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  • The SPY-TLT Universal Investment Strategy [View article]
    Whenever we check in, we always see comments about how this or that strategy wouldn't have performed during the 70's or during '82-'86 or XXXX-YYYY... It is a silly argument.

    The point is not to come up with one single backtest that worked the best in every particular sub-period throughout history. The point is to use backtesting to understand market relationships. Financial relationships may be stable for a long period of time and then they can change. We are not studying scientific data where something that is true might be always true (ie the temperature where XYZ melts), we are studying something where current thinking on the topic affects the subsequent data. Financial relationships might be stable for a long period of time -- and then become unstable. Backtests measure this by quantifying it.

    ETFreplay exists as a source to easily run lots of different backtests so that you can gain a better understanding of which relationships are working and which may have turned. Simply stating that a backtest would have done poorly in a specific sub-period 30 years ago is just pointless. Whether it did or didn't work in the 1970's does not give any guarantee on how it will perform in the 2015-2020 time period. The point is to identify and stay on top of the current regime you are in ----- and you are going to have to do ongoing assessments to figure that out. If you don't like doing ongoing assessments (research), perhaps you shouldn't be doing this and find someone who can do it for you.

    This is not meant for the author of this article --- but just to the commenters -- stop searching for the ultimate backtest like this is a scientific study -- it is not -- and it is not necessary to find an allocation that worked in every sub-period of history. You can do very well in investing without that.

    Happy Thanksgiving to all on Seeking Alpha.

    Nov 27, 2014. 01:33 PM | 8 Likes Like |Link to Comment
  • Why Twitter's 38 Million Zombies Could Impact Ad Revenue [View article]
    You need to acknowledge the fact that zombies (those who don't see ads) haven't helped results in the past so the presence of zombies are already factored into the revenue base. The only thing that matters is how much zombies grow as % of the total --- and even then, it may not matter so much if the underlying growth overwhelms the growth of zombies.

    You also need to acknowledge the fact that advertisers only pay for interactions with their tweets. Users might see 10,000 of your tweets but if nobody clicks, there is no payment from the advertiser to Twitter. Again, this is already factored into the revenue base so the only thing that matters is the % CHANGE in engagement rate by users from one quarter to the next. Given the tens of millions of tweets, its hard to believe the engagement rate is going to move around by large percentages without something major happening to the business... Maybe but I doubt it.

    Facebook has been fabulously successful and has some of the best profit margins in the entire S&P 500 -- and among the best in the world. Twitter may not be Facebook -- but then, only a few companies in the world -- of many thousands --- have that type of profitability.
    Aug 12, 2014. 12:04 PM | 1 Like Like |Link to Comment
  • The Implications Of A K-1 Tax Form When Trading ETPs [View article]
    Of the 3 largest MLP exchange traded products on the market (AMLP, AMJ and MLPI), none have K-1's. Distributions are taxed as ordinary income and follow normal dividend distribution tax rules (on form 1099).

    Keep in mind, if you buy the holdings of the ETNs, like Kinder Morgan (KMP) or Enterprise Product Partners (, you will get a K-1 for EACH one. So the exchange traded products that don't have K-1s (most) are really convenient.
    Jun 24, 2014. 08:32 AM | Likes Like |Link to Comment
  • Shiller CAPE Peaches Smell Like BS [View article]

    CAPE is just a mean-reversion strategy. It takes the idea that profit margins are mean-reverting and therefore current earnings estimates are far too high because the last 10 years includes recession earnings. This is a very simple idea. There are just so many better strategies than this where you don't have to have such LONG periods of underperformance. Become a student of strategies --- don't just pick the simplest one and think its going to work out great.
    Jun 15, 2014. 11:35 AM | 1 Like Like |Link to Comment
  • Hangman: The ETF Revolution [View article]
    Comparisons made in this article are quite poor.

    1. 'Smoke and mirrors' -- ETFs are the most transparent product possible. all holdings, including details on shares held, weightings etc.. are disclosed DAILY.

    2. If ETFs rise after investors sell and go down after buys -- then all you have to do is watch the shares outstanding of the ETFs and do the opposite of what investors in general are doing. Again, in most transaparent form possible, ETFs disclose the shares outstanding for the products DAILY. We have indeed backtested this and results were weak -- so in fact, that study done on German stocks from a specific finite time-period does not crossover in meaningful fashion. If you find otherwise, then please post at least a summary of the results.

    3. The reference to portfolio insurance is frankly clueless. Portfolio insurance is a hedging strategy which makes use of index futures. It was done prior to 1987 and is being done today. The use of futures to sell more as prices dropped exacerbated the extent of the fall in 1987. The connection made to ETFs is just fear-mongering.

    Finally, the assumption that portfolio managers are the equivalent of stock-pickers is faulty. The firm that wrote this is perhaps a firm built on stock-picking -- but that certainly does not make all portfolio managers stock-pickers. Many institutional investors are using ETFs extensively. ETFs are not a retail-only product. Blackrock estimates retail makes up approximately 50% of overall ETF ownership.
    Mar 26, 2014. 01:48 PM | 2 Likes Like |Link to Comment
  • The S&P 500 Has Not Been Particularly Difficult To Beat... [View article]
    It was easy to beat the S&P 500 if you were pursuing a Value strategy prior to 2008. At the time (2006), indeed it was easy to beat S&P 500 with a value strategy. That was right before a massive drawdown though.

    The more important aspect though is that VWNDX has very little difference in deviation if you track it vs the Russell 1000 Value or Russell 3000 Value index. Using that as is appropriate in performance comparisons, the fund is under its benchmark for the trailing 10 years.

    When you always back something up to its original inception date for analysis purposes, you are just basically regurgitating the mutual fund sales marketing strategy. If the funds performance were no good, it would have been merged into another fund. So its a little like arguing that the Los Angeles Lakers are going to great because they did great for so many years and the other NBA teams are easy to beat. That is not very thorough analysis.
    Oct 31, 2013. 09:44 AM | Likes Like |Link to Comment
  • ETFs: The Reality Is They Work [View article]
    Good Ron. Another way to think about it.

    SPY (or AAPL for that matter) trades very actively in the pre-market each day. The stocks in S&P 500 have not yet opened so there is no accurate way to calculate NAV on a bottom-up basis. To call that price a premium or discount vs the previous 4pm closing price is misleading --- but its the same thing headline-seeking journalists consistently mix up. The same thing happened with securities lending and how short-interest would make XRT collapse. Its nonsense for standard index-based ETFs.

    The bottom line is that the securities that underlie the index need to be quoted in real-time for the NAV to have meaning. Since there is no accurate real-time quotes for securities that don't trade US hours, its just dumb to compare it. Its not a premium or discount --- its just the existing values set by real-time oriented investors.
    Jul 2, 2013. 12:27 PM | 1 Like Like |Link to Comment
  • How To Beat 99.9% Of Professional Investors [View article]

    The fact is that had this not been your daughter --- this account never would have stayed with you. I know that is part of the point of your article --- must save investors from themselves.
    Jun 27, 2013. 12:04 PM | 3 Likes Like |Link to Comment
  • ETF Replay Portfolio Review: June 2013 [View article]

    Rotation between assets classes is a form of stop. It just doesn't mean you take a loss because something might underperform but still go up and you could rotate away with a gain --- as the author did.

    You are probably referring to percentage-based stops. Percentage based stops backtest poorly unless they are very wide -- and then its still inferior to the method employed by the author.

    It is not uncommon for volatile markets to trade down intra-month and then recover by month-end. If you stopped out, you don't participate in the recovery and are left buying back in at worse prices.

    Using portfolio management (using multiple strategies, watching portfolio volatility etc) for risk reduction works a LOT better than percentage-based stops.

    Then again, if you don't spend a lot of time backtesting many different types of things --- you could just keep it easy and use percentage-based stops because it sounds good. Good luck.
    Jun 3, 2013. 07:43 PM | Likes Like |Link to Comment
  • ETFReplay Portfolio For May [View article]

    Our simplified (and free) RS example is in its 4th year of using the same default example. It is not meant as a favored strategy --- but it is real as the last 3 years are out-of-sample results.

    We could have chosen a sector strategy as an example --- but we didn't because it has never backtested well. The point is to learn -- not force-fit a sector strategy and then talk about how it doesn't work.

    May 4, 2013. 11:50 AM | Likes Like |Link to Comment
  • A Demon Of Our Own Design: Markets, Hedge Funds, And The Perils Of Financial Innovation [View article]
    I read this book in 2008 because I was familiar with the author -- one of his articles from ~2001-2 had been required reading for the CFA Level 3 exam.

    This book was much more practical advice than the other book that came out around same time 'The Black Swan'. This one discussed how the financial market structure (including the compensation structure) breeds fragility of the system. The market needs to push beyond the point of pain -- it pushes until there are forced liquidations.
    Feb 2, 2013. 09:44 AM | 1 Like Like |Link to Comment
  • The Not So Obvious Reason Why PIMCO CEFs Trade At A Premium [View article]

    A good example of how NAV is not representative of reality. Nice job Bengal.
    Oct 24, 2012. 07:25 PM | Likes Like |Link to Comment
  • Returns For Basic Asset Allocations Through Q3 [View article]
    Sounds about right though by 'crushed' I assume you don't mean losing money -- but instead mean get crushed by the broader benchmarks.
    Oct 4, 2012. 11:33 AM | Likes Like |Link to Comment
  • Tactical Applications Of The Permanent Portfolio [View article]
    Aug 28, 2012. 04:37 PM | Likes Like |Link to Comment
  • Necessities Of Life ETF Portfolio [View article]

    I liked how you mixed a fundamental thesis with the realities of the marketplace (Volatility). A lot of people do one or the other -- have a fundamental thesis and then undervalue the position-sizing dimension.... Or they try to optimize quant numbers and skip over the idea of whether that is actually the exposure they want or not.

    Jun 11, 2012. 03:56 PM | Likes Like |Link to Comment