Tactical Asset Allocation + HBPP an intriguing combo

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Kbg
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Wed Feb 06, 2019 2:20 pm

ochotona wrote:
Wed Feb 06, 2019 1:18 pm
Oh I see. Multiple look backs traded separately so you get STEPS in allocation, not just binary. Got it. But it must be closely related mathematically to multiple look back scores, scores compiled, then one trade decision. Thanks for the thought.
Maybe it yields the same end portfolio results, I doubt it, but I've never done that study either. However, at the signal level no way. A 3 month signal and a 12 month signal traded separately do not yield the same trades as a single month stand alone signal. The market path from 3 to 7.5mo and 7.5-12mo could be completely different.

If you want a quick demo...go to PV, run VFINX at 2, 7, 12 mo periods and look at the results. Also look at annual returns for the years 1987, 2003 and 2009. Then pick some years where there were nice bull runs. You will see the performance profile differences.

If you want to do that study of if it all averages out, feel free to. It would be interesting.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Wed Feb 06, 2019 8:22 pm

Kbg wrote:
Wed Feb 06, 2019 2:20 pm
ochotona wrote:
Wed Feb 06, 2019 1:18 pm
Oh I see. Multiple look backs traded separately so you get STEPS in allocation, not just binary. Got it. But it must be closely related mathematically to multiple look back scores, scores compiled, then one trade decision. Thanks for the thought.
Maybe it yields the same end portfolio results, I doubt it, but I've never done that study either. However, at the signal level no way. A 3 month signal and a 12 month signal traded separately do not yield the same trades as a single month stand alone signal. The market path from 3 to 7.5mo and 7.5-12mo could be completely different.

If you want a quick demo...go to PV, run VFINX at 2, 7, 12 mo periods and look at the results. Also look at annual returns for the years 1987, 2003 and 2009. Then pick some years where there were nice bull runs. You will see the performance profile differences.

If you want to do that study of if it all averages out, feel free to. It would be interesting.
It's worth doing... It's on my list
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Fri Feb 08, 2019 6:58 pm

So I tested the GEM with 4 6 8 10 12 month lookbacks contributing to the signal, equal weights, normalized per Portfolio Visualizer, CAGR 11.48% from 1998-2018.

If you trade five separate tranches at the end of each month, 4 6 8 10 12 months, then you give up about 1% in return. And I don't have a way to rebalance in the software.

Yes, it's counter-intuitive.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by InsuranceGuy » Fri Feb 08, 2019 7:04 pm

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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sat Feb 09, 2019 9:22 am

InsuranceGuy wrote:
Fri Feb 08, 2019 7:04 pm
ochotona wrote:
Fri Feb 08, 2019 6:58 pm
So I tested the GEM with 4 6 8 10 12 month lookbacks contributing to the signal, equal weights, normalized per Portfolio Visualizer, CAGR 11.48% from 1998-2018.

If you trade five separate tranches at the end of each month, 4 6 8 10 12 months, then you give up about 1% in return. And I don't have a way to rebalance in the software.
That doesn't suprise me. It makes sense you would get a better model by ensembling multiple lookbacks than you get by trading equal portions of multiple lookbacks.

Typically ensembling will improve the model while trading equal portions would simply diversify (average) over the multiple models.
Tell you what... I'll let you and KBG argue over that one! I'm going to drop out of that sub-thread!

Being lazy, gun-shy, and fully prone to trader's remorse as I am, now I'm circling back to looking at 12 month as a very well proven durable lookback, but "ensembling" (good word) 10 11 12 13 14 months together to cancel out short-term noise. 19 trades in 21 years. I'm down with that.

This in not a race. I don't need maximum CAGR to retire successfully or even abundantly. If I am blessed with 7% nominal from my portfolio over the next 7 years I bust my stretch goal.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by InsuranceGuy » Sat Feb 09, 2019 9:58 am

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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Sat Feb 09, 2019 10:06 am

I’m dropping out as well as there isn’t much to add to what has been said. I’ll summarize what the key points are from my view:

We don’t know what is going to work best going forward.

The various methods behave differently.

Averaging leaves a single signal, using different lengths provides the number of signals equal to the number of lookbacks you choose.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sat Feb 09, 2019 10:19 am

InsuranceGuy wrote:
Sat Feb 09, 2019 9:58 am
I think that is not a bad idea. My one recommendation is that I would shorten your lookbacks to be 9 10 11 12 13 as the 14+ month lookbacks have shown to be much less predictive as assets tend to start mean reverting the further you get out.
Agreed. Done.

GEM 10 11 12 13 vs GEM 12

CAGR 11.36% vs 10.13% much improved
Maximum Drawdown -17.63% vs -19.70% much improved
Sortino Ratio 1.26% vs 1.07% improved
Number of Trades Per Year 1 vs 1.1 mildly improved, yipee, more laziness
Number of stupid, pointless one and two month long positions 3 vs 7 much improved, yipee, less regret

I'll report GEM 10 11 12 13 on March 1.

PS - I have been doing this already manually, in that I have been looking at 11 and 10 month lookbacks, checking for potential whipsaws due to price volatility.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Mon Feb 11, 2019 8:55 am

I spent some time reading several blog posts from thinknewfound...I highly recommend looking at their craftsmanship posts.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Sat Feb 16, 2019 12:37 pm

I decided to dig into this a bit. Note the mutual funds are not the same as the traditional GEM. What I was trying to get at was how the various momentum look backs perform comparatively. Look backs are 3/6/12 months and always weighted .34/.33/.33 respectively. In columns J & K, J is weighted by lookback length and K is weighted by % of portfolio dedicated to that lookback traded independently. So when adding up the annual return of column K that is simply the sum of columns G*.34/H*.33/I*.33. The bottom row is the cumulative return and column M is if column J exceeded column k (which it did 13 out of 23 times. (I did not count 2019). Columns N and O are what 10K grew to.

https://www.dropbox.com/s/01491e5fq4rn2 ... 3.PNG?dl=0

I then performed a rolling 5 year summation of annual returns which I think is highly informative. You will note a couple of things. 1) Which single lookback is best clearly changes over time. 2) Equal weighted lookback averaging as compared to running a third each of your portfolio performs quite differently. Averaging lookbacks is clearly "streaky" when it comes to performance and tends to be correlated with the LT side of the equation whereas if you are looking for "the average" segregated is clearly the better way to go.

https://www.dropbox.com/s/lkf0but3qne94 ... 2.PNG?dl=0

Turning to behavioral finance...if you go with equal weighted lookbacks you are clearly going to have regrets when 3mo momentum is outperforming. take a look at 2009-2013. 12mo mo and equal weighted lookback massively underperformed 3mo. Can you psychologically do that for five years running. If you go with a segregated portfolio. You will have regrets every year if your bogey is the best lookback. Alternatively, you will be happy every year if your bogey is the worst lookback. Can you psychologically be "average" every single year? Additionally, one has to be extremely cautious of recency bias when looking at the data. It goes without saying that if 3 months is in the mix this portion is going to trade a lot. I looked at just the 3mo trades and they were pretty much double that of the 3/6/12 weighted option.

However, the happy news is that DM outpeformed all assets and an equal weight of all assets. So every option was "good."

My personal take: In a taxable account a good argument is to be made that anything longer term is better. However, you have to trade less than annually to take advantage of slower trading and in most years, you are going to trade at least once which means a taxable event. In a retirement account then it's probably whatever you feel good about...however, when withdrawing money from your retirement account I don't think there is any question which is superior...segregated.

I'm glad I did this. I will be acting on it as to me there is a pretty compelling story here.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by InsuranceGuy » Sat Feb 16, 2019 1:59 pm

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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sat Feb 16, 2019 4:00 pm

Today I'm having a headache even contemplating buying back in possibly into a bull trap on March 1. I might stay put.

The old saying - "when you've won the game stop playing" comes to mind for my situation.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Sat Feb 16, 2019 7:58 pm

Well I think doing anything like this is really about trying to hedge on the unknown. That’s the whole point. The method behind 3-6-12 is nothing more complex than doubling the prior and with a pinch of human tendencies to trade off these periodicities.

Tax efficiency aside...if you are trading this system you have to pay attention once a month anyway so the 5mins extra to make the trade doesn’t seem to be too onerous.

If you look closely at the dates of relative outperformance you will see a distinct pattern that I’ve posted about a couple of times here or elsewhere on the board.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sat Feb 16, 2019 9:49 pm

MangoMan wrote:
Sat Feb 16, 2019 9:23 pm
ochotona wrote:
Sat Feb 16, 2019 4:00 pm
Today I'm having a headache even contemplating buying back in possibly into a bull trap on March 1. I might stay put.

The old saying - "when you've won the game stop playing" comes to mind for my situation.
You guys crack me up. The point of the PP is to be agnostic. So you embrace a trading system instead, but then second guess it at every turn so that you aren't even following the automatic rules. 🤔
Ahem sir, this the VP forum. Yes, we're pretty damned funny aren't we. We'll figure it all out by end of month, for sure!
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by InsuranceGuy » Sat Feb 16, 2019 10:10 pm

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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sun Feb 17, 2019 7:45 pm

InsuranceGuy wrote:
Sat Feb 16, 2019 10:10 pm
It seems like if tax efficiency is not an issue, why not move to DAA(Defensive)/PAA(Protective)/VAA(Vigilant) or other more reactive and trade heavy method that further reduces drawdowns? I also saw AllocateSmartly has a "Meta" strategy that combines several TAA strategies here:https://allocatesmartly.com/meta-strate ... trategies/.

IG
There is a VAA-P4, not too many assets to trade, sort of a fast, twitchy GEM. Trades a lot. If you had 24 trades a year the friction could be nearly 1% off of your return. 24 * 0.03%. that's not at all funny. That's like giving it up to the ETF providers. Nice theoretical result, tough to do in reality.

GEM trades
Image

VAA-P4 trades
Image
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Mon Feb 18, 2019 11:53 am

More pfutzing around. I noticed on Portfoliovisualizers that the 2 and 10 month moving average cross on the S&P500, like on Vanguard VFINX, works very similarly but slightly better than GEM. Backtests to 1987. Also infrequent trades. Your classic "Golden Cross and Death Cross".

NO ONE avoided 1987, that was a cluster****.

Maybe trade 1/2 the portfolio GEM, 1/2 with 2/10 mo MA cross. That's what AlphaArchitect does, but they use the 10 month MA cross itself, not the 2/10 cross itself. The 2/10 cross is better than 10 month MA cross. It gets back to what I was saying... noise cancellation.

How many days until March? Pugchief, at least we're all sitting here in agreement, almost all of the TAA portfolios are in bonds now. No rules have been ignored yet. We're just wondering how to proceed on March 1.

We build the plane as it flies.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kbg » Mon Feb 18, 2019 1:56 pm

ochotona wrote:
Mon Feb 18, 2019 11:53 am
We're just wondering how to proceed on March 1.
A 1000x no. You have rules or you don't.

If you don't have rules you will live by, then just do whatever you feel like doing which is totally ok on an individual freedom level. Just don't expect any backtesting you have done to have any relevance whatsoever to what it is you are doing.

There are an infinite number of things that could be different in the future and likely will be different. What backtesting will do for you is tell you what behavior you can expect under what conditions.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by Kriegsspiel » Mon Feb 18, 2019 6:23 pm

ochotona wrote:
Mon Feb 18, 2019 11:53 am
NO ONE avoided 1987, that was a cluster****.
I get what you're saying but I'm pretty sure 1987 is when Taleb's trade paid off and he was a millionaire all of a sudden.
You there, Ephialtes. May you live forever.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Thu Feb 21, 2019 8:55 am

My plan for end of month:

Trade 1/2 of portfolio with GEM 12. Trade 1/2 of portfolio with 2/10 mo moving average crossovers ("Golden Cross", "Death Cross").

Why 2/10 MA Cross? It works really well, about the same as GEM 12 from 1987 to now. AlphaArchitect trades 1/2 12-month lookback, and 1/2 200 day MA. But 200 day MA is a much poorer choice than 2/10 MA Cross, when you test them on PortfolioVisualizer.

You guys have shown that Relative Momentum 3 6 12 is better for selecting between US and International equities. But using Vanguard SP500 VFINX fund back to 1987, the case hasn't been made to me that multiple lookbacks are better for Absolute Momentum (the risk switch). They looked better when I was using SWPPX back to 1999, but adding more data negates that. I wish I had more data. There is some fragility, luck, instability, noise, call it what you will, in which case I think it's wise to invoke Occam's Razor and do the simpler thing, which is what Gary is encouraging... KISS. But I mind less about fragility since 1/2 of the trendfollowing will be done using a completely different methods, the MA crosses. I think this kind of diversification will be good.

And my trendfollowing exposure is being limited by my overall asset allocation view, which is quite conservative. 40% equities max, even if trendfollowed. So 20% to GEM, 20% to MA Crosses. I recently found that Ned Davis' monthly reports also point risk-averse investors to 40% equities at this time (40% - 70% is their possible range). I also took a survey the results of which pointed me to 40%. So I think the construction is correct. 40% trend, 10% gold, 10% cash, 40% bonds.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Thu Feb 21, 2019 10:38 am

GEM has another challenge. All of these investment geniuses on at the various wirehouses put in their targets for the S&P500 for the end of 2019, and the average of their sixteen prognoses was... ta-da! Simply the all time high. Was published on CNBC on 1/16/19.

But if GEM does not climb steadily to it's all time high by the end of September, it won't even stay invested. Things get easier by end of October, due to 12 month lookback. We all know that wirehouse gurus are usually overly optimistic; they're talking their book. So the S&P has to do better than the wirehouse chimps think it will do, and 90 days before they say it will do it. A challenge!
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Thu Feb 28, 2019 1:19 pm

Fantastic trendfollowing podcast by Meb Faber and his guest -

https://mebfaber.com/2019/02/27/episode ... pt-or-die/

Marty summarizes all of the difficulties this strategy has had in 2018, and puts them in perspective. My biggest take-away is there are periods of time, like 2018, when the volatility is go huge that trendfollowing just doesn't work. So if you know it's not going to anymore why do it? It will come back eventually.

Exactly what has been top of my mind. So the what do you do? Maybe something to do is basically do what the HBPP does... no bets on the future... go to a 25% equity position and hold there until the lookbacks aren't so whacked up by past volatility. You get to participate some, maybe only 1/2 or 1/3 what you'd normally do, but some. And then you only take 1/4 the hit if you really get whacked again, compared to the 100% trend portfolio. He did say he thought trends were starting to re-establish lately, but the very large volatility events in a sigle year basically wrecked every trendfollower in the industry.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Thu Feb 28, 2019 6:09 pm

GEM is back into S&P 500 US Stocks for March 2019

https://investingforaliving.us/antonacc ... ortfolios/

I found some really pertinent and timely info in the Economic Pulse end of February newsletter which came out today, also at Investing for a Living, so I'm not using the GEM signals at this time.
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by thisisallen » Fri Mar 01, 2019 10:08 am

Seems that the machines are struggling to keep pace with the changes in momentum.

https://www.bloomberg.com/news/articles ... ow-failing
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Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by buddtholomew » Fri Mar 01, 2019 2:02 pm

ochotona wrote:
Thu Feb 28, 2019 6:09 pm
GEM is back into S&P 500 US Stocks for March 2019

https://investingforaliving.us/antonacc ... ortfolios/

I found some really pertinent and timely info in the Economic Pulse end of February newsletter which came out today, also at Investing for a Living, so I'm not using the GEM signals at this time.
I thought it was me who didn’t understand..
Now that GEM got you out -20% and you have missed basically the entire recovery + 20%, GEM has you back in to the SP500. Glad you’re looking elsewhere because that’s 40% in my book.
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