Tactical Asset Allocation + HBPP an intriguing combo

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ochotona
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CAPE-tilted GEM

Post by ochotona » Sat Dec 02, 2017 10:44 am

I realized this is what I have actually been doing. After pondering it, I realize I don't regard HBPP + GEM as a truly static allocation, well, except I think 10% gold is static, but what I've really been doing is a CAPE-tilted GEM.

At portfoliovisualizer.com you find a CAPE method for market timing, and it's simple and pretty darn good, and it hardly ever trades!

Shiller PE Ratio (PE10) market valuation based timing model uses shifts the allocation between stocks and bonds as follows:
PE10 >= 22 - 40% stocks, 60% bonds
14 <= PE10 < 22 - 60% stocks, 40% bonds
PE10 < 14 - 80% stocks, 20% bonds

During high CAPE years, it turns down equity exposure by 50%. That's the net effect.

A CAPE-tilted GEM would therefore now be 50% in equities. That's what I'm doing. That's a nice sleep at night portfolio for me. But when CAPE goes back below 14, then the suggestion is be all-in equities.

CAPE is 32 now.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by InsuranceGuy » Sat Dec 02, 2017 10:04 pm

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

Post by HappyMan » Sat Dec 02, 2017 10:24 pm

ochotona wrote:
ochotona wrote:0.6% in November
VEU was +0.6%

SWISX + SCHE combo was flat

Over short periods of time, these funds don't track perfectly
What an unfair disadvantage for Schwab. Is Vanguard better at composing their ETFs? Or, is it just this one incident?
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by Mr Vacuum » Sun Dec 03, 2017 8:21 am

InsuranceGuy wrote:
Kbg wrote:Everyone is using total return data sets, yes?
I use total return for all of my data.
I'm curious what you use for S&P 500 total returns prior to 1988. I used http://www.econ.yale.edu/~shiller/data.htm, which states, "Stock price data are monthly averages of daily closing prices." I assume Antonacci has monthly closing prices, so direct comparison is impossible.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sun Dec 03, 2017 9:08 am

Mr Vacuum wrote:
InsuranceGuy wrote:
Kbg wrote:Everyone is using total return data sets, yes?
I use total return for all of my data.
I'm curious what you use for S&P 500 total returns prior to 1988. I used http://www.econ.yale.edu/~shiller/data.htm, which states, "Stock price data are monthly averages of daily closing prices." I assume Antonacci has monthly closing prices, so direct comparison is impossible.
I get total return data off of Morningstar. I really don't worry about month-to-moth return fluctuations. Since 2011, a Schwab 17% SCHF and 83% SCHE mix has gotten exactly the same CAGR as VEU (I goal-seeked the weights to make them match just as an example). But any given month? They hold the same companies and countries but in different weights, so it's going to be different. But over the long haul, it evens out.

If one is worried about the "purity" of the GEM signal, you can always use VOO VEU for the signal, but trade other things if you can trade them for free. Free has a big appeal for me. I keep my accounts very tidy and accurately balanced, so avoiding fees is important to me.

There's a big psychological component to GEM, and it's not unlike HBPP. And that is, let it loose, and over time worry less about it. I can feel it happening to me, now that I've been trend-following for 28 months. I have to let go of 29 prior years of a certain mindset and behavior.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by InsuranceGuy » Sun Dec 03, 2017 12:41 pm

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

Post by Mr Vacuum » Sun Dec 03, 2017 6:57 pm

I updated my back test with monthly GSPC prices from yahoo (and continued to add Shiller dividends). Much better to use that than Shiller’s daily average for this model. It now matches Anonacci’s returns much more closely back to 1970. I am satisfied that the remaining differences are accounted by cash and AGG vs 5yr Treasuries.

InsuranceGuy, would you care to call out a particular month or two in which you see unresolved differences?
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Tue Dec 12, 2017 4:34 pm

MangoMan wrote:Ocho, Using a site like stockcharts.com, what signal would you use for momentum?
You use the PerfChart at stockcharts.com, use the 1-year option (it defaults to 200 days). The momentum signal is a BUY if the 1-year return is > the risk free rate. I get risk free rate from the US Treasury Yield Curve rates, today it is 1.34%.

https://www.treasury.gov/resource-cente ... data=yield

I'm sizing my momentum stake this way... I ask, if it all went to he!!, and next month I was thrown out of the markets, but let's say Fate was semi-kind to me and it only just barely threw me out, what would that drawdown look like?

Since S&P500 is up 20.46% over the last year, and the risk free rate is 1.34%, that means I could be looking at a 19% hit, and I want a PP-hit at most, so I'm only 50% in my momentum strategy now. Honestly, I could go back up to 60%. Maybe I'll do some dip-buying.

Only climb as high as you're willing to fall.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by Mr Vacuum » Tue Dec 12, 2017 5:05 pm

Stockcharts.com is majorly ratcheting up the ads lately. I wish fidelity’s charts had a perfchart total return option. It looks like the etf comparison page Market 1yr total return would suffice.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Tue Dec 12, 2017 5:44 pm

Mr Vacuum wrote:Stockcharts.com is majorly ratcheting up the ads lately. I wish fidelity’s charts had a perfchart total return option. It looks like the etf comparison page Market 1yr total return would suffice.
Morningstar works too
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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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