Improving on the Permanent Portfolio

[melveyr]

FarmerD,

I like your analysis, but how would you account for the 2008-2011 period in which we were in depression-like conditions and inflation certainly wasn't very high, but gold was the best peforming asset in the PP?

I think the main reason gold did well in 2008-current deflationary environment because investors anticipated the explosion in the money supply would result in high inflation down the road.   That's why I wrote "Investors may of course anticipate a change in the phase we’re in which may affect where everyone invests."  And even if the depression like situation continued, well, gold does fairly well in a deflationary environment anyway.

I realize the simple model I laid out won't satisfy most people.  People want exact descriptions of economics/investing. However, I consciously try to boil my economics understanding and investment strategies into elemental forms.  Whenever I explore basic concepts and try to be more precise/exacting, I invariably fall into the trap of data mining or pareidolia, so I fight that urge. Most investment pros you hear on CNBC easily find precise trends and dollar signs in the clouds.  That's why I don't much attention to them. 

I have a simple way (could be wrong) of looking at gold's performance in this deflationary debacle.

Gold trades as a relatively volatile currency with a physically constrained base expansion (new gold being found). In a deflationary fall-out, people want currency. Under this framework, it makes perfect sense that gold would explode upward. People's desire for currency is pushing the price of all currencies up, gold included.

Gold is still good for inflation protection however because inflation is simply an exodus out of one currency. I guess what I am getting at is that both gold and LTT treasuries are a currency bet with built in leverage. LTTs offers interest payments, but gold offers a more physically defined limit on base expansion but both are forms of currency.

[gap]

I think Gold is impacted positively  by the following:
  Inflation
  Low Interest Rates
  Fear and Uncertainty - sentiment
  Low Value of Dollar(if buying gold in dollars)
  Sovereign acquisiton
  Unattractive stock environment
and in some ways by the jewelry trade(weddings etc) mostly between Aug and Feb

[FarmerD]

Gap,
You're right.  There's a number of ways to look at gold as well as a number of factors that influence it.  For example gold variables also include 1) supply of gold mined, 2) cultural factors i.e. demand for in China and India as doweries, status symbolism, etc. 3) faith in banking system.

However, it seems to me you could analyze every factor influencing gold to determine whether to buy of not.  But introducing so many variables into the equation (trying to be very precise and exact) instead you introduce greater error.  There's also dozens of variables regarding stocks, bonds, and cash.  From my personal investing experience, that's why IMHO, it's best to reduce your analysis to the biggest factor influencing all asset classes.  For me, that's assessing asset classes based on inflation.  It gives you a general guide and that's the best one can do.  I've met several  highly skilled investment analysts/mathemeticians who have devised some complicated but really interesting investment strategies (think Long Term Capital Management?) based on a stack of variables.  Almost none of their strategies work in practice though.  Simple fundamentals based strategies like the PP almost always win in the end.     

BTW Melveyr, I just noticed your website tagged onto your response.  I must say you are light years ahead of me in terms of investing savvy when I was your age. 

[melveyr]

   
BTW Melveyr, I just noticed your website tagged onto your response.  I must say you are light years ahead of me in terms of investing savvy when I was your age. 

Thank you for the kind words. Although most of the credit goes to HB 

Not to mention this forum: best slice of the internet I have ever found. With some of the seasoned posters here, I find a consistency in philosophy/discipline that is so rare in the investment world. I love room full of smart people who have the honesty to say "I don't know."

[MediumTex]

Not to mention this forum: best slice of the internet I have ever found. With some of the seasoned posters here, I find a consistency in philosophy/discipline that is so rare in the investment world. I love room full of smart people who have the honesty to say "I don't know."

Since I began spending time on internet forums a few years ago, it has often occurred to me that when they are working well they can facilitate discussion and knowledge sharing at a very high level.  The normal constraints on the expansion of one's understanding--the inability to ask questions in real time and the inability to shape the discussion when the only sources of knowledge are books and articles--are not present with an internet forum.  If the forum is populated with a good mix of expertise, knowledge, experience and curiosity, you can see a rapid and efficient blossoming of understanding and the whole group shares in this process, rather than just a single person here and there reading books and other sources of past knowledge and experience.

In some ways, a well-functioning internet forum is like a single large brain, processing, evolving, and creating new connections.  It's like the people version of one of those networks of computers all working on the same problem and sharing the results in real time.

The problem, of course, is that brains can become sick in the form of mental illness.  A person's brain can begin working against him, inner tensions can begin to chew up his energy, a lack of focus can make for wasted effort, ineffectiveness can lead to a loss of self-esteem, and loss of self-esteem can lead to a sense of alienation. 

This same structure of "mental illness" can invade an internet forum.  A spirited search for the truth turns into raw divisions that begin to erode the calm state of mind necessary to think clearly.  Finding it hard to think clearly, frustration mounts.  An inability to find common ground begins to weaken contributors' sense of belonging and unity of purpose.  Ultimately, the whole thing can turn into the kind of noisy chaos that a mentally ill person often experiences internally.

It's very enjoyable to share ideas as part of healthy discussions like the ones we have here.  I think that the measure of a "healthy discussion" is often just a matter of whether you walk away from it feeling uplifted or exhausted.  I think that in the same way that chronic exhaustion in an individual can lead to depression, anxiety and other mental illness, internet forums can also experience the same sort of decay when members experience too much exhaustion for too long.  I think that it's good to avoid that sort of thing as much as you can.  I have trouble relating to people who seem to take pleasure in giving others mental beatdowns every chance they get. 

[Lone Wolf]

The problem, of course, is that brains can become sick in the form of mental illness.  A person's brain can begin working against him, inner tensions can begin to chew up his energy, a lack of focus can make for wasted effort, ineffectiveness can lead to a loss of self-esteem, and loss of self-esteem can lead to a sense of alienation. 

This same structure of "mental illness" can invade an internet forum.  A spirited search for the truth turns into raw divisions that begin to erode the calm state of mind necessary to think clearly.  Finding it hard to think clearly, frustration mounts.  An inability to find common ground begins to weaken contributors' sense of belonging and unity of purpose.  Ultimately, the whole thing can turn into the kind of noisy chaos that a mentally ill person often experiences internally.

I can only imagine the horror of having an "inner dialogue" that read like a Youtube comment thread.

[MediumTex]

The problem, of course, is that brains can become sick in the form of mental illness.  A person's brain can begin working against him, inner tensions can begin to chew up his energy, a lack of focus can make for wasted effort, ineffectiveness can lead to a loss of self-esteem, and loss of self-esteem can lead to a sense of alienation. 

This same structure of "mental illness" can invade an internet forum.  A spirited search for the truth turns into raw divisions that begin to erode the calm state of mind necessary to think clearly.  Finding it hard to think clearly, frustration mounts.  An inability to find common ground begins to weaken contributors' sense of belonging and unity of purpose.  Ultimately, the whole thing can turn into the kind of noisy chaos that a mentally ill person often experiences internally.

I can only imagine the horror of having an "inner dialogue" that read like a Youtube comment thread.

Maybe that's what Kurtz was hearing in his head that had him so broken up.

[Roy]

Maybe that's what Kurtz was hearing in his head that had him so broken up.

On the HB PP, I believe he said: 

"And then I realized... like I was shot... like I was shot with a diamond... a diamond bullet right through my forehead. And I thought, my God... the genius of that!"

Happy Holidays, guys,

Best,

Roy

[pershing83]

Kurtz, my goodness ,you all are now in the dark continent. Investing is hard enough.

I reporting here from memory and maybe I'm off. If one owns a portfoilio of 50% total stock mkt and 50% total bond mkt he'll do as well as PRPFX/pp, or close enough not to matter much. That would be easy now, vey low cost and yield about 9%(since  1972 and since 2000) an certainly the last 10 yrs or so. The S&P would beat it by a little and back before the advent of the inexpensive indexes it would be a bit hard to manage and  cost you.  PP might be a smoother ride.

This would finesse gold and the LT bond as well as things like the Swiss franc.

I own a lot of PRPFX, BTW.

[MachineGhost]

The cognitive dissonance makes it difficult to envision and create an "adult" HBPP.

MG

Why do you dislike the definitions used by HB?

[MachineGhost]

I was envisioning those differing economic states along the x-axis.  The y-axis, I think, is irrelevant except for the fat tails.

MG

MachineGhost, what are the axes of your bell curve?

[MachineGhost]

From what I've seen historically, the transitions are progressive with plenty of warning signs (if one pays attention).  The transitions into the tail always seem to be a result of sheer government incompetence or cronyism.

Tactical asset allocation could certainly work if one can detect the economic regime.  There was a simple model based on a few macroeconomic variables published in the Journal of Indexes (or Journal of Portfolio Management?) a few years ago, but I cannot refind it much to my dismay.

MG

Do economies swing wildly/quickly between those phases, or are the transitions much more progressive?

If progressive, isn't it appropriate to over/under weight assets according to the current phase?

[MachineGhost]

Clive, you are a genius.  This model even works better when U.S. specific.  It sidesteps the 2007 subprime debacle, the dot.com bubble implosion in 2000, the bond market rout of 1994, possibly the mini-recession around 1990 ("It's the economy, stupid!"), Black Monday in 1987, caught the bottom of the Great Bull Market in 1982, and mitigated the 50% correction in gold from 1974-1976.  Its only miss is the top of the gold bubble in 1980, presuambly because the gold component is unhedged (by bonds).

Not bad for a simple lagging momentum combo rank.

MG

You can use the market itself to advise what looks to be appropriate holdings.

Whilst over shorter periods of time LTT's and stocks tend to have a somewhat inverse correlation, over longer periods they're generally positively correlated. One way to time on a once yearly basis as to whether stocks/bonds or cash/gold should be held for the next year is to take the prior year gains for each of stocks, LTT, cash and gold and rank those from 1 (greatest gainer) to 4 (least gainer/greatest loser), and then sum the stock and bond (LTT) ranks, and also sum the cash and gold ranks. 

If the SB (stock/bond combined) rank is < CG (cash/gold combined) rank then SB is indicated, otherwise CG is indicated - for that single country.

Repeating across each of Japan, UK, US i.e. major world trade centres provides three SB and/or CG ratings for each year. The overall signal is then just the one with the highest occurrence e.g. if SB occurs twice and CG occurs once then SB is indicated.

That overall indicator is then used as the overall global indicator of the pair of assets to hold. i.e. is the same choice of assets held in either Japan, UK or US.



Cash and Gold still are being indicated for 2012.

[MachineGhost]

I should have known that was too good to be true.  At one time I used the previous year's performance to determine whether to be in or out the next years fund in the Simba speadsheet, and I wasn't impressed with the performance.  Even though this anomaly is reported on in the literature.

The U.S. stock market, in general, aligns to 6-month momentum.  That is, any stocks with worse performance than this baseline will underperform the market.  Just this simple filter alone will guarantee one to match the market's performance with security selection (assuming enough diversification, which is 20-30 securities). 

MG

You're reading the table incorrectly MG. My poor explanation perhaps.

Each rows indicated signal applies to each next rows actual gains.

For example US 1986 had SB as that years signal (i.e. at year end 1986 stocks ranked 3, bonds ranked 1 (sum = 4); cash ranked 4, gold ranked 2 (sum = 6)), which would have had you IN stocks and bonds in 1987 and would have therefore caught the 1987 Black Monday crash had you just been following the US signal alone (which as it happens was also the same as the overall signal anyway in that particular case).

[MachineGhost]

The business cycle is 8.6 years (pi multiplied by 1000 divided by 365.25 days) trough to trough in length.  The "Great Unwashed" are slaves to this cycle, so sudden shifts in sentiment mid-cycle seem to be very uncommon.  Longer term, bigger sentiment shifts occurs after 6 business cycles, or 51.6 years, when society flips from fixed exchange rates/money to floating exchange rates/money, or vice versa.  However, commodities vs paper only seems to last 2 business cycles on average.  People seem slow to change, even at the "Hands of God".

MG

It would be much poorer of a method if the swings between greed and fear were more regular. More typically however it would appear such swings occur less frequently than does progressive multiple year moods. I'd put that down to perhaps economies taking a while (multiple years) to turn - like a slow large ship rather than a fast road hugging roadster that can be spun around on a dime.

[MachineGhost]

I wanted to "conclude" this topic somewhat by revealing my strategic "adult" PP allocation as I've come to understand the various historical risks of the "adolescent" PP allocation and how to best mitigate those factors via tactical allocation.  This is what I have come up with so I can sleep at night:



Weight
Subclass


10.69%
Indirect Foreign Stocks [Timing]


14.31%
Indirect Domestic Stocks [Timing]


5.45%
Direct T-Bonds [Permanent]


19.55%
Indirect T-Bonds [Timing]


4.81%
Direct Other [Permanent]


5.19%
Direct Gold [Permanent]


15%
Indirect Gold [Timing]


25%
Direct Savings Bonds/T-Bills [Permanent]



The bracket terminology relates to whether or not a timing model will be used to improve risk-adjusted returns (the subasset in question would be parked in non-sweeped, SIPC protected cash when on a bearish signal).  Using the Vanguard funds as proxies, compared to the "adolescent" PP, risk in the "adult" PP increases slightly from a 14.2% maximum drawdown to a 15.5% maximum drawdown and returns increases slightly from 9.7% to 10.3% annualized since 2006 (when GLD history started).  The difference is in the volatility of timing the T-Bonds.  I am willing to accept a slight increase in risk over the short term to avoid being bodyslammed when long-term interest rates continously rise (whether that is expected inflation due to economic growth or unexpected inflation from continual government incompetence).

Direct or indirect refers to whether or not there is third-party or counter-party risk.  I do believe FDIC/SIPC will bellyflop first before the Treasury defaults on its obligations.  The MF Global fiasco is an instructive example of what can happen when people clueless of rules and regulations get put into positions of disposition power.  It does not take much imagination to forsee incompetent, economically-illiterate politicians screwing up again in the next financial crisis.  If the MF Global SNAFU happened to the banking system (i.e. putting segregated customer accounts into the general obligations creditor pool or worse, there was no segregation at all and the money was lost), there would be a run on the banks overnight.

The subclass weights were each (per 25% asset class) separately determined by Monte Carlo optimization within the mean variance optimization framework.

MG

[Stefan]

MG, this is along the same improvements I made to the PP version I am investing/trading with.

The problem I had was that it was very hard, psychologically, to rebalance assets when one or more were falling like a knife in a bear market environment. You need some form of risk management to be able to make the trades. Timing the asset class is the obvious technique. And, in my implementation, it greatly improved both the total return and total volatility of the portfolio, and it avoided the 2008 bear market.

So, I am curious: why did you leave some parts of the allocation permanent and used timing only on parts of it. And, have you run it this way/or backtested it - and what are the results vs. the classic PP equity curve?
Basically, what is the CAGR and max drawdown you managed to get from the "adult" PP you designed.

For reference, Mebane Faber (of Cambria Fund & Ivy Portfolio Book) has backtested PP using the same timing model he first introduced in his ubiquitous paper. It is interesting to see - and here are his results: http://www.mebanefaber.com/2010/10/28/t ... bernstein/

[MachineGhost]

Oops, I posted the wrong numbers.  I forgot to account for the market timing for foreign stocks, rather than the untimed returns.  Do note the gold in all cases is currently untimed as I do not have that data integrated yet.  All assume yearly rebalancing, no bands.

So since Jan 2006, the annualized return of the "adult" PP was 7.9% and the maximum drawdown was 13.4%.  As a way of comparison, an equivalent "adolescent" PP (VTSMX, VEIEX, FLBIX, IAU, VFSTX) had a 10.4% annualized return and a 19% maximum drawdown in the same time frame.  The standard "adolescent" PP (VTSMX, FLBIX, IAU, VFSTX) had a 9.5% annualized return and 17% maximum drawdown in the same time frame.  The major difference in risk here is in minimizing the stock tankage 2007-2009.

For the last 24 months, the annualized return of the "adult" PP was 7.3% and the maximum drawdown was 6.5%.  As a way of comparison, an equivalent "adolescent" PP (VTSMX, VEIEX, FLBIX, IAU, VFSTX) had a 11.9% annualized return and a 4.4% maximum drawdown in the same time frame.  The standard "adolescent" PP (VTSMX, FLBIX, IAU, VFSTX) had a 12.9% annualized return and 3.7% maximum drawdown in the same time frame.  The major difference here is in having lesser LT bond exposure and not avoiding the ongoing gold tank.  Once that is factored in, the risk/reward will likely be more favorable.

Personally, I just cannot tolerate losing more than 15% max for a "conservative allocation" portfolio, and I prefer it to be around 10% as much as possible.

I have a permament LT Bond allocation because the portfolio still needs some "Black Swan" protection to reduce drawdown risk as one may be out of LT Bonds when such protection is sorely needed.  The Other & Gold permanent allocations are illiquid assets that can't be reallocated easily or are necessary to offset those historical periods where gold does not perform.

MG

MG, this is along the same improvements I made to the PP version I am investing/trading with.

The problem I had was that it was very hard, psychologically, to rebalance assets when one or more were falling like a knife in a bear market environment. You need some form of risk management to be able to make the trades. Timing the asset class is the obvious technique. And, in my implementation, it greatly improved both the total return and total volatility of the portfolio, and it avoided the 2008 bear market.

So, I am curious: why did you leave some parts of the allocation permanent and used timing only on parts of it. And, have you run it this way/or backtested it - and what are the results vs. the classic PP equity curve?
Basically, what is the CAGR and max drawdown you managed to get from the "adult" PP you designed.

For reference, Mebane Faber (of Cambria Fund & Ivy Portfolio Book) has backtested PP using the same timing model he first introduced in his ubiquitous paper. It is interesting to see - and here are his results: http://www.mebanefaber.com/2010/10/28/t ... bernstein/

[Stefan]

I think there are a few ways to reduce the max drawdown:

I ran this portfolio: VTI,TLT,GLD & SHY. I rebalanced weekly. I used a weekly timing method (basically - trend following). And I allocated based on risk parity (to get the same fractional percent of total equity risk per asset class) as oposed to the original equal equity allocation/class.
So, rebalancing was done based on this risk parity allocation: the higher the volatility of an asset class gets, the less capital gets allocated to it, and vice versa. Except for SHY, which takes all the remaining equity capital after the volatile allocations are made.

Here are my backtest results from 2006 to today, which is your reference:

With a 2.5% risk per asset class - CAGR 8.51% and MaxDD 6%.
With 2% risk per asset class - CAGR 7.8% and MaxDD 5%.

And I also did a backtest of the same system from 1992 to today, at 2% risk per class. I used the S&P500 Index, VUSTX, Gold futures prices and VFISX.

I get CAGR 7.67% and MaxDD 7%. The CAGR is very consistent with the 2006-today value above. The 7% max DD was in 1994.

One observation about data accuracy if you do trend following: if you are timing ETFs or mut funds of bonds or stocks paying dividends (like TLT , VUSTX, VFISX, SHY or VTI), you need a EOD database which adjusts price data for distributions/dividends. And without time lags. This is super important - or your timing will not work at all.
There are only 2 databases that I know of which are doing this and have good clean data. I do not use the public ones (Google, Yahoo - I tried them first but they are not timely at all with adjustments in my experience).

[rickb]

Here are my backtest results from 2006 to today, which is your reference:

With a 2.5% risk per asset class - CAGR 8.51% and MaxDD 6%.
With 2% risk per asset class - CAGR 7.8% and MaxDD 5%.

And I also did a backtest of the same system from 1992 to today, at 2% risk per class. I used the S&P500 Index, VUSTX, Gold futures prices and VFISX.

I get CAGR 7.67% and MaxDD 7%. The CAGR is very consistent with the 2006-today value above. The 7% max DD was in 1994.

Are these MaxDD numbers from a daily (or possibly weekly) peak to a subsequent low?  Minimum return (max loss) during any 1 year period ending on Dec 31 is more directly comparable to the numbers Craig typically posts, but a daily or weekly peak to trough number is far more stringent (and probably more useful to most people).  And, can you share more details about the allocations and the exact timing system you're talking about?  I'd think most folks here would be hard pressed to compute the allocation percentages implied by "2.5% risk per asset class" and "a weekly timing method" is fairly unspecific.

BTW - these sound like awesome numbers.  You sound like you might be in the industry.  Do you personally invest this way, or have any clients you're using this for?

[sfreeman]

I think there are a few ways to reduce the max drawdown:

I ran this portfolio: VTI,TLT,GLD & SHY. I rebalanced weekly. I used a weekly timing method (basically - trend following). And I allocated based on risk parity (to get the same fractional percent of total equity risk per asset class) as oposed to the original equal equity allocation/class.
So, rebalancing was done based on this risk parity allocation: the higher the volatility of an asset class gets, the less capital gets allocated to it, and vice versa. Except for SHY, which takes all the remaining equity capital after the volatile allocations are made.

Here are my backtest results from 2006 to today, which is your reference:

With a 2.5% risk per asset class - CAGR 8.51% and MaxDD 6%.
With 2% risk per asset class - CAGR 7.8% and MaxDD 5%.

And I also did a backtest of the same system from 1992 to today, at 2% risk per class. I used the S&P500 Index, VUSTX, Gold futures prices and VFISX.

I get CAGR 7.67% and MaxDD 7%. The CAGR is very consistent with the 2006-today value above. The 7% max DD was in 1994.

One observation about data accuracy if you do trend following: if you are timing ETFs or mut funds of bonds or stocks paying dividends (like TLT , VUSTX, VFISX, SHY or VTI), you need a EOD database which adjusts price data for distributions/dividends. And without time lags. This is super important - or your timing will not work at all.
There are only 2 databases that I know of which are doing this and have good clean data. I do not use the public ones (Google, Yahoo - I tried them first but they are not timely at all with adjustments in my experience).

Here is a basis for comparison to Stefan's results- i'm using daily data for VTI,GLD,TLT,SHY from 12/31/05-12/30/11.  (As Stefan commented, be careful re: dividends.  I'm using Yahoo data, so my results may be off slightly if last week's data that I downloaded didn't include some dividends that were paid.)

HB 4x25 Portfolio, 15/35 bands, Annual Rebalance

cagr    9.82%
vol      8.44%
MaxDD 14.62%

Stefan, some clarification on the 2.5% risk per asset class would be helpful.  I imagine it's some sort of standard deviation calculation. 

Lastly, I'm including a risk parity simulation using the same data and timeframe, although I'm targeting equal risk contributions from the four assets, rebalanced on a quarterly basis-

cagr    4.49%
vol      3.05%
MaxDD 6.18%

Obviously SHY dominates the weighting as its volatility is swamped by the other 3 assets.

[Stefan]

Some details, which will, hopefully, clarify how I got these results:

Trend following: I use a channel breakout system for all asset classes.
Risk parity allocation: I use fixed fractional position sizing.

But, I do not use position sizing for SHY. This is key, as sfreeman noticed. VTI,TLT and GLD have almost the same average volatility. This is why their allocations will be similar (and why , actually, allocating 25% to each as in HBPP will work just fine). SHY has a much lower volatility and I don't use position sizing for it. So, I allocate to SHY whatever is left after I calculate position sizes for the other 3.

Re: MaxDD - this represents the peak to trough based on weekly closings.

And one last point. You need programming skills to create this system. And a decent platform. I use AmiBroker.

[MachineGhost]

Do these returns include transaction costs?

Are you checking for channel breakouts on a weekly granularity basis?  Do you use the same logic to sell?

How are you defining 2.5% risk without stops?  ATR?

MG

I think there are a few ways to reduce the max drawdown:

I ran this portfolio: VTI,TLT,GLD & SHY. I rebalanced weekly. I used a weekly timing method (basically - trend following). And I allocated based on risk parity (to get the same fractional percent of total equity risk per asset class) as oposed to the original equal equity allocation/class.
So, rebalancing was done based on this risk parity allocation: the higher the volatility of an asset class gets, the less capital gets allocated to it, and vice versa. Except for SHY, which takes all the remaining equity capital after the volatile allocations are made.

Here are my backtest results from 2006 to today, which is your reference:

With a 2.5% risk per asset class - CAGR 8.51% and MaxDD 6%.
With 2% risk per asset class - CAGR 7.8% and MaxDD 5%.

And I also did a backtest of the same system from 1992 to today, at 2% risk per class. I used the S&P500 Index, VUSTX, Gold futures prices and VFISX.

I get CAGR 7.67% and MaxDD 7%. The CAGR is very consistent with the 2006-today value above. The 7% max DD was in 1994.

One observation about data accuracy if you do trend following: if you are timing ETFs or mut funds of bonds or stocks paying dividends (like TLT , VUSTX, VFISX, SHY or VTI), you need a EOD database which adjusts price data for distributions/dividends. And without time lags. This is super important - or your timing will not work at all.
There are only 2 databases that I know of which are doing this and have good clean data. I do not use the public ones (Google, Yahoo - I tried them first but they are not timely at all with adjustments in my experience).

[Stefan]

Do these returns include transaction costs?

Are you checking for channel breakouts on a weekly granularity basis?  Do you use the same logic to sell?

How are you defining 2.5% risk without stops?  ATR?

MG

I did not include transaction costs. As the fees are per transaction, not per share, their cumulative effect on your results depends (is inversely proportional) with the size of your portfolio.

It's a weekly timeframe system: channel breakout entry, trailing stop exit.

And a correction for the perf numbers I posted: It is 7.28% instead of 7.8 for 2% risk and 8.25% instead of 8.51% for 2.5%. Same 5% and 6% respective MaxDDs.

[Reub]

I really want something simple, relatively safe, proven and cost-effective for my portfolio as I near retirement. I want to enjoy the above average returns from the PP and be able to sleep well at night, knowing that my future is secure. What I'm trying to say is that I really don't want to improve on the PP, just enjoy it!