Gyroscopic Investing

InsuranceGuy, that is some really nice work. I like how you explore Top1, Top2, Top3.,,, for PP and GB. This is very useful.

One thing that would be useful too is a simulation holding gold fixed, because owners of bullion aren't inclined to trade in and out as with ETFs.

So

1. PP buy and hold
2. Gold + Cash + best of (stocks or long Treasuries)

or,

1. GB buy and hold
2. Gold + best 1, 2, or 3 of (LCB, SCV, LTT, STT)

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InsuranceGuy wrote: I'll have to post some more results when I have something more pretty and life slows down a bit.  I've been evaluating some additional assets like REIT and International stocks for "crash" protection and it seems promising that when many assets are performing badly together you should pull money out of your risky (TopX) assets and put it in short term treasury bonds.  Seems to help with drawdowns but I want to pull some more data for other assets to see if I can improve on what I have.

I suspect its a roundabout way to get at market internals that dictate whether investors are "risk on" or "risk off".  Potentially, there's an ETF out there to cover every possible market internal.  What's surprising is how long-term bonds are the worst "risk off" asset.

InsuranceGuy, can you give us some more details?  It sounds like you are testing a monthly checking strategy.  Is it a 12-month lookback period each month?  You mentioned some consistency tests to avoid whipsawing.  What are those tests?

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So, the buy/sell signal has to repeat itself two months in a row before you act?

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InsuranceGuy wrote: Ok, so in a strange turn of events I found that adding SCV or other assets only give marginally better results on top of my momentum based modification of the HBPP. 

That would be the same conclusion that Gary Antonacci makes in recommending that one US Equity index fund is as good as his US sector asset rotation scheme... Jack Bogle would agree too, though not with dual momentum.

InsuranceGuy wrote: I will look into adding what you are asking for into my model, but I am guessing that fixing the gold percentage would be a huge detriment to both returns and drawdowns as MG did some work to show that gold was the best candidate in the HBPP to move from B&H to a momentum approach.

This makes sense. Maybe the point is hold 5% physical next to your bitter religion and guns, and 15% ETF.

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InsuranceGuy wrote: So what does this all mean?  Well, it seems you can add 2% in returns or lower drawdowns 6% by using an efficient momentum algorithm.

So which "efficient momentum algorithm" do the above results reflect and at what rebalancing interval?

I agree it is pretty tough to beat the PP with any kind of risk control.  I've long suspected that too much giveback from a peak on stocks is unprotected by bonds or gold.

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Could you clarify for us again what each of the portfolios mean exactly? It's been awhile.

In my backtesing to 1996, I did not find it was advantageous to diversify into size, foreign or bonds compared to market timing on the S&P 500 alone. The problem is everything but the S&P 500 seems to have underperformed. Even back to 1958, the model still clears over 11% a year without relying on any relative momentum. This makes it really tough to justify using anything more complex. Antonacci may have been onto something, but it feels like survivorship bias to me.

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InsuranceGuy wrote: I'm not sure what the goal of backtesting to 1996 was as that seems a short time period, but I see that if you overweight stocks in the PP to 40/20/20/20 for a fair comparison you would be better off in all S&P500 in the 1990s, but better in S&P+SCV in the 2000s, and it looks like a tie for the 2010s. Going back further in both the 1970s and 1980s it would be better to be in S&P+SCV.

Thanks! I was limited by the start date of a Vanguard fund. But that is good to know that S&P + SCV holds up beyond 1996. However, you need to be clear about what you used for the data. Are you using the junky annual returns from the Simba spreadsheet or are you using French-Fama? All the way or with point-in-time funds including that garbage SCV fund from Vanguard? It makes all the difference for real world implementation going forward.

When the Golden Butterfly (GB) is used with French-Fama all the way, I only get about a .50% outperformance vs PP or 40% S&P 500 GB, so I think neither the small nor the value factors played one iota of a role in the 1970's. I'm not even sure what the point of the GB is now other than as a pointless exercise in data mining using junky data. At least Tyler admits it is more about the robustness of the PP concept than anything else.

InsuranceGuy wrote: What model are you using that gives 11% back to 1958 without momentum? I am not looking at anything before 1969 for lack of gold pricing, but was curious.

It's proprietary. I'm just informing you that it is possible. Think outside the technical analysis jungle.

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InsuranceGuy wrote:That's fine, at this point most of what I'm looking at falls in a similar category. What kind of drawdown/UPI are you seeing for that return? Just trying to benchmark with some of my better scenarios.

Off the top of my head, it was 10%-11% CAR with -19% MaxDD.

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InsuranceGuy wrote:

MachineGhost wrote:

InsuranceGuy wrote:That's fine, at this point most of what I'm looking at falls in a similar category. What kind of drawdown/UPI are you seeing for that return? Just trying to benchmark with some of my better scenarios.

Off the top of my head, it was 10%-11% CAR with -19% MaxDD.

Thanks, I see about the same thing.

So let us know how much momentum adds to it, if at all. I'm curious.

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InsuranceGuy wrote:

MachineGhost wrote:

InsuranceGuy wrote:
Thanks, I see about the same thing.

So let us know how much momentum adds to it, if at all. I'm curious.

Roughly an additional 1% return or 3% drawdown reduction.

Hmm, is that gonna make up for the increased transaction costs and taxes? It seems tempting not to bother. I know even a fraction of a percent compounds but there's the emotional issues in having to do additional transanctions beyond just the macro aspect.

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