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 » 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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ochotona
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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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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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