Gyroscopic Investing

I originally got hooked on HBPP, and of course decided to test various variations. I found that using a 6 month simple MA run on the respective Relative Strength figures and investing in the top two asset classes seemed to work well. One rebalances whenever instructed to by the 6 month MA.

My analysis produced the following CAGRs.

RS2-6 Months

Initial investment: $10,000.00
2005   9.30%   $10,930.00
2006 14.10%   $12,471.13
2007 29.70%   $16,175.06
2008 23.20%   $19,927.67
2009   8.70%   $21,661.38
2010 19.50%   $25,885.34
2011 21.40%   $31,424.81
2012   6.23%   $33,382.10
2013   3.00%   $34,383.56

FV ($34,383.56)
N 9
PV $10,000.00

I 14.71%

The data for 2013 is incomplete for the obvious reason. I did find, assuming that my analysis is correct, that investing in the top 2 asset classes produces a superior return to the straight HBPP. For instance, in 2013, one would not invest in gold, but distribute his/her investments into VTI and TLT. Over the past three months, one would see a CAGR of around -1.6% and an overall CAGR for the year of 3.0%.

Backtested RS data is courtesy of ETFscreen.com.

If anyone has any questions/comments feel free to post.

Rick

I saw a similar analysis done on scotts investments. The results are impressive although I would like to see a longer test period than 8 years. My first question would be concerning max drawdown and how that would compare to the pp4x1. Do you have that information? If so, it would be interesting.
Another strategy that I am wondering about is to overweight the top 2 etfs by relative strength and underweight the bottom 2. I am thinking that this might still improve the returns of the 4x1 while keeping the max drawdown within reason.
For example, the current portfolio would be:

VTI=37.50%
SHY=37.50%
TLT=12.5%
GLD=12.5%

I have some data from Scottsinvestments. com

Winning Periods: 58 (63%)
Best Period: 10.97%
Losing Periods: 34 (37%)

Worst Period: -6.75%

As for me, I still would favor splitting the monthly investment between the two best asset classes based on the RS data.

For further information, here's the Scotts Investment link: http://www.scottsinvestments.com/2012/0 ... portfolio/

Regards,
Rick Bajackson

I recommend buying the assets that are going to go up the most in the next 6 months.

Libertarian666 wrote: I recommend buying the assets that are going to go up the most in the next 6 months.

I like that idea.  Which two are they?  Or three?  Or one?  Oh, forget it....

I don't think that everyone got the message: Out of 4 PP assets, and pick two that have the highest RS 6 months figures, invest monthly in the top 2 assets. As of now, they are SHY/SHV and VTI.

I think they "get it" but sounds like they are joking around by saying "I recommend buying the assets that will go up the most". Getting back to the point. My concern about only owning 2 assets of the pp makes you vulnerable, removes that moat of safety which is the foundation of the pp.
Right now, with gold down 30 percent, if a strong rally began in gold, I would find it painful to wait until gold rises in relative strength to one of the top 2. I recognize the value of using relative strength as a tool but at some point, the top 2 will become the dogs and this strategy will underperform the 4x1 for that time period. For me, I prefer overweighting the top 2 and under weighting the bottom 2, this way, I have a hybrid of the pp and your strategy.

Me bad as far as missing the point of the post.

I don't think that investing 12.5% is going to make a major difference in the overall outcome. If you need to keep an eye on the lower two picks, I would suggest a "sharpchart" (Stockcharts.com) with a 50 Day Moving Average and 200 DMA. If you use the 50/200 DMA, when the 50 DMA intersects the 200 DMA going "north", you can consider putting some $$ into the lower picks.

And if the 50 DMA intersects the 200 DMA going south, you can pull money out of the leaders. Just my random thoughts. I'm sure that there are variations of this that are workable.

Thanks for your thoughts Rabs. I checked out the sharpchart on GLD. The 200 day MA is at 154 and the 50 day MA is at 134. The cross over to the upside, if it occurs, would be somewhwhere around 144 I'm guessing. Wow, that's 24 points. Even if I have just half the traditional allocation at 12.5%, I wouldn't feel that I missed the entire move but I guess you could argue that I wouldn't have participated in the downside in the first place if I followed your strategy. Either way, I think both strategies are compelling twists on the pp and a good way to lessen the effects of significant drops in the individual assets which was bound to happen after a decade of gold and bonds both moving higher together.
I can't figure out why so many folks on this blog are so ready to abandon this strategy when after 12 years of outperformance, it has a small drop of 5.5% ytd. Yet, if their stock heavy portfolios drop 50%, they seem to be okay with that. I wish good luck to the performance chasers out there. I'll still have my pp when they return. Human behavioral patterns in the markets seem so predictable.

Richard Bernstein was so right when he predicted that the followers of the pp strategy will drop like flies when the portfolio underperforms (I'm paraphrasing) and he is so right!

In a different way, I'm testing it
however as a VP portfolio and the most simple variant
no a top 2 pick, just in or out a asset
and i'm not using the 50 dma but the intersection of the 200 dma
http://gyroscopicinvesting.com/forum/va ... t-classes/

george wrote: Richard Bernstein was so right when he predicted that the followers of the pp strategy will drop like flies when the portfolio underperforms (I'm paraphrasing) and he is so right!

  are they? the fund investors may be jumping ship (i don't have any numbers so i don't really know) but the fund investors are likely fund investors first and PP followers because they found that fund, i would guess that true PP followers, the ones who study it, try to understand it and implement a DYS 4x25  PP are in the majority sticking with it, or moving no further away than dabbling in small modifications or making VP plays to fit the times....  just a guess, i would be curious to know...