Tactical Asset Allocation + HBPP an intriguing combo

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

Post by HappyMan » Wed Dec 27, 2017 11:06 am

The time of cash and gold is coming?

"It's Time To Hold Physical Cash", Fidelity Manager Warns Ahead Of "Systemic Event"

http://www.zerohedge.com/news/2015-06-2 ... emic-event
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by barrett » Wed Dec 27, 2017 2:26 pm

HappyMan wrote:The time of cash and gold is coming?

"It's Time To Hold Physical Cash", Fidelity Manager Warns Ahead Of "Systemic Event"

http://www.zerohedge.com/news/2015-06-2 ... emic-event
That linked article is from June of 2015. Or maybe that was your point, HappyMan.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Fri Dec 29, 2017 5:41 pm

No change to the GEM portfolio for January 2018. Still in 81% SWISX + 19% SCHE, or 100% in VEU. I'll issue a year-end and longer-term summary after January 1. It was a great year. A big slice of GEM + cash, bonds, and gold is a happy combo.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sat Dec 30, 2017 7:54 am

GEM, as represented by Schwab mutual fund SWPPX and Vanguard ETF VEU was up 21.1% in 2017.

My personal portfolio is about as follows:

50% GEM up 21.1%
30% a mix of different kinds of bonds, let's call it "aggregate bonds", up 3.45%
10% gold, up 12.8%
10% cash up 1.25% (Ally Bank)

In all, portfolio up 13% in 2017. A really nice year.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Sat Dec 30, 2017 12:39 pm

ochotona wrote: 10% gold, up 12.8%
Do you hold gold at Schwab too? What etf/fund?
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sat Dec 30, 2017 5:26 pm

HappyMan wrote:
ochotona wrote: 10% gold, up 12.8%
Do you hold gold at Schwab too? What etf/fund?
I have half physical, the rest mostly SGOL, some GLD, small bits of SIVR, PPLT. SGOL trades for free, I think SIVR does also. My plan over the next couple of years is to replace most of the ETF with physical.

SGOL gold, SIVR silver, PPLT platinum.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Mon Jan 01, 2018 12:20 am

Happy New Year to all and especially to ochotona! May deposits grow and income multiplies!
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Mon Jan 01, 2018 5:27 am

HappyMan wrote:Happy New Year to all and especially to ochotona! May deposits grow and income multiplies!
I'm not worthy of special anything... please...
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Mon Jan 01, 2018 7:43 am

ochotona wrote:
I'm not worthy of special anything... please...
Smart and humble - probably the best two qualities in a person!

Back on topic, is there a better time to enter the strategy and buy more indexes/etfs? Thinking about increasing the portion of my portfolio dedicated to GEM. Almost convinced to go with indexes.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Mon Jan 01, 2018 11:41 am

I think a better price for equities is coming... 2018, 2019, 2020? I don't know. Husssman's words rattle around my brain quite a bit.

I think the 2017 Juicy PP results show that about half equities is a sweet spot psychologically... you get enough of the upside so you don't feel like you deprived yourself, but you are only 1/2 exposed to a stock market drawdown. So for now, I'm not inclined to add more equities, especially since my 57th birthday is this year.

But if we get a serious equity decline, I'm going to to go as all-in as I can in the aftermath. It was a good thing to do in 2009, i'd like to repeat it.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Tue Jan 02, 2018 7:56 am

ochotona wrote:I think a better price for equities is coming... 2018, 2019, 2020? I don't know. Husssman's words rattle around my brain quite a bit.

I think the 2017 Juicy PP results show that about half equities is a sweet spot psychologically... you get enough of the upside so you don't feel like you deprived yourself, but you are only 1/2 exposed to a stock market drawdown. So for now, I'm not inclined to add more equities, especially since my 57th birthday is this year.

But if we get a serious equity decline, I'm going to to go as all-in as I can in the aftermath. It was a good thing to do in 2009, i'd like to repeat it.
Looks like, Trump is concerned with the market growth a whole lot. So, further growth is quite possible.

I am behind you a couple of decades agewise and, who knows, how many thousands of dollars. I guess I wait for the next shift of funds or possible 2009. Though, I am quite ready to increase my current 5% dedicated to GEM to 50% of my portfolio.

Thanks for sharing people whom you are reading. Who else is worthy of following?
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Tue Jan 02, 2018 8:29 am

I think it makes really good sense to replace the 25% equity slice of the Permanent Portfolio with GEM. I can see no reasons not to do that immediately. But what that means is, just use the sell signal, when it comes, to get out of your current PP equity position.Sure GEM is all foreign now but US still has good momentum now also. I think you don't have to do a thing right now.

I would then slowly increase GEM allocation over time. When this bubble is popped, I think 70% GEM and 10% each gold, cash, bonds is going to be my target.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Fri Jan 05, 2018 7:19 pm

ochotona wrote:
Mr Vacuum wrote:I like your take on using mutual funds. Fidelity charges short term redemption fees, which would kill on a whipsaw. I assume Schwab doesn't do that or you wouldn't trade them.
My Schwab adviser told me verbally there is no short-term redemption problem. But, in the T&C, they always reserve the right to clamp down, at their discretion, on frequent trading. The way I'm going to play it is I'm not going to completely round-trip out of SWPPX or SWISX. I'll sell 99.8% of my holdings and keep a little bit. Maybe that will give me some cover. Of course, GEM only trades once a month at most.

If I get caught in the fine print and a trade gets refused or I get a nastygram, well, I'll just have to fail-over to something else until the coast is clear. SCHX for SWPPX, SCHF for SWISX. Or I'll get my adviser to take it up with management to tell the compliance critters to leave me the heck alone. I have enough there that I have some weight.
I HIT THE LIMITS ON MUTUAL FUND FREQUENT TRADING! (I WAS NOT TRADING FREQUENTLY AT ALL). I got the compliance nasty-gram. They won't let me buy or exchange, I can only sell for the next 90 days. Well... I can always use the SCHX, SCHF, and SCHE ETFs.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Fri Jan 05, 2018 11:19 pm

ochotona wrote: I HIT THE LIMITS ON MUTUAL FUND FREQUENT TRADING! (I WAS NOT TRADING FREQUENTLY AT ALL).
How does Schwab explain it? Was it something you did in 2017?
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sat Jan 06, 2018 5:56 am

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

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

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

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

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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.
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