Tactical Asset Allocation + HBPP an intriguing combo

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

Post by ochotona » Sat Jan 19, 2019 6:29 am

Paul Novell tells me he has back tested his models to 1948 and on Great Depression data. That's a good dataset.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by Kbg » Sat Jan 19, 2019 5:16 pm

I think it very prudent to diversify look back periods, and particularly so in tax sheltered accounts. If you do, they should be distinctly different.

My shorter length is still in bonds.
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not so fast

Post by ochotona » Sat Jan 19, 2019 5:55 pm

I paid my $35 for Economic Pulse, and found from studying past issues that the models are twitchier. They trade more often. For example, their Developed Markets DM-COMP model traded five times in 2018, and got whipsawed four of those five times in the course of a month... GEM traded once. They did about the same returns for 2018.

You have to understand your temperament as an investor. I hate to trade, buyers or sellers remorse builds up in my soul after a trade, inevitably. In a few months, I forget about it. But it deteriorates my life for a while.

Someday I will be 100% in a lazy portfolio, maybe with a trend-following ETF like PTLC, where I don't have to trade. Why I don't do it now... it's not an internationally diversified security. It's costly, for me hundreds per month. GEM is free. Economic Pulse is $35 per month. I'm waiting for iShares to offer the same thing for less money. Then I'm gone.

2019 is key for me. I will keep subscribed to Economic Pulse, but I will watch how it reacts to what could be working out to be a gigantic bull trap... the sucker rally or rallies that pull in the retail investor before the drain is pulled out of the bathtub. We are going to have a recession someday, that is 100% certain. I'm confident both models would react properly to a true recessionary bear market, I just don't want to go through extra torture to get there.

If Economic Pulse gets whipped by a sucker rally, and if it whips a great deal in 2019, I won't use it.

Plus I am comparing the economic data with what I can harvest from elsewhere, namely Ned Davis Research Market Digest (free to me because I'm at Schwab). If they line up throughout 2019... I'll go with the free source of information.

So I'll keep posting GEM signals here, as long as I keep using them.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sun Jan 27, 2019 6:15 am

My hair is standing on end. Look at Corey Hoffstein's Threader tweetstorm... scroll down to where the text says "See US returns in the late 1930s".

The 12-mo lookback, the heart of GEM, did not hold up that well for the USA during the Great Depression. Very disturbing, FTSE it was much worse than the market in the 1900-1920 period. Germany, terrible - well, they lost WW2, their own damn fault. But Australia in the late 1980s? Sheesh.

I'm going back to bed.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sun Jan 27, 2019 9:01 am

I've had PAA on my mind for a while.

From AllocateSmartly.com: "The Protective Asset Allocation (PAA) strategy from Wouter Keller and JW Keuning’s paper: PAA: A Simple Momentum-based Alternative to Term Deposits. The strategy is notable for its aggressive use of a “crash protection” asset that has resulted in extremely low drawdowns relative to return."

Drawdowns about 35% as bad as the GEM, for example. 66% as bad as HBPP. But with 60/40-ish CAGR. That sounds nice. I can totally live with that!

It watches 12 ETFs, if 6 of them go down ("down" means below the respective ETF's 13 month SMA), then the whole thing crashes out. It's totally crashed out now. Another nice feature of the crash score is that it brings back the risk assets in steps; 1/6, 2/6, 3/6,...., 6/6.

When it starts coming back, you start allocating to the up to Top 6 ETFs by momentum score. That's kind of a pain, there about 4 trades per month, but the important thing for me is the % allocation to risk assets.

It's not hard to calculate, it's totally not worth playing AllocateSmartly.com for this. I bought a membership to AllocateSmartly in 2017 so I could spy on what they were doing, I liked what I saw with PAA, then I quit. I have a Google Sheet for Keller & Keuning Protective Asset Allocation

Just to have a look at the crash score, I just put in +1 and -1 for the above and below 13 mo SMA. I didn't want to pick numbers off of charts, hand-enter them, etc. Maybe someone can tell me how to automate it.

I doubt PAA is going back to risk assets on 1/31/2019, not unless the heavens open up.

I like that PAA looks for suckage throughout the world, across various asset classes. GEM and Economic Pulse both have this built in: "If things are OK in the USA, then it's risk-on baby!" I don't know if that works going forward. The US is 25% of equity market cap (the index used by VT filters out a lot of stuff). The US is about 40% of world GDP.

I changed to title of this entire thread... because we're veering into other TAA methods, not only GEM, and I'm fine by that. We should be a learning community.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Sun Jan 27, 2019 8:54 pm

Ocho,

The point is method diversification first and foremost. Switching to another single method has all the same problems as just sticking with GEM. One small anecdote...I use GEM and have it in several retirement accounts and update one per every six weeks. Just last year I had one account up 5.5% and another down 7% with the rest somewhere in between using the exact same system.

I've looked at this a lot and very simply, pick a time period that is relatively short and another that is relatively long. Another thing to do is to tranche which is I what I described above. I do both (though the tranching is primarily driven by account trading/holding restrictions).

You mentioned you had AS for a while, remember those start date variability witch's broom charts. Diversification of process and timing aims to be in the middle of what is available/possible.

Side note: PAA has moved on to VAA and DAA and DAA on steroids. Google trendxplorer. All are variations of the same basic idea. If you like GEM check out VAA-G4. If you move to a G12 variant of any of them realize you will never have a blowout good year and great patience is required because if your benchmark is the US stock market you are in for yearly frustration. A more appropriate (basic) benchmark would be perhaps the PP itself. In baseball terms, you are going to get lots of singles and some bunt outs, no grand slams and no shut outs. And if you don't like trading, then definitely not a good system as the 13612W is like a very quick light switch. Full on, to full off, to full on in three month's time is absolutely a normal and frequent occurrence.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Mon Jan 28, 2019 1:15 pm

Will reply later when I have time, but brief look at portfoliovisualizer.com reveals... you have to go to a 4 month lookback to avoid the nastiness of December 2018. 5 months won't do it. 4 month 75% weight, 12 month 25% weights works well. Better performance than standard GEM. Doesn't trade too much for me. I will try 4, 6, 8, 12 later. Weights will be critical.

DAA canary universe... VWO, BND? Interesting results, but the authors themselves say they can't explain why it works. That gives me pause, but it's an interesting observation.
Last edited by ochotona on Mon Jan 28, 2019 2:09 pm, edited 1 time in total.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Mon Jan 28, 2019 1:47 pm

BND is serving the same function as return on cash in DM. VWO, they pretty much say it is an artifact of data mining. I'm gonna guess two underlying fundamentals for emerging. 1) Emerging has always been on the high end of equity risk so it seems plausible it's one of the first things to get reeled in when risk off is coming. 2) Emerging has also historically been tied to commodity prices which of course nose over when manufacturing/the economy begins to turn south.

Looks like you read the paper...I think the "proof" that "a" canary universe works was about as established as anything can be in this field.

I think far more important than emerging equities is 13612W and the assets chosen (eg G4 or G12)
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Mon Jan 28, 2019 2:10 pm

Kbg wrote:
Mon Jan 28, 2019 1:47 pm
BND is serving the same function as return on cash in DM. VWO, they pretty much say it is an artifact of data mining. I'm gonna guess two underlying fundamentals for emerging. 1) Emerging has always been on the high end of equity risk so it seems plausible it's one of the first things to get reeled in when risk off is coming. 2) Emerging has also historically been tied to commodity prices which of course nose over when manufacturing/the economy begins to turn south.

Looks like you read the paper...I think the "proof" that "a" canary universe works was about as established as anything can be in this field.

I think far more important than emerging equities is 13612W and the assets chosen (eg G4 or G12)
Trading G12 would drive me crazy. I'm trying to stay with a simpler investible universe.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Mon Jan 28, 2019 3:48 pm

OMG that 1 3 6 12 "normalized" (annualized) lookback is a thing of beauty! Four trades a year, on average. Wow, but it works great! Click here to see.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Mon Jan 28, 2019 7:49 pm

The Weighting is more like 54,27,13,6...
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Mon Jan 28, 2019 7:57 pm

ochotona wrote:
Mon Jan 28, 2019 3:48 pm
OMG that 1 3 6 12 "normalized" (annualized) lookback is a thing of beauty! Four trades a year, on average. Wow, but it works great! Click here to see.

The only thing better than 1 3 6 12 is 2 3 6 12. What a strange demonstration of timing luck, fragility, whatever you want to call it.

WOW.. the 2 3 6 12 gets you out before the December 2018 debacle. You need TWO shorter period look-backs to gather enough performance statistics to exit end of November 2018. 1 3 isn't short enough, 1 2 is.

And 2 3 6 12 is better even if you exclude 2018. Trades 3x annually, not 4x. I like it.
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