Re: I'M OUT!

[ochotona]

Concerning 30 year Treasuries being the nut-buster, of course there has been endless speculation on this site about how nuts would get busted with a sharp rise in interest rates, and indeed it happened.

That's why I went all-in with momentum strategies, because I knew I absolutely hated to own TLT, and so I implemented Paul Novell's simple tactical bond strategy which is written about in detail publicly. I don't use the ETFs listed, but I use the methodology to avoid owning duration when I should be in cash. It has worked, mostly.

Tactical bonds took a -4.2% DD in 2022. Currently it's -0.35% DD. The lifetime CAGR is 7.9% backtested to 1970.

My entire portfolio is -12% from the peak, and I had all kinds of volatile crud in it... Bitcoin (sold at a profit but drew-down like mad), junior miners (holding but deep in the red). If I only had regular assets in the portfolio, I'd be down -5% ? I've just gotten killed on the miners.

I'm going to keep using momentum. It works. It hasn't stopped working. It's hard to keep doing month after month, it has seemed pointless sometimes. Now I know it's not pointless, as I'm beating the 60/40 on the downside.

Someday... after some kind of a currency and debt and equity reset, I'm going to migrate to a lazy portfolio. Just not yet.

[Maddy]

I am grateful for the "thinking outside the box" that occurs on this forum. When I look at what's going on over at the Boglehead site, they're still just lumping along telling each other to "stay the course." Who knows, they may be right in the end, but for now the idea of putting on blinders just makes me feel more anxious. I'll check into the "tactical bond" and "momentum" strategies--something I know nothing about.

An additional thought: From what I know about HB, I think he'd be the last person in the world to get locked into a model. He was undoubtedly right about the pitfalls of emotion, but I strongly suspect that his investing strategy might have been modified, even significantly, over time to account for changes in how the basic asset classes were functioning in relation to one another.

[DogBreath]

If the stock market was dropping 50% and the "outlook" for stocks was not bright, would you sell all of your remaining stock holdings, potentially at a loss, and pile into whatever was doing well at the moment? I tried that in 2008, and it didn't work out well; in fact, that's what led me to the PP. One or more of the 4 assets will always be doing poorly. That's by design.

Maybe it really is "different this time", but how many times have you heard that over the past 30 years?

[flyingpylon]

If the stock market was dropping 50% and the "outlook" for stocks was not bright, would you sell all of your remaining stock holdings, potentially at a loss, and pile into whatever was doing well at the moment? I tried that in 2008, and it didn't work out well; in fact, that's what led me to the PP. One or more of the 4 assets will always be doing poorly. That's by design.

Maybe it really is "different this time", but how many times have you heard that over the past 30 years?

This is pretty much what I've been wondering. Is this not just a case of one of the asset classes being out of favor currently? Should there be any more hand-wringing than when stocks or gold drop? Or when cash returns nothing for an extended period?

Does anyone think that the Fed will never need to drop interest rates in the future?

If someone is a market-timer, then sure, time the market. But if you've picked a lazy portfolio, shouldn't you be "lazy"?

[Maddy]

This is pretty much what I've been wondering. Is this not just a case of one of the asset classes being out of favor currently?

The thing is. . . Not a one of the other three asset classes looks rosy--or even safe.

[yankees60]

If the stock market was dropping 50% and the "outlook" for stocks was not bright, would you sell all of your remaining stock holdings, potentially at a loss, and pile into whatever was doing well at the moment? I tried that in 2008, and it didn't work out well; in fact, that's what led me to the PP. One or more of the 4 assets will always be doing poorly. That's by design.

Maybe it really is "different this time", but how many times have you heard that over the past 30 years?

How about eight centuries (!!!) of it!!??

https://www.amazon.com/dp/B004EYT932/?r ... l_huc_item

This Time Is Different: Eight Centuries of Financial Folly Kindle Edition

[Maddy]

There are certain things that are indisputably different this time. And simple mathematics says that there WILL be a time of reckoning.

The question is whether the government, which has so far managed to keep the ball in the air by injecting incomprehensible amounts of liquidity into the markets, by enabling the fictitious valuation of assets and, ultimately, by using military action to defend the integrity of the dollar, can continue to pull off these sleights of hand for the duration of your financial life.

[joypog]

From your other thread, I don't see how "Short-term treasuries, real estate with timber value, maybe a few old fashioned dividend-paying stocks with certificates" will save you in a national collapse.

If you're really worried about the state of our nation then do as HB advises. Store your gold in another country and be ready to get out sooner rather than later. Of course that leads to the question which government you might dare entrust a quarter of your net worth.

The real solution is to stop watching sensational news. All media companies are incentivized to make things look worse and trending worse. You think MSNBC is any more hopeful a platform than Fox?

To preserve your money, the PP still has the lowest ulcer index on portfolio charts. The past 2 weeks have been a great proof of concept for the PP. Stocks getting hammered, STT gaining interest rate hikes, LTT's and Gold jumping quite nicely. 2022 was a shitstorm for everything...weird as it sounds the first quarter 2023 market feels on track for people who are betting their portfolio on the concept of uncorrelated assets.

[Maddy]

From your other thread, I don't see how "Short-term treasuries, real estate with timber value, maybe a few old fashioned dividend-paying stocks with certificates" will save you in a national collapse.

Well, if I felt confident that they would save me, I wouldn't be an anxious mess.

[ochotona]

If the stock market was dropping 50% and the "outlook" for stocks was not bright, would you sell all of your remaining stock holdings, potentially at a loss, and pile into whatever was doing well at the moment? I tried that in 2008, and it didn't work out well;

Chasing what worked best recently actually works... if and only if:

1. You use the right time scale of look-back... moving averages between 6 - 12 months, or momentum between 6 - 12 months, and maybe adding 3 months in the mix for more performance, but this will lead to more trades

2. You evaluate and trade every month

3. Your emotions are suppressed and you run it by the numbers, and behaviorally this takes years to learn how to do

The signal that the outlook for stocks wasn't so bright came end of 04/29/2022 when the 10 month MA was lost. The signal to get out of TLT came 12/31/2021 when six month relative momentum of TLT relative to BIL was lost. But you had to have been watching for the signals and have been primed to act. There was some time to act. This didn't all come out of nowhere.

At present... the models may actually start to add stocks and TLT back in after being out for almost a year. But everything changes month by month. We're always 21-22 trading days away from a different world. It's very different from the HBPP in that sense. But it's very similar to the HBPP in that you run it by the numbers, it's quantitative, it's not emotional at all. It's just a different model. These approaches are not enemies. They are two different responses to risk and uncertainty. I think the HBPP + momentum make great partners because the correlations are low. I started a thread with that title long ago.

40% HBPP and 60% Antonacci GEM... CAGR 12%, MaxDD -18% (worse than HBPP but much more return... you get compensated for it). Sharpe ratio 1.46. Ulcer Index 2.12. This is a very simple model to run. You find a number of sites giving away the Antonacci signals for free.

HBPP CAGR ulcer index 1.29. You get more ulcers. 60/40 Ulcer Index 0.78. Ugh, horrible. We hate it.

You don't have to participate in world collapse narratives (or their opposite) to move towards or away from asset classes. Momentum itself points the way.

[joypog]

40% HBPP and 60% Antonacci GEM... CAGR 12%, MaxDD -18% (worse than HBPP but much more return... you get compensated for it). Sharpe ratio 1.46. Ulcer Index 2.12. This is a very simple model to run. You find a number of sites giving away the Antonacci signals for free.

HBPP CAGR ulcer index 1.29. You get more ulcers. 60/40 Ulcer Index 0.78. Ugh, horrible. We hate it.

I like the idea of a momentum + PP strategy, though I don't think I could actively manage a strategy myself. But if 40% is what you can't afford to lose, and am willing to put in the effort, it's a great idea.

People tend to forget that Harry designed the system with a VP. Going with the PP isn't a license to turn off your brain. You still need to determine what you absolutely need to keep safe and be responsible to maximize your risk/return on the rest.

That said, I don't understand your ulcer index number. How do you calculate it? Tyler's ulcer index is "lower is better" on Portfolio Charts. Thanks!

[ochotona]

Free signal for Antonacci GEM portfolio

I'm just reporting the Ulcer Index from AllocateSmartly.com. They seem to use the Wikipedia version, which does seem reversed from the Investopedia definition.

"As with the Sharpe Ratio, a higher value of UPI is better than a lower value (investors prefer more return for less risk)."

[ochotona]

Antonacci GEM DIY instructions:

EVALUATE AND TRADE ONLY ON THE LAST TRADING DAY OF THE MONTH... 2:30-3:30 PM EASTERN TIME IS FINE

1. Risk on or off? Look at SPY return over the past year relative to risk free SGOV (better than the older BIL). Right-click on time bar, set scale to Past Year instead of 200. Risk-on signal if SPY 12 month performance better than SGOV. Otherwise risk-off

2. If risk-on, allocate to VTI or VEU? Look at VTI vs VEU return over the past year. Right-click on time bar, set scale to Past Year instead of 200. Allocate to the one with the highest 12 month performance

3. If risk-off, allocate to AGG or BND

4. If risk-off, an optional step which helped in 2022 - Look at AGG vs SGOV return over 6 months. This is my tweak, it's not part of standard GEM. Right-click on time bar, set scale to Six Months instead of 200. Allocate to the one with the highest 6 month performance. That kept me from dumping into bonds, a losing asset in 2022

5. Then a smaller Permanent Portfolio or other"lazy" of your choice... Golden Butterfly, etc. The smaller amounts of gold or TLT won't be as hard to hold, even if it's going through a rough patch. This solves the "my portfolio has too much TLT and gold and not enough CAGR" problem

Momentum for tax-deferred / tax-free... lazy for taxable.

[ochotona]

DIY Tactical Bond

Allocate to the top 3 ETFs with 6 month performance greater than SGOV. Do not allocate to anything which performs more poorly than SGOV. Allocate 1, 2 or 3 of the slices to SGOV if needed.

[boglerdude]

https://www.visualcapitalist.com/which- ... t-us-debt/

[barrett]

Ocho, you just use the momentum strategy in tax-deferred and Roth accounts, right? Otherwise, assuming that losses are not regularly offsetting gains, you would end up paying more taxes due to lots of transactions.

[joypog]

Thanks! I'm not ready to explore an active portfolio management strategy, but it's intriguing! I've bookmarked this thread for future study!

[yankees60]

https://www.visualcapitalist.com/which- ... t-us-debt/

This seems so paradoxical.

China owning so much of our treasuries certainly implies that they are interested in the welfare of the United States. Americans buy so many products from China, which is obviously a benefit to both American consumers and the Chinese economy.

Yet each country views the other country as its greatest threat?

[ochotona]

Ocho, you just use the momentum strategy in tax-deferred and Roth accounts, right? Otherwise, assuming that losses are not regularly offsetting gains, you would end up paying more taxes due to lots of transactions.

Exactly, only in tax-deferred or tax-free accounts! These are about 2/3 or 3/4 of my assets.

[boglerdude]

> China owning so much of our treasuries certainly implies that they are interested in the welfare of the United States

The US especially is not culturally homogeneous. China is buying Canadian and American land and politicians. And exporting their methods for handling disobedient sub-cultures.

Vinny here are more podcasts for you to listen to, three at a time https://www.youtube.com/@HooverInstitution/videos

[Kevin K.]

FWIW I think Cullen Roche's counter-cyclical investing strategy is a more elegant iteration on tactical investing that also entails much less work. Here's a good recent interview with him:

https://pictureperfectportfolios.com/st ... len-roche/

The basic idea is to use a 30-40% allocation to his DSCF actively-manged ETF as a core holding and then layer complementary assets around it according to one's particular time horizon/aggressiveness, portfolio size, goals and so on.

As a practical example, here's an allocation he suggested to me, knowing that I was looking at possible alternatives to the Golden Butterfly or PP for retirement, preceded by his comments:

"I typically use it as a core component within a core and satellite approach within my "All Duration" approach. I've always liked "lazy portfolios", but the problem there is they don't always bucket allocations in a
sensible manner which creates a lot of uncertainty. Specifically, I'd argue that 20% in long-term bonds is way too much. Long bonds and gold are like insurance in a portfolio. Your portfolio should never be comprised of 40% insurance. Instead, I'd bucket it out with more T-Bills and something like VGSH for the short-term bonds. Then apply DSCF, VTI and smaller allocations to IAU or VGLT for insurance."

10% 6 month T-Bills (just keep rolling them every 6 months) 20% VGSH (short-term govt bonds yielding 4%)
30% DSCF (tax efficient stock/bond mix)
20% VTI (stocks)
10% VGLT 10% IAU/PHYS

You can read his excellent (short!) paper on All Duration Investing here:

https://www.pragcap.com/new-white-paper ... investing/

I think this is a brilliant contribution that reflects Roche's extensive real-world experience with clients who have had a hard time staying disciplined in their investing during market meltdowns due to (unbeknownst to them) poor matching of the duration of their assets with their needs. As an example he points out that a classic 60:40 that uses the 40% IT bonds to mitigate stock market risk still has an average duration of around 9 years - meaning that the failure to include cash and/or short-term bonds could easily force you to have to sell at a loss to generate funds for living expenses, rebalancing, emergencies, etc.

Of course the PP and the GB, with their bond "barbells," already include a pretty fair amount of duration flexibility but Roche contends that the desire on the part of the designers of those portfolios for the symmetry of equal weighting of the components results in too much of them being allocated to "insurance" (the gold and LTT's) at the expense of growth and a truly "all weather" approach that reflects the reality that prosperity and inflation are far more likely than deflation, confiscation or so-called "tight money." He's a really brilliant young guy whose YouTube videos I've often recommended to younger investors with TikTok-driven attention spans.

[yankees60]

FWIW I think Cullen Roche's counter-cyclical investing strategy is a more elegant iteration on tactical investing that also entails much less work. Here's a good recent interview with him:

https://pictureperfectportfolios.com/st ... len-roche/

The basic idea is to use a 30-40% allocation to his DSCF actively-manged ETF as a core holding and then layer complementary assets around it according to one's particular time horizon/aggressiveness, portfolio size, goals and so on.

As a practical example, here's an allocation he suggested to me, knowing that I was looking at possible alternatives to the Golden Butterfly or PP for retirement, preceded by his comments:

"I typically use it as a core component within a core and satellite approach within my "All Duration" approach. I've always liked "lazy portfolios", but the problem there is they don't always bucket allocations in a
sensible manner which creates a lot of uncertainty. Specifically, I'd argue that 20% in long-term bonds is way too much. Long bonds and gold are like insurance in a portfolio. Your portfolio should never be comprised of 40% insurance. Instead, I'd bucket it out with more T-Bills and something like VGSH for the short-term bonds. Then apply DSCF, VTI and smaller allocations to IAU or VGLT for insurance."

10% 6 month T-Bills (just keep rolling them every 6 months) 20% VGSH (short-term govt bonds yielding 4%)
30% DSCF (tax efficient stock/bond mix)
20% VTI (stocks)
10% VGLT 10% IAU/PHYS

You can read his excellent (short!) paper on All Duration Investing here:

https://www.pragcap.com/new-white-paper ... investing/

I think this is a brilliant contribution that reflects Roche's extensive real-world experience with clients who have had a hard time staying disciplined in their investing during market meltdowns due to (unbeknownst to them) poor matching of the duration of their assets with their needs. As an example he points out that a classic 60:40 that uses the 40% IT bonds to mitigate stock market risk still has an average duration of around 9 years - meaning that the failure to include cash and/or short-term bonds could easily force you to have to sell at a loss to generate funds for living expenses, rebalancing, emergencies, etc.

Of course the PP and the GB, with their bond "barbells," already include a pretty fair amount of duration flexibility but Roche contends that the desire on the part of the designers of those portfolios for the symmetry of equal weighting of the components results in too much of them being allocated to "insurance" (the gold and LTT's) at the expense of growth and a truly "all weather" approach that reflects the reality that prosperity and inflation are far more likely than deflation, confiscation or so-called "tight money." He's a really brilliant young guy whose YouTube videos I've often recommended to younger investors with TikTok-driven attention spans.

This all sounds quite intriguing. Will follow up with what you have put here to watch and read. He echoes Bernstein in investing to possibilities of future realities.

[boglerdude]

True, inflation is most likely. But some of us want to be able to liquidate the entire portfolio at any time for cancer treatment, gold/bitcoin to change countries, or other disaster.