019 9:10 am

April is 60 us/10 intl/30 bonds
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sun Apr 28, 2019 8:22 am

Unless the world ends in the next two days, GEM 12 will be in US stocks for May 2019, and GEM 3 6 12 will be in US stocks.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by HappyMan » Sun Apr 28, 2019 10:09 am

Is everyone ready for "Sell in May and go away?"
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sun Apr 28, 2019 7:07 pm

HappyMan wrote:
Sun Apr 28, 2019 10:09 am
Is everyone ready for "Sell in May and go away?"
Well, I sold my 40% equity stake on 12/31/18 based on the GEM signal, got back in to the 25% HBPP level after GEM went back in, and I'm just sitting waiting for what's next. But I'm definitely not buying on May Day.

Budd was merciless with me because of that 12/31/18 trade, but my total portfolio is just a little bit shy of its peak value, because bonds and gold have gone up as well as stocks (the crux of the whole question, which do you believe... stocks or bonds?). Hey, diversification at work.

I was looking today at monthly Dow Jones data during the Great Depression. Just doing a back of the envelope calculation on how GEM would behave. It was such a terrible crash that it took two months to get out, during which time GEM would have been down -37%. Also the two-month crossing ten-month moving average, down -37%. The raw time series crossing the 10-month moving average? Down -19%, based on monthly data, which is all I have.

I think it would be an unwise time to be 100% GEM. GEM still had a -25% drawdown in 2008-2009. Mmmmmm... no thanks. Based on how steep and untested this V-shaped rising wedge rally has been, and how volatility has just been beaten down, and stocks are still very overvalued, a light GEM allocation seems prudent to me. Recession is coming... 2020, 2021... and stocks are going to front-run it.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Sun Apr 28, 2019 10:15 pm

Ref the Great Depression...37% beats the 82% (IIRC).
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Mon Apr 29, 2019 6:21 am

Kbg wrote:
Sun Apr 28, 2019 10:15 pm
Ref the Great Depression...37% beats the 82% (IIRC).
Oh believe me, I take 37 over 82 any day. Same seen in 2008-2009... Crash severity cut by half. Then later Budd harshes on ya.
Last edited by ochotona on Mon Apr 29, 2019 12:11 pm, edited 1 time in total.
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