Stock scream room

Discussion of the Stock portion of the Permanent Portfolio

Moderator: Global Moderator

User avatar
dualstow
Executive Member
Executive Member
Posts: 8144
Joined: Wed Oct 27, 2010 10:18 am
Location: next to emotional support peacock
Contact:

Re: Stock scream room

Post by dualstow » Fri May 17, 2019 1:52 pm

Kriegsspiel wrote:
Fri May 17, 2019 10:38 am
According to wikipedia, Paul Tudor Jones was attempting to buy up all the copies of that doc back in the day to prevent people from watching it. He didn't say why, but speculation is that it revealed too much of his methods.
Sounds like a ‘Monk’ episode...except, you know, he would’ve been covering up a murder.
.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 1890
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Stock scream room

Post by mathjak107 » Fri May 17, 2019 3:36 pm

Kriegsspiel wrote:
Fri May 17, 2019 10:38 am
According to wikipedia, Paul Tudor Jones was attempting to buy up all the copies of that doc back in the day to prevent people from watching it. He didn't say why, but speculation is that it revealed too much of his methods.
my daughter inlaw worked for paul for many years up until last year as a matter of fact
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 1571
Joined: Sun Sep 16, 2012 5:28 pm

Re: Stock scream room

Post by Kriegsspiel » Fri May 17, 2019 9:43 pm

Oh yea? Small world. He seemed like a good dude in that doc.
Only a few prefer liberty-- the majority seek nothing more than fair masters.
- Gaius Sallustius Crispus
User avatar
ochotona
Executive Member
Executive Member
Posts: 2511
Joined: Fri Jan 30, 2015 5:54 am

Re: Stock scream room

Post by ochotona » Fri May 24, 2019 12:14 pm

Sell in May Go Away reference:

https://stocktradersalmanac.com/Strategy.aspx

Seems well-paired to an HBPP philosophy. Rules-based, simple, infrequent actions, low cost. The ETF would be DIA, seems to work better with Dow than S&P 500. Backtested to 1950... I can't verify with PV.com

I just tested Sell in May on DIA and put it into the HBPP... for 2005-2019 data (admittedly a short period of time... GLD) you can run 61% Sell in May DIA and 13% all other assets, and get the same MaxDD but 94 extra basis points, which is pretty nice.

IT BEATS THE GOLDEN BUTTERFLY!

It's the kind of thing I could tell my daughter to implement for my wife and I when we've got drool coming out of our mouths.

Below is DIA vs DIA six best months... no other assets involved.

Image
D1984
Executive Member
Executive Member
Posts: 395
Joined: Tue Aug 16, 2011 7:23 pm

Re: Stock scream room

Post by D1984 » Sat May 25, 2019 2:00 am

ochotona wrote:
Fri May 24, 2019 12:14 pm
Sell in May Go Away reference:

https://stocktradersalmanac.com/Strategy.aspx

Seems well-paired to an HBPP philosophy. Rules-based, simple, infrequent actions, low cost. The ETF would be DIA, seems to work better with Dow than S&P 500. Backtested to 1950... I can't verify with PV.com

I just tested Sell in May on DIA and put it into the HBPP... for 2005-2019 data (admittedly a short period of time... GLD) you can run 61% Sell in May DIA and 13% all other assets, and get the same MaxDD but 94 extra basis points, which is pretty nice.

IT BEATS THE GOLDEN BUTTERFLY!

It's the kind of thing I could tell my daughter to implement for my wife and I when we've got drool coming out of our mouths.

Below is DIA vs DIA six best months... no other assets involved.

Image
Is there any reason to trust that "sell in May" will always continue to work, though? It worked great post 1950....but sucked before then; see:


https://www.cxoadvisory.com/calendar-ef ... -long-run/

https://www.forbes.com/sites/rickferri/ ... away-myth/

http://www.equityclock.com/2017/05/11/s ... y-12-2017/

So what exactly changed around 1949-50 to make it work? Will whatever it is continue into the future?
pmward
Executive Member
Executive Member
Posts: 369
Joined: Thu Jan 24, 2019 4:39 pm

Re: Stock scream room

Post by pmward » Sat May 25, 2019 8:05 am

Yeah just because something back tests doesn't mean it's not anything more than just random luck. In this case, a couple of the largest bear market drops happened to be between May and October, and a couple of the biggest rally's happened to be in the other months. These couple cases severely skew the data. If you take out those couple random outlier years you would come to a different conclusion. And, as last year showed, this isn't always the case. Sell in May and go away would have really burned someone last year.
D1984
Executive Member
Executive Member
Posts: 395
Joined: Tue Aug 16, 2011 7:23 pm

Re: Stock scream room

Post by D1984 » Sun May 26, 2019 3:53 am

pmward wrote:
Sat May 25, 2019 8:05 am
Yeah just because something back tests doesn't mean it's not anything more than just random luck. In this case, a couple of the largest bear market drops happened to be between May and October, and a couple of the biggest rallies happened to be in the other months. These couple cases severely skew the data. If you take out those couple random outlier years you would come to a different conclusion. And, as last year showed, this isn't always the case. Sell in May and go away would have really burned someone last year.
Ocho, pmward,

The "sell in May" effect does seem to be merely a spurious correlation/statistical anomaly in that it wouldn't have worked so well before 1950; also, even when it did work (i.e. in the 1950 and later era up to the present) you would still have had higher returns--albeit with higher volatility and higher maxDD--simply by buying and holding through all months rather than by being in cash/T-bills half the year. Time in the market beat timing the market.

Just out of curiosity I went and looked back at S&P 500 monthly returns back to 1927. It appears that most of the worst months were typically in September and October; this applies in the present era as well as pre-1950. If you had simply sold at market close on August 31st and bought back again at market close on October 31st you would have avoided most of the worst of the crashes in 1929, 1930, 1931, 1932 (and would've sidestepped losses in 1933 to turn it from an excellent year into a truly stunning year and would've saved yourself almost a 4% loss in 1934 as well); you would've also avoided the worst two months in the 1937 crash and would've saved yourself a little over 6% in late 1941 and just over 10% in 1946.

It's not all kittens and puppies and rainbows though....this strategy would've hurt you in 1939 (market was up 15.47% and 0.31% respectively in September and October that year) and 1973, 1974, and 1975 (would have made 1973 worse by about 4.4%; 1974 worse by about 3.4%, and 1975 would've had a lower return by about 5.3%...although in compensation you would've gained a extra 3.77% in 1977, 9% in 1978, and almost 6% in 1979).

You would have given up a big gain of 12.90% in 1982 (when in autumn of that year the market was rocketing off the mid-August bottom) but would've missed a loss of 2.15% in September 1987 and the big 20% one-day crash of October 1987 (and missed that month's loss of 21.54% for the whole month). You would've evaded around a 5.2% loss in the 1990 bear market by being out those two months in 1990.

This strategy did very well in the 2000-02 bear market and the 2008 crash; in 2011 it would've cost you a tiny bit; you'd have had a 2.10% positive return by buying and holding but would've had a 0.98% negative return (less than one percent) by staying out those two months. In 2015 it would've cost you about 5.75% and turned a 1.37% gain into a 4.37% loss; but in 2019 it would've yielded around a 0.52% positive return (vs a negative 4.5% return for buy and hold the whole year) for the year by avoiding the sharp decline in October.

Will this strategy continue to outperform in the future? Who knows? YMMV.

EDITED TO ADD: All of the above assumes that for the two months you are out of the market (September and October) you are invested in plain cash earning 0% interest (i.e. earning nothing). If you assume instead that you would've invested in t-bills, a savings account, or 6-month or 1-year Treasuries during those two months then the returns would be even higher (and the losses even less) for the "stay out in September and October" strategy mentioned above.
User avatar
ochotona
Executive Member
Executive Member
Posts: 2511
Joined: Fri Jan 30, 2015 5:54 am

Re: Stock scream room

Post by ochotona » Sun May 26, 2019 8:45 am

1984, what was your data source? Sep / Oct seem really to be bad months overall, I agree. Maybe one could use some indicators like MACD to determine whether taking action during Sep / Oct is justified, and for short periods of time like this, I'm thinking maybe buying puts from time to time would work.
D1984
Executive Member
Executive Member
Posts: 395
Joined: Tue Aug 16, 2011 7:23 pm

Re: Stock scream room

Post by D1984 » Sun May 26, 2019 9:28 am

ochotona wrote:
Sun May 26, 2019 8:45 am
1984, what was your data source? Sep / Oct seem really to be bad months overall, I agree. Maybe one could use some indicators like MACD to determine whether taking action during Sep / Oct is justified, and for short periods of time like this, I'm thinking maybe buying puts from time to time would work.
Late 1920s to early 1970s -

Image

Early 1970s to mid-2017 -

Image

If you want to go to before 1928 then Stooq and Shiller have returns back to the late 1800s; going back to 1900 you would've missed some times when September and October were good during those years (like 1915) but also would've missed crappy months in 1902, the Panic of 1907, and 1917

Of course after 1976 VFINX is available and PV lets you backtest it to 1985 and see monthly returns
User avatar
ochotona
Executive Member
Executive Member
Posts: 2511
Joined: Fri Jan 30, 2015 5:54 am

Re: Stock scream room

Post by ochotona » Sun May 26, 2019 2:28 pm

Aw perfect, thanks! My objective is to find out when the really oversized declines occur... the ones we remember for decades and decades. I'd love to side-step those if there is meaningful seasonality + anticipatory technical indicators.

Yup... September October, bad moon rising for some reason.
pmward
Executive Member
Executive Member
Posts: 369
Joined: Thu Jan 24, 2019 4:39 pm

Re: Stock scream room

Post by pmward » Sun May 26, 2019 6:37 pm

ochotona wrote:
Sun May 26, 2019 2:28 pm
Aw perfect, thanks! My objective is to find out when the really oversized declines occur... the ones we remember for decades and decades. I'd love to side-step those if there is meaningful seasonality + anticipatory technical indicators.

Yup... September October, bad moon rising for some reason.
Coming from someone with experience in technical analysis, good luck on that one. That's the holy grail that everyone wishes they had. I don't think what you're looking for is realistic, it's along the lines of finding the fountain of youth. If it were possible to quantify these things, people already would have figured it out long ago, and the minute the cat got out the bag it would no longer be valid. The only thing that is clear is the past. It's easy to ride a confirmed trend. It's almost impossible to call a top, or any change of trend for that matter, in advance, or even in the early stages. There is no way to predict the future. All you can do if you want to trade is look at probabilities, hedge your bets, manage your risk, and pray. If you want to trade it's not about finding times to get all in or all out, it's about finding areas you can place small bets, and limiting your downside risk if you're wrong. You're much better off not trying to place all in bets on picking tops and bottoms. It takes a super human strong stomach to be able to even attempt this.
User avatar
ochotona
Executive Member
Executive Member
Posts: 2511
Joined: Fri Jan 30, 2015 5:54 am

Re: Stock scream room

Post by ochotona » Sun May 26, 2019 10:50 pm

I'm going to paper trade this one
Post Reply