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Lowell Herr

 
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  • Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]
    Extremebanker,

    I agree with you and it is particularly true when one market such as U.S. Equities grows so much faster than other markets as it has since March of 2009.

    What do you use as a benchmark? A couple of comments. 1) Reducing risk is important so avoiding bear markets is definitely a plus for momentum models. One is not always trying to get back to even. 2) The benchmark I use is one that is customized for each portfolio and that benchmark tracks what would be the Strategic Asset Allocation plan for the portfolio. Not easy to explain without a specific example. 3) Another benchmark to use is VTTVX as it is a stock/bond mix fund. For most portfolios, the S&P 500 is an inappropriate benchmark as most portfolios hold investments outside large-cap U.S. Equities stocks.

    Lowell
    Nov 14, 2014. 11:18 AM | Likes Like |Link to Comment
  • Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]
    Lewglenn,

    I review portfolios every 33 days so the updating shifts throughout the month. I doubt this will reduce the number of trades.

    One other difference from the Dual Momentum model is to use a ranking that allocates 50% weight to the performance over the most recent 91 calendar days, 30% to the most recent 182 days, and 20% to the volatility where low volatility is rewarded.

    I assume about 10 trades per year.

    Lowell
    Nov 13, 2014. 05:05 PM | Likes Like |Link to Comment
  • What Will Your Retirement Look Like? [View article]
    The time to prepare for retirement is not at age 55 to 65 but 20 to 25 when time is still on your side. Fortunately, I was taught the important principle of saving at a young age.

    William J. Bernstein lays it out in stark language in his book, “The Investor’s Manifesto“ where he writes, “Each dollar you do not save at 25 will mean two inflation-adjusted dollars that you will need to save if you start at age 35, four if you begin at 45, and eight if you start at 55. In practice, if you lack substantial savings at 45, you are in serious trouble. Since a 25-year-old should be saving at least 10 percent of his or her salary, this means that a 45-year-old will need to save nearly half of his or her salary. Most 45-year-olds will find this nearly impossible, if for no other reason than the necessity of paying living expenses, payroll taxes, and income taxes.”

    In the same section of his book he recommends using index funds.

    Lowell
    Nov 12, 2014. 07:38 PM | Likes Like |Link to Comment
  • Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]
    Extremebanker,

    The Dual Momentum or GEM model combines absolute momentum and relative strength momentum. Antonacci uses the S&P 500, international ex-US equities, and T-bills. I use different ETFs as suggested in the above article.

    Securities are compared against each other (relative strength momentum) and the security must have a positive absolute momentum to be part of the active portfolio.

    Lowell
    Nov 12, 2014. 11:30 AM | Likes Like |Link to Comment
  • Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]
    I am mystified about "3/6 month (50%/30% weighted - 20% Volatility)"

    BeDutch,

    Without attempting to "curve fit" the data, the default settings in the spreadsheet are what we call, "robust" look-back periods. There are three settings that can be changed. 1) The first look-back is set to 91 days or approximately 3 months and a 50% weight is assigned to this performance. 2) The second look-back is set to 182 days or approximately 6 months and a 30% weight is allocated to the performance over this interval. 3) 20% is assigned to volatility and instead of mean-variance, I use a semi-variance calculation which penalizes volatility only for when it occurs to the downside of the average. Investors are not concerned about volatility to the upside as that is what is desired.

    Using the two look-back periods allows one to calculate the absolute acceleration, an additional metric one can use to identify which security is currently performing very well. Hope this helps.

    Lowell
    http://itawealth.com
    Nov 12, 2014. 04:26 AM | Likes Like |Link to Comment
  • What Will Your Retirement Look Like? [View article]
    Got it.

    Lowell
    Nov 11, 2014. 08:05 PM | Likes Like |Link to Comment
  • What Will Your Retirement Look Like? [View article]
    Varan,

    What are you using as the starting dollar amount? Is it the $840,000 mentioned by James, author of the article?

    Lowell
    Nov 11, 2014. 06:25 PM | 1 Like Like |Link to Comment
  • Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]
    Cliff,

    Time. It is very time consuming to back-test when one is going through the review every 33 days. I do not have an automatic way to run back-tests so I need to do it by hand. I don't think there is any question that a momentum portfolio will do quite well when SHY is employed as the "circuit breaker." We see that happening during the Great Recession.

    Instead of going back I am testing results as we move forward. Every week I look at the portfolio performance when measured against two benchmarks. Then I look to see if the trend is positive (gaining on the benchmarks) or negative (losing on the benchmarks). So far the portfolios appear to be more defensive than offensive in that they gain on the VTSMX benchmark in down markets but lose a little in up markets. When compared to the customized benchmark, the trend is generally positive in both up and down markets. That is encouraging, but much more data is required to come to any conclusion.

    Lowell
    http://itawealth.com
    Nov 11, 2014. 03:44 PM | Likes Like |Link to Comment
  • Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]
    Lewglenn,

    Yes, one can find ETFs such as EFA that will permit further back-testing. It takes time to back-test and it does have limited value. What I am interested in is checking performance against several benchmarks going forward.

    This morning I updated a portfolio where I began with 23 ETFs, one stock and SHY. I include BRK.B in the mix as I am interested in how Berkshire performs. The ranking for the top four (in order): BRK.B, DVY, VNQ, and VYM. One could drop either DVY or VYM as they are highly correlated. All have positive Absolute Momentum values when using a 6-month look-back and all have a positive Absolute Acceleration.

    Yes, this approach differs from the Dual Momentum (DM) in several ways. 1) More ETFs are available out of the starting block. 2) The portfolio is diversified over three or four ETFs instead of one (1). 4) The ranking system employs SHY as a cutoff ETF whereas the DM model does not. 5) I use a shorter look-back period.

    Lowell
    Nov 11, 2014. 01:56 PM | Likes Like |Link to Comment
  • Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]
    2sd,

    I agree, "curve fitting" of historical data can lead to extrapolation that is not merited. That is why I am testing variations of the Dual Momentum model using out-of-sample data. 1) I am using more than three ETFs as a starting point. 2) I have yet to concentrate a portfolio into one ETF or security. I'm uncomfortable with this type of concentration. 3) I use SHY as a cutoff or "circuit breaker" ETF. Antonacci does not. 4) I look at the Absolute Acceleration (AA) which involves two look-back periods. Antonacci does not consider this. AA shows up in the far right-hand column in the above data table. 5) I'm comparing portfolio performance against two benchmarks. a) VTSMX or total U.S. Equities market and b) ITA Index or a customized benchmark set up for each portfolio based on a Strategic Asset Allocation plan.

    Lowell
    http://itawealth.com
    Nov 11, 2014. 08:56 AM | Likes Like |Link to Comment
  • Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]
    Fred,

    True, there is a tax drag since there will be securities that are not held for one-year to qualify for lower taxes. No, I do not have any data as to the amount of drag as our tax situations vary.

    There will be periods when one will capture tax losses, but losses have tax limits. The Dual Momentum works best with tax deferred accounts or for those individuals who have limited income and are in lower tax brackets.

    One way to reduce turnover is to use a variation of the Dual Momentum model and only sell a security when it under-performs SHY. This will reduce portfolio turnover and still prevent major draw-downs.

    Lowell
    http://itawealth.com
    Nov 10, 2014. 12:57 PM | Likes Like |Link to Comment
  • Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]
    Herbert,

    While 40 years is certainly more useful than an eight-year period, I have a few questions as to where the data comes from. While I think it is possible to find 40 years of S&P 500 data, SPY is available to us as far back as 1/29/93, ACWX (ACWI ex-US) only goes back to 4/1/08, and BIL data begins on 5/30/2007. Personally, I cannot confirm the accuracy of Antonacci's results as I don't have access to the data. Good science demands that other researchers be able to confirm the results.

    All the studies, beginning on 6/30/2006, can be confirmed by other investors as the data is available. This criticism is not mean to take away from the underlying concept - how to keep investors out of severe draw-downs.

    I also found it interesting that Antonacci begins his study at the bottom of the deepest bear market I experienced in my investing life. Is this why the 40-year record looks so great?

    I know you will read HedgeHunter's article that I just posted and referenced this morning.

    Lowell
    http://itawealth.com
    Nov 10, 2014. 09:03 AM | Likes Like |Link to Comment
  • Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]
    To those who are investigating Dual Momentum investing, I think you will find this blog entry of interest.

    http://bit.ly/1u1fIen

    Lowell
    Nov 10, 2014. 08:47 AM | Likes Like |Link to Comment
  • Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]
    Cliff and RV,

    Give me a few days and I should have some additional "look-back" data for you to examine.

    The model I am shifting to for portfolio management uses a three- and six-month look-back for ranking securities. The spreadsheet I use also employs SHY as the cutoff or circuit breaker ETF. Performance below SHY is grounds for dismissal from the portfolio. I also start with more than three securities as I am interested in greater portfolio diversification. One more changes is that instead of concentrating the portfolio in only one ETF at a time I use between 2 and 5 depending on the size of the portfolio.

    Antonacci does not discuss the problems one might face implementing the Dual Momentum model with a portfolio in the millions of dollars. In fact I can see rebalancing problems when I portfolio reaches $500,000 and above. It is one thing to work out a model on paper and another to put it into action with real money.

    Lowell
    http://itawealth.com
    Nov 8, 2014. 12:53 PM | Likes Like |Link to Comment
  • Dual Momentum: How To Implement Strategy For Higher Returns With Lower Risk [View article]
    Bunny,

    Antonacci uses the S&P 500 (SPY), ACWI, and AGG.

    Lowell
    Nov 8, 2014. 07:42 AM | Likes Like |Link to Comment
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