Tactical Asset Allocation + HBPP an intriguing combo

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

Post by pmward » Mon Apr 29, 2019 9:39 am

Yeah I think this kind of ties into our conversation over in the VP discussion. I think GEM (or any other quant strategy really) is fine as a VP, but I probably would not invest 100% of my equities in it. A quant strategy by nature will be a stock allocation that has a low correlation to the stock market. It's like a hedge fund, its biggest value is that it's an extra layer of diversification and tracking error. Sometimes that tracking error will work in your favor, other times it will work against you, but on the whole it works best when paired with a passive stock allocation to improve risk adjusted returns a'la MPT. I think pairing both together by using GEM in a VP is really a best of both worlds kind of situation. It probably will also help the tax situation, haha.

Looking at an 80% PP 20% GEM VP, it tracked the PP almost identically during the recession years, but in the heavy prosperity years of 2013 and up it has out performed by a decent amount, so it doesn't seem to be a bad strategy for someone that wants to keep the downside benefits of the PP with a bit more potential juice on the upside. Unfortunately, I wish we could get data further back than 2005: https://www.portfoliovisualizer.com/tes ... 0&total1=0
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Mon Apr 29, 2019 2:58 pm

I think it's important to put trend following in context (at least the long stock only model of it). You get most of and perhaps slightly more of the upside, will almost always under perform on a ST basis and in return you clip some left tail risk. That's it. The risk profile is often described as a put covered long position, which it is. The value of it (I think), is it seriously reduces sequence risk. Well, I also know enough market history to know assuming stock markets always go up is a pretty stupid idea in my view.

If you like beating the market, I suggest a different strategy. In fact, you should just assume that on any given day you are going to lag it.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by pmward » Mon Apr 29, 2019 3:04 pm

Kbg wrote:
Mon Apr 29, 2019 2:58 pm
I think it's important to put trend following in context (at least the long stock only model of it). You get most of and perhaps slightly more of the upside, will almost always under perform on a ST basis and in return you clip some left tail risk. That's it. The risk profile is often described as a put covered long position, which it is. The value of it (I think), is it seriously reduces sequence risk. Well, I also know enough market history to know assuming stock markets always go up is a pretty stupid idea in my view.

If you like beating the market, I suggest a different strategy. In fact, you should just assume that on any given day you are going to lag it.
Yes, I agree. Trend strategies tend to underperform in a bull market and outperform in a bear market. This is where the low correlation comes in, that can help risk adjusted returns with combined with other strategies that have different strengths and weaknesses (like buy and hold).
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Mon Apr 29, 2019 8:30 pm

Trendfollowing is tough, just like the HBPP is tough. Being different is not easy.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Tue Apr 30, 2019 8:53 am

ochotona wrote:
Mon Apr 29, 2019 8:30 pm
Trendfollowing is tough, just like the HBPP is tough. Being different is not easy.
Supposedly, only the tough strategies are enduring...I find any strategy is not tough so long as you "really" understand it mentally and emotionally to the point you can accept the times the sucky side of the strategy exerts itself.

Kinda Zenish...and personally it took me a long time to get there.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by pmward » Tue Apr 30, 2019 9:12 am

Hedging your bets helps a lot too. Going 100% all in on any one strategy can be stressful. But if you place one strategy alongside another that is either uncorrelated or at least has a low correlation, then it does help smooth things out quite a bit. This is why hedge fund investors are not recommended to choose just one hedge fund, they recommend picking multiple strategies that have different strengths & weaknesses and let the whole become greater than the sum of its parts. This is also obviously a big key to the PP. Diversification is as much a mental hack as it is a risk adjusted return hack. The only real weakness to diversification is you can be subject to FOMO. Concentrated bets have the potential to make more money, but they also have the potential for greater losses. An individual stock can triple its value in a year, and it can also go to 0 overnight.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sat Jun 01, 2019 6:38 am

GEM is in S&P 500 stocks, which could be ETFs SPY, IVV, VOO, or SCHX. This is valid for June. It's quite possible this changes in a month to bonds.

By the way, for Schwab investors, there are now two good aggregate bond choices which trade for free: Schwab SCHZ and iShares AGG. Many iShares ETFs now trade for free, which is nice.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by HappyMan » Sat Jun 01, 2019 7:10 am

Good to know about iShares. Schwab seems to be working hard

GEM's rolling 12-month return is -5.47%.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sat Jun 01, 2019 7:16 am

Some other strategies have **cough** "made a change" **cough** this month, but the info is copyrighted so I can't say any more.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Sat Jun 01, 2019 10:25 am

It’s interesting running this strategy not using the all or nothing method, tranching and different mutual funds. There is quite a bit of variation. I’m on a 5 week cycle due to trading frequency limitations and I think one account is (us/int/bnd) 90/0/10 and another 60/10/30 with the rest in between.

Update - this week's account moves to a classic 60/40.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by HappyMan » Sun Jun 02, 2019 10:14 pm

ochotona wrote:
Sat Jun 01, 2019 7:16 am
Some other strategies have **cough** "made a change" **cough** this month, but the info is copyrighted so I can't say any more.
Is this the latest one that you signed up and which one you were able to backtest so many centuries?
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