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Lowell Herr

 
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  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    User 447425,

    I don't have 10 years of data. In order to provide 8 years of data I actually need more than eight years in order to come up with the ranking calculations.

    The data for the second example comes close to answering your questions. What I would prefer is to have over 15 years of data so I could include the tech bubble. Unfortunately, SHY was launched in July of 2002 so that pushes the tech crash outside the limits of analysis.

    The real question is - will this model work going forward? That is what I am testing and measuring.

    Lowell
    Aug 20 09:25 PM | 1 Like Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    Gguyette,

    I use the 33-Day review rotation for several reasons, and there is nothing magical about my reasons. 1) It rotates the review throughout the month. The avoids most of the activity that occurs near the end of the month, particularly at the end of quarters when the mutual fund managers tweak their funds. 2) The 33-Day period avoids the wash-sale problems. 3) It avoids short-term trading fees that brokers might levy if one is using commission free ETFs.

    I show the ETF rankings with almost every portfolio review. It is not important for the Schrodinger, Copernicus, and Pasteur as those are passively "managed."

    Lowell
    Aug 20 06:32 PM | Likes Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    Sbenzian,

    With the real portfolios I track I do use cash. It is easier to back-test if one has an investable ticker and this is where SHY works well. Regardless whether one goes to cash or uses SHY as the "bank," SHY still works well as a reference point for performance comparison.

    The price of SHY changed about $16.00 per share over the past 8 years so I don't expect to see much volatility over the next five.

    Lowell
    Aug 20 05:16 PM | 1 Like Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    SHY was selected as the cutoff ETF for its low volatility. We are not interested in its relationship with respect to other ETFs other than the volatility factor. We could have selected another ETF, but SHY is commission free for TD Ameritrade clients so it cuts costs when we need to move cash in or out of SHY.

    Hope this makes sense.

    Lowell
    Aug 20 05:06 PM | Likes Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    SVY,

    Not quite. In the first example there are six ETFs. In the second there are seven ETFs. The three metrics, two related to performance and the third is volatility, are used to rank the ETFs regardless of how many one might use. 40 is the limit my software will handle. I find 30 ETFs is adequate to build a global portfolio. Many fewer are used in the above portfolios.

    ETFs performing below SHY are sold out of the portfolio and the cash is invested in SHY. ETFs performing above SHY are invested to the percentage stipulated by the manager. In the first case I used percentage recommendations from Swensen.

    In the first example the portfolio was reviewed every 90 days. In the second it was at the end of the month. I think I misstated that it was every 33 days. Every 33 days is the period I use to review portfolios.

    Lowell
    http://itawealth.com
    Aug 20 04:54 PM | Likes Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    Dataman2,

    I don't have an answer as I've not run the numbers. I suspect the returns will not be as great as bear markets such as 2008 will impact final results since there are fewer moves into SHY.

    Lowell
    Aug 20 03:26 PM | Likes Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    My error. You are correct. That should read 8 years, not 14. Thank you for the close reading of the article.

    Lowell
    Aug 20 02:21 PM | 2 Likes Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    SVY,

    Let's see if I can answer your questions.

    "can you clarify how does the review & re-balance works relative to the allocation %s in each asset...maybe with a sample calculation for one asset relative to the metric weighting?"

    The possible percentages allocated to each ETF is predetermined. If the ETF is performing above SHY (based on the ranking system explained in the article) then the ETF is assigned that percentage. For example, if EFA is performing above SHY then 10% of the portfolio, at the time the portfolio is reviewed, is allocated to EFA.


    e.g. "...A 50% allocation was assigned to metric #1, 30% to metric #2, and 20% to metric #3..."

    The spreadsheet permits one to adjust the % allocations to each metric. The above 50%, 30%, and 20% are reasonable and seem to work quite well based on experience.


    "how does that translate into the initial - VTI - 40%, TLT - 20%, EFA - 10%, VWO - 10%, VNQ - 10%, RWX - 5% & AGG - 5%?"

    The metrics used to rank the ETFs are completely separate from the percentages allocated to each ETF.


    "my guess is a point system is established relative to each asset ranked in each of the 3 metrics and that point total translates to the actual allocation % totaling 100% out of the 7 assuming that the 7 assets are performing better than SHY... "

    No points are assigned. The ETFs are ranked based on performance over the past 91 calendar days (50% weight), performance over the past 182 days (30% weight), and volatility (20%) weight. The following link is an example of the ranking table.

    http://bit.ly/1n9Cny5

    Lowell
    http://itawealth.com
    Aug 20 01:50 PM | Likes Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    "On each 33 day review, are assets that have been removed from a given ETF returned to that ETF if the performance exceeds SHY performance?"

    Yes. This ends up with more portfolio churning than I prefer so I am working on a model that will reduce portfolio turnover while continuing to hold down risk of losing money in a bear market.

    Lowell
    http://itawealth.com
    Aug 20 01:40 PM | 1 Like Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    Annapolis13315,

    The underlying principles used in the article have their roots in Antonacci's work, as well as others who advocate a momentum approach to investing. Only time will tell if this approach is an anomaly that will eventually run out of steam. As mentioned at the end of the article, I continue to test the model to see if it is working going forward.

    Lowell
    Aug 20 11:23 AM | 2 Likes Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    Analyst444,

    The rebalancing that occurred in the article was to push money into SHY only if a particular ETF was not performing above SHY. The winners are permitted to run so long as they outperform SHY. The article is based on a momentum style of investing as we invest in winners and sell losers.

    Thanks for affirming my results. Sounds like you are doing something very similar to what I describe in the article.

    Lowell
    http://itawealth.com
    Aug 20 11:19 AM | Likes Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    For readers looking for a recent ETF ranking, I removed the protection from this blog post. Take a look.

    http://bit.ly/1n9Cny5

    Lowell
    http://itawealth.com
    Aug 20 09:11 AM | 1 Like Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    Chkm8k2,

    Check out my blog as the information is there for Platinum members. I track 13 real portfolios and the ETF rankings are posted when the portfolios come up for review.

    Lowell
    Aug 20 08:34 AM | Likes Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    Ken,

    I do not report on the Swensen 6 + SHY in particular, but on my blog (http://itawealth.com) the information is embedded when I show the rankings of the 30 ETFs I use to put portfolios together.

    The volatility is a 10-day standard deviation calculation that is part of the ranking spreadsheet I use. 20% importance is attributed to this calculation in the overall ranking. Again, this is automatically calculated from the price of the ETF, downloaded from Yahoo-Finance data.

    ETFs under-performing SHY generally have negative performances. Examples in the camp right now are GLD, DBC, VEA, and IDV.

    A current list was uploaded yesterday when I reviewed the Huygens Portfolio. Unfortunately, to see it you must be a Platinum member of my blog. The cost is modest and it includes access to the spreadsheet used to come up with the rankings.

    Lowell
    Aug 20 08:32 AM | Likes Like |Link to Comment
  • The Swensen 6 Portfolio: How To Reduce Risk And Trounce The Market [View article]
    User,

    The site you reference does not, as far as I can see, use SHY as a cutoff ETF. That makes a significant difference. Further, the ranking system also plays a role in the performance.

    Lowell
    Aug 19 10:53 PM | Likes Like |Link to Comment
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