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[Clive]

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[TripleB]

What does the SP500 yield have to do with the Treasury yield? Are people going to say "well SP500 dividends are high so I'll move my treasuries into SP500 for a better yield" and thus influence the market that way?

It seems kind of ridiculous to claim a correlation between the two or make investment movements based on it.

[stone]

Clive I have pondered about such a "value PP". I thought that it would have stocks, gold, LTT and cash all within the 15%-35% allocations but shift within the bands based on SchillerCAPE and TobinQ for stocks versus goldprice to gold production cost for gold (currently costs $800 per ounce to produce I think) versus real inflation adjusted interest rates and the shape of the yield curve. I guess those factors ought to battle it out amoungst each other to decide the appropriate weighting. I guess the ironic thing is that they possibly would almost always tell you to keep 25% of each .

[stone]

Clive, am I right in understanding that your chart is based on being 100% either cash, gold or stocks at any given time based on choosing whatever did best over the previous six months? I guess 2008 wasn't a parabolic blow off but rather a flattening off and then a plummet. Wouldn't something like tech stocks over the 1999-2000 period or silver last spring have been catastrophic for an all in relative strength strategy?

[stone]

Clive, my understanding of all stop loss based strategies is that they are in essence a betting sequence. You just shift your distribution of losses and wins over time without changing the overall level of wins to losses. You convert a salt and pepper mix of wins and losses into being occasional calamatous losses amoungst long strings of wins. So typically because those calamities are infrequent, the betting sequence gives an initial illusion of providing a benefit. Sooner or later the luck of the draw will see you getting stopped out ten times in a row or whatever and that will consume all of the outsized gains you made up to that point. You might even start off with that ultimately inevitable freak event at the outset.

[stone]

Hi Clive, best of luck with any stop loss approach but I'd be too scared that it was just chasing a betting sequence type illusion. If the movements are just stochastic jittering about, then a 100% stop loss (ie no stop loss limit) will always be optimal looking forward. Anything else will just clump your winners and losses together rather than having them interspersed and in the long run reduce returns. You also have the danger that volatility will be higher going forward and that will turn the strategy very bad.

[stone]

Clive I suppose probably the price movements were not simply stochastic jittering about and so an upward price movement was somewhat predictive for continued upward price movement. Also during that period 10% was OK. Looking forward we might hit a volatile patch where 10% caused too frequent stop outs so the trailing stop loss average loss was 5% not 1.5%. Also things might get more stochastic rather than following a trend. I agree that not loosing money is the key. BUT a stop loss strategy going wrong can be an effective way to loose money.

[stone]

Clive, isn't what causes you to choose 10% rather than 7% or 5% as the trailing stop; simply a judgment of volatilty and so the danger of repeated whipsaw stopped out losses? I'm sure you could plot a curve for volatility versus probability of say five consecutive stop out losses at a given % stop limit. I'm happy to believe though that the DM strategy is likely to continue to be a profitable one. I just don't think it is a similar to the HBPP. Even if you had say 60% cash: 40% DM, you would still be exposed to real term losses for the cash and hoping that the DM would continue to throw up profits not losses. If you were 40% DM and 60% HBPP- you would still be hoping that the DM would be a bonus not a cost. To me the HBPP is not a way to make money. It is a way to try and preserve it, come what may. Perhaps the DM strategy might be a way to get money that could then be salted away in a HBPP. I've not really got the temprament to try and get money by trading though. I sort of see any above inflation HBPP gains as biding time for probable subinflation performance in the future.

[stone]

Clive do you know why decision moose uses BTTRX rather than say EDV ? I looked at the decision moose web site and I must admit I did have the "spot the scam" mentality a bit like when looking at those "you've won one of these prizes" mail shots. Ofcourse most people view the PP from  the same "spot the scam" viewpoint I guess. I sort of wondered whether one of the holdings would be illiquid and so a front running bonanza like those "penny stocks about to explode" scams. My impression is much as you describe it- it probably is a better performing method than the PP but probably less catastrophe proof.

[stone]

Clive, have you any idea how many people / how much money is following the decision moose method or the HBPP? I guess both approaches get gains by volatility capture but HBPP makes the market less volatile whilst DM type methods make it more volatile. From what I can imagine, the DM method depends on doing what everyone else is about to do but doing it before them. The HBPP seems to depend on ignoring what everyone else does.

[stone]

Clive, I suppose one way to hybridise the DM and HBPP might be to pre-emptively move the HBPP asset allocations around between 15% and 35% based on the DM signals?

[cowboyhat]

I followed Decision Moose for a year starting with $10,000 in a separate account. My experience was that following my investment weekly made me anxious. There were a fair number of trades as well, which made me unhappy at tax time. The trade off between the time I spent thinking about my investment and the amount of money I made after taxes was a good learning experience for me. I learned that my time is more profitably spent on my professional life, that I don't have the temperament for an active investment style, and that investor psychology is as important as the mathematics of returns.

[stone]

Clive, I'm really puzzled as to why things like decision moose are not implemented by funds such that you can just hold the fund and have them do the hassle. Is it a tax issue? Would it be too hard for them to make the trades? A small investment trust with say £100M would be able to do the trades under the radar of front runners wouldn't they? I thought some investment trusts such as Rothschild Capital Partners do radically change their portfolios quite frequently and that investment trust is quite large. What has struck me though is that although market timers such as Rothschild Capital Partners and the Wellcome Trust endowment fund swing about between having lots of listed stocks of various sorts or lots of hedgefunds or lots of cash etc, they don't seem to ever embrace the ugly duckling PP assets such as LTT or gold.

The decision moose web site does actually say that they only think their strategy is suitable for tax sheltered acounts.

[stone]

Clive, I just checked out the Rothschild CP IT web site, the allocations for March 2010 and March 2011 respectively were:
Quoted equities 14.7 19.5
Long equity funds 39.1 40.9
Hedge funds 6.4 7.8
Unquoted direct investments 11.6 10.2
Unquoted fund investments 11.0 10.5
Real assets 14.1 11.6
Absolute return, fixed income and currency 0.6 2.3
Liquidity 15.4 14.6
Borrowings (12.6) (16.
Other assets/liabilities (0.3) (0.6)
Total net assets 100.0 100.0
They said that "real assets" meant mostly gold or oil futures. I think "unquoted direct investments" might mean things like The Economist magazine, Brazilian farms etc. I was actually fairly suprised at how there was less churning apparent than I had expected. Perhaps I was thinking back to what they did over the 2008-2009 period. I am struck by how they do so well and yet have layer upon layer of management fees. I think magneto on here says that he holds it.

[amp]

Clive - thanks so much for your contributions here, they are very thought provoking!