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  • Naive Graham: Passive Investing According To The Master 145 comments
    Jun 15, 2014 10:29 AM

    In a 1963 lecture on the subject of Securities in an Insecure World, Benjamin Graham, the father of value investing and the guru of Warren Buffett, asserted that diversification between stocks and bonds was the true source of excess returns compared to the market. Specifically, he advised that the relative allocation to stocks and bonds should be between 25% and 75% one way or the other depending on the current state of the markets with respect to the value of the stocks. (http://business.financialpost.com/2013/04/26/benjamin-graham-revisited/ . See also, page 89 of the 2006 Edition of Graham's book, The Intelligent Investor)

    The Naïve Graham strategy, which is the simplest one that can be derived from Graham's idea - one that the he probably would not approve, though it difficult to say so definitively as the investment vehicles such as ETFs did not exist at that time - leads to results that are noteworthy. Prior to describing the details of the strategy, we summarize the results for a number of cases. For the purposes of comparison with much simpler buy and hold alternatives, also shown are the results for a small cap value fund, DFSVX, and a balanced fund PRWCX, both of which have historically yielded superior performance compared to their respective peers.

    Funds

    CAGR (%)

    Sharpe Ratio (Sortino)

    Max. Drawdown (%)

    Min. Annual Return (%)

    2003-2013 Two Fund Baskets

    VTI TLT (Market)

    12.7

    1.1 (2.0)

    14.3

    3.0

    IJJ TLT (Mid Cap Value)

    12.8

    1.0 (1.9)

    14.3

    4.6

    IJS TLT (Small Cap Value)

    13.1

    1.0 (1.9)

    15.4

    2.9

    DFSVX

    13.7

    0.6 (1.1)

    61.2

    -36.8

    PRWCX

    10.4

    0.8 (1.2)

    36.6

    -27.2

    2007-2013 Six Fund Baskets (component assets shown at the end of the post)

    Guggenheim Value

    12.9

    0.9 (1.4)

    24.6

    -7.15

    Guggenheim Growth

    17.1

    1.3 (2.4)

    15.8

    -0.9

    Vanguard Value

    13.35

    1.1 (1.95)

    13.6

    4.8

    Vanguard Growth

    14.8

    1.2 (2.0)

    20.1

    -6.6

    DFSVX

    6.8

    0.4(0.6)

    61.2

    -36.8

    PRWCX

    7.7

    0..6(0.8)

    36.6

    -27.2

    Inasmuch as the risk-based performance metrics are substantially better than those of the alternatives considered here, the strategy has much to recommend itself.

    The strategy entails rebalancing a basket of stock and bond ETFs at the beginning of every quarter on the basis of their relative returns during the immediately preceding quarter. The weights of the various ETFS are determined such that the total weights of each of the two classes of ETFs (stocks and bonds) are between 25% and 75% as advised by Graham.

    The Method for Two Fund Baskets

    This method applies to a basket of two funds, one a stock fund, and the other a bond fund.

    1. On the first trading day of every quarter, rank the two funds on the basis of their total return during the prior quarter.
    2. Allocate 75% of the portfolio to the top ranked ETF and 25% to the other.

    The Method for Six Fund Baskets

    This method applies to a basket of six funds, half of them being stock funds, and the rest bond funds.

    1. On the first trading day of every quarter, rank the six funds on the basis of their total return during the prior quarter.
    2. Allocate the following percentages of the portfolio to the various funds according to their ranks:

    Rank

    Weight (%)

    1

    35

    2

    25

    3

    15

    4

    12

    5

    8

    6

    5

    The precise values of the weights are not very important: the only requirement is that the total for the top three ranked funds be 75% and it be 25% for the bottom three funds (even the totals of 75% and 25% weights may be replaced by slightly different weights for stocks and bonds). If the rank-based weights are in decreasing order, the allocation is determined purely by relative strength: the funds with higher returns in a quarter are assumed to likely perform better than the other lower ranked funds in the next quarter.

    The following equity ETFs were used in the various baskets:

    1. Guggenheim Value: RPV RFV RZV
    2. Guggenheim Growth: RPG RFG RZG
    3. Vanguard Value: VTV VOE VBR
    4. Vanguard Growth: VUG VOT VBK

    The ETF TLT and the mutual funds FLBIX and VUSTX, all based on long term treasuries, were used for the bond portion of the six fund baskets. In actual implementation, once the weights at the beginning of a quarter are determined, FLBIX and VUSTX may be replaced by TLT. (Alternatively one may just use three copies of TLT in the computations, but for the sake of simplicity we have used three distinct funds here.)

    The main advantage of this strategy is that the allocation is determined without any complex computations, in sharp contrast to the other methods such as risk parity or the maximum diversified portfolio algorithm, and yet the returns are quite satisfactory. For the baskets considered here, the volatility of the returns and the maximum drawdown are also much lower than those of the stock funds alone. Just as the asset allocation methods that minimize volatility end up yielding portfolios which have superior returns over periods that span multiple market cycles, it appears that the portfolios whose allocation is based on returns alone may have low volatility.

    As an example, the equity growth curve and the allocation diagram for the Guggenheim Growth basket are shown in the following figures.

    Disclosure: The author is long IJS.

    Additional disclosure: This is not investment advice.

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Comments (145)
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  • Algyros
    , contributor
    Comments (158) | Send Message
     
    Thank you for posting this strategy. It's a wonderful eddy of sanity in a somewhat turbulent river.

     

    Do you have any reason to believe that the returns, as well as the drawdowns, wouldn't increase if one were to implement a Naive Graham strategy with leveraged ETFs?
    16 Jun 2014, 06:07 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » They definitely will increase. A first cut for (simulated) SSO and UBT suggests that the CAGR for the period 1991-2014 is around 20%, but the maximum drawdown is high as well in the low 30% range.

     

    Thanks.
    16 Jun 2014, 11:00 PM Reply Like
  • bobswee
    , contributor
    Comments (14) | Send Message
     
    Any idea why Guggenheim Growth outperformed Vanguard by so much? I can trade Vanguard for free, but the difference in returns, if sustainable, more than offsets the fees to trade Guggenheim instead. Also, have you tried this simple strategy with a larger basket of stocks that included other asset classes besides U.S. stocks? Thanks.
    16 Jun 2014, 07:55 PM Reply Like
  • bobswee
    , contributor
    Comments (14) | Send Message
     
    It's interesting to note that the three month test would have the Guggenheim growth portfolio totally out of stocks right now.
    16 Jun 2014, 09:28 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » @bobswee
    1. I have not tried other asset classes.

     

    2. Actually one interesting feature of this approach is that you are always invested in every asset. For the period starting on 4/1/2014, for the Guggenheim Growth basket, it went 75% into treasuries, 12% in RPG, 8% in RFG and 5 % in RZG. It was a (happy) fluke that the returns of all of these equity ETFs have been lower than the returns of the treasury funds during this period, though perhaps I am entitled to take credit for this precise call (see 4/01/2014 update for another similar strategy http://seekingalpha.co... ) :)

     

    3. There is no way to tell if the performance difference between the Vanguard and Guggenheim will persist in the future.

     

    Thanks for your interest.
    16 Jun 2014, 10:56 PM Reply Like
  • 91656
    , contributor
    Comments (3) | Send Message
     
    Hi Varan,

     

    In reference to your other strategy, could I use the 5 VG ETF's with an additional bond ETF or just go with the original 5?

     

    "1. We will also follow the Vanguard ETF basket VTV, VOE, VBR with TLT and EDV."

     

    Would adding a short term bond such as VGSH be of use for those times nothing is going up, it would be your 35% allocation?

     

    Great post, Thanks
    19 Jun 2014, 10:04 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » In principle, yes. However, due to the more recent date of inception of VGSH the back tests could be done only starting in 2011, and the CAGR comes to 20%. Seems to be OK.

     

    The basket of VTV VOE VBR TLT VUSTX and SHY gives a CAGR of 13.1% during 2007-2014, with no year of loss, and drawdown of 12%. This appears to be quite a defensive basket.
    20 Jun 2014, 11:13 AM Reply Like
  • bobswee
    , contributor
    Comments (14) | Send Message
     
    I'm wondering if a shorter time period, say every month looking back 3 months, etc. would produce a more accurate momentum change in a sector, or would that just result in more trades but not better results. Thanks.
    28 Jun 2014, 06:37 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Slightly worse for monthly updates with 3 month look back for VTI/TLT, Gugenheim Value, and Gugenheim Growth. Probably not worth the effort.

     

    The little change from quarterly to monthly updates provides further evidence for the robustness of the strategy.
    28 Jun 2014, 07:09 PM Reply Like
  • EricTheRon
    , contributor
    Comments (233) | Send Message
     
    When you say it was "slightly worse for monthly updates with 3 month look back....", do you just mean for CAGR? Seems like MAXDD would be greatly reduced, at the probable cost of more trading. Would be interesting to know how much more trading, and how much less MAXDD, if this is true.
    14 Mar 2015, 02:52 AM Reply Like
  • leonf675
    , contributor
    Comments (15) | Send Message
     
    Just to clarity... Wouldn't this strategy have us buy more of the asset class that got even more expensive and less of the class that didn't appreciate as much in the prior period? How is this a good deal if look at it from a real-world perspective?

     

    If markets are assumed to be trending for an extended period, it makes sense. Have you back tested this strategy for a period when the markets were oscillating?
    4 Jul 2014, 07:47 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » You are right that it will work only if the momentum persists for at least one quarter.

     

    The longest period I have studied is 1991-2014 with the basket FDVLX, FLPSX and two copies of VUSTX and the rank based weights [50% 25% 15% 10%].

     

    CAGR 13%
    Max Drawdown 16.9%
    Sharpe 1.1
    Sortino 2.0
    No. of years of losses 2 (2008 -4.1% 1999 -1%)

     

    Compared to the performance of various allocation/balanced funds, this is pretty good.

     

    Thanks.
    4 Jul 2014, 08:07 PM Reply Like
  • leonf675
    , contributor
    Comments (15) | Send Message
     
    Thanks, right. - not bad.

     

    The only problem I have with your trend-following model is associating it with Benjamin Graham. Yes, he was a proponent of switching the allocation between bonds and stocks depending on the market conditions, but I don't think he advocated for continuing to investment more money into the asset class that went up in price.

     

    I re-read his lecture at http://bit.ly/1e6vJHQ and can't find any evidence to support such claim. If I missed something, please reply with a quote or page number.
    7 Jul 2014, 12:02 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » That's why I call it 'Naive' Graham.

     

    It takes his advice on reallocation when the market conditions dictate such an action, and on nothing else. As I said of the method, it is 'one that the he probably would not approve'. Clearly I have taken some liberties here.

     

    Thanks.
    7 Jul 2014, 12:10 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Q2 2014 update

     

    Returns

     

    VTI/TLT Q2 4.8% Q1-Q2 9.5%
    IJJ/TLT Q2 5.1% Q1-Q2 11.2%
    IJS/TLT Q2 4.2% Q1-Q2 9.1%
    iShares Value Q2 4.5% Q1-Q2 9.4%
    iShares Growth Q2 4.3% Q1-Q2 8.4%
    Guggenheim Value Q2 4.6% Q1-Q2 9.6%
    Guggenheim Growth Q2 4.4% Q1-Q2 8.6%
    Vanguard Value Q2 4.6% Q1-Q2 10.2%
    Vanguard Growth Q2 4.3% Q1-Q2 8.7%
    Leveraged Q2 9.3% Q1-Q2 17.0%

     

    Allocations

     

    VTI/TLT TLT 75% VTI 25%
    IJJ/TLT IJJ 75% TLT 25%
    IJS/TLT TLT 75% IJS 25%
    iShares Value TLT 52% IJJ 35% IVE 8% IJS 5%
    iShares Growth TLT 52% IVW 35% IJK 8% IJT 5%
    Guggenheim Value TLT 52% RPV 35% RFV 8% RZV 5%
    Guggenheim Growth TLT 52% RPG 35% RZG 8% RFG 5%
    Vanguard Value TLT 52% VOE 35% VBR 8% VTV 5%
    Vanguard Growth TLT 52% VUG 35% VOT 8% VBK 5%
    Leveraged UBT 52% SSO 35% MVV 8% DDM 5%
    8 Jul 2014, 03:07 PM Reply Like
  • bobswee
    , contributor
    Comments (14) | Send Message
     
    Are these allocations that were used during the 2nd quarter or the new allocations for the 3rd?
    9 Jul 2014, 09:16 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » New Allocations for the third.
    9 Jul 2014, 09:30 AM Reply Like
  • bobswee
    , contributor
    Comments (14) | Send Message
     
    Re: the leveraged account, I show that UBT under performed the other three etf's for the second quarter. What am I missing?
    9 Jul 2014, 10:28 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » According to Yahoo Finance adjusted close prices for 3/31/2014 thru 6/30/2014 (which is the data source that I use), I get this:

     

    UBT 58.56 64.12 9.49% 2014/03/31 2014/06/30
    MVV 66.45 71.96 8.29% 2014/03/31 2014/06/30
    SSO 105.23 115.78 10.03% 2014/03/31 2014/06/30
    DDM 113.63 119.40 5.08% 2014/03/31 2014/06/30
    9 Jul 2014, 11:23 AM Reply Like
  • BeDutch
    , contributor
    Comments (14) | Send Message
     
    Hi Varan, I am reading your posts with interest. I am specifically reacting here to your July 9th post, in which you confirm to use Yahoo historical as your data source. In some recent tests I was doing with these data, my curiosity was raised about their accuracy. There appear to be two issues.
    1 Yahoo seems to use the ExDiv for its price adjustments. In the real world the payout date is a different date and hence ( I THINK ), the strategies as we model them are not exactly replicable. I have not been able ( yet ) to determine how significant this issue is.
    2 while liking at issue 1, I also came across another, potentially more serious issue. I compared SPY data for a period from mid 2003 to mid 2004. I could not reconcile the adjusted numbers with the distributions during the period and the actual closing prices found in another credible ( UNADJUSTED) source.

     

    Have you looked into this and if so with what results?

     

    I look forward to hearing your ( or any other reader, s) opinion on this topic.
    1 Dec 2014, 07:02 PM Reply Like
  • tmdoherty
    , contributor
    Comments (1146) | Send Message
     
    @BeDutch:

     

    This is a known problem with Yahoo Finance historical data. It is littered with inaccuracies and omissions, particularly with respect to dividends. There are also issues with significant digits in the adjusted closing prices that lead to a lot of errors in ETFs and stocks where the share price drops below about 5.00 or so.

     

    I don't mean to suggest there are lots of these, but they do exist, and there doesn't seem to be any way to get Yahoo to fix them or even check them, as near as we've been able to determine.

     

    Cliff Smith has delved into this in some detail here on SA.

     

    TMD
    1 Dec 2014, 07:11 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » I think that only accurate and reliable sources with enough historical data to conduct any meaningful calculations are those for which you have to pay. I recognize the possibility of some problems with Yahoo, which is the only free source with substantial historical data, but I think that it is largely OK especially for the kind of strategies that have time frames of quarters or a year which are the only ones I am interested in.

     

    Thanks.
    1 Dec 2014, 07:42 PM Reply Like
  • ikkyu
    , contributor
    Comments (289) | Send Message
     
    Wow. I tend to miss you posts. But I am going to follow much more closely.

     

    This is simple, elegant, and extremely well reasoned stuff.

     

    Many thanks for your sharing. Keep up the good work.

     

    Cheers from Osaka,

     

    john
    25 Jul 2014, 08:18 AM Reply Like
  • ikkyu
    , contributor
    Comments (289) | Send Message
     
    BTW, I would do this with futures....

     

    Thanks.
    25 Jul 2014, 08:21 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » End of Q3 2014 Update

     

    YTD Returns

     

    VTI/TLT 12.6%
    IJJ/TLT 7.85%
    IJS/TLT 10.4%
    iShares Value 9.5%
    iShares Growth 10.7%
    Guggenheim Value 10.4%
    Guggenheim Growth 9.8%
    Vanguard Value 11.25%
    Vanguard Growth 11%
    Leveraged 20.9%

     

    Allocations

     

    VTI/TLT TLT 75% VTI 25%
    IJJ/TLT IJJ 25% TLT 75%
    IJS/TLT TLT 75% IJS 25%
    iShares Value TLT 75% IJJ 8% IVE 12% IJS 5%
    iShares Growth TLT 75% IVW 12% IJK 8% IJT 5%
    Guggenheim Value TLT 75% RPV 12% RFV 8% RZV 5%
    Guggenheim Growth TLT 75% RPG 12% RZG 8% RFG 5%
    Vanguard Value TLT 75% VOE 8% VBR 5% VTV 12%
    Vanguard Growth TLT 75% VUG 12% VOT 8% VBK 5%
    Leveraged UBT 75% SSO 8% MVV 5% DDM 12%

     

    This is not investment advice, of course. I am just trying to track the strategy over time as events unfold.
    1 Oct 2014, 01:51 AM Reply Like
  • spielerman
    , contributor
    Comments (265) | Send Message
     
    Hi Varan,
    A couple of questions on your strategies here.

     

    How would you approach additional monthly contributions into these strategies (Native G, Balanced, etc)?

     

    Would you hold the cash until a quarterly adjustment, or invest twice a month, or monthly applying similar calculations in the mid term?
    6 Oct 2014, 01:53 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Thanks for your interest.

     

    Without any transaction costs, or if the portfolio is large enough to render them insignificant, I would just buy the ETFs according to the weights computed at the beginning of the current quarter. Otherwise I will probably wait till the next quarter.

     

    All with the usual caveat that like everyone else I am just trying to wade through all this myself, and am not a financial advisor.
    6 Oct 2014, 02:10 PM Reply Like
  • extremebanker
    , contributor
    Comments (2100) | Send Message
     
    SPY/IEF has a little less volatility and drawdown than using TLT. Performance is also lower.

     

    Another nice pair is VWEHX/IEF on a monthly basis. Nice performance and low volatility. Invest in VWEHX as long as it is above it's 6 month moving average. Otherwise, invest in IEF. Current holding is IEF.
    7 Oct 2014, 09:28 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » "Invest in VWEHX as long as it is above it's 6 month moving average. Otherwise, invest in IEF. "

     

    Why VWEHX? VTI with the 6 month SMA and IEF yields much more during 2004-2014 (13.8% vs 9.9%). If you replace IEF by TLT, the CAGR improves by 2%, and so any enhanced volatility appears to be justfied.

     

    Qurterly paired switching for VTI/TLT without any other filtering like SMA yields 15.5% during 2004-2014.
    7 Oct 2014, 04:17 PM Reply Like
  • IndyDoc1
    , contributor
    Comments (306) | Send Message
     
    I am trying to trade on paper the short TMV/ short SSO based on who is the winner from TLT/ SPY. Trade on the beginning of every month based on the performance of the previous 3 months. I started with 50/50 allocation on September, but changed to 75/25 this months ( thanks to Naive Graham idea ). Despite a drop of 10 % of triple leveraged treasuries last month, the strategy is up 2% so far.
    7 Oct 2014, 06:21 PM Reply Like
  • extremebanker
    , contributor
    Comments (2100) | Send Message
     
    Using SPY with converting to TLT if the six month moving average is violated yields CAGR of 16.3% with max drawdown of 18.9% and volatility of 14.3%.

     

    VWEHX converted to IEF upon violation of the six month moving average yields CAGR of 10.2% with max drawdown of 9.6% and volatility of only 5%.

     

    Some of us prefer less volatility.
    8 Oct 2014, 10:14 AM Reply Like
  • IndyDoc1
    , contributor
    Comments (306) | Send Message
     
    Another nice strategy for pair switching. Thanks!
    8 Oct 2014, 10:29 AM Reply Like
  • Algyros
    , contributor
    Comments (158) | Send Message
     
    I have a hard time understanding paper trading. Except, perhaps, for one who simply wishes to learn how to use a trading platform, it appears to be an essentially useless enterprise. Unless one wants to paper trade for five or ten years before actually investing, what useful information can be gleaned from paper trading?
    8 Oct 2014, 07:58 AM Reply Like
  • IndyDoc1
    , contributor
    Comments (306) | Send Message
     
    I guess paper trading for me at least ( has not really tried it before) is more psychological.May be it will validates or invalidates certain concerns. May be some one will not like the 10 % that inverse leveraged treasuries suffered at some point last month, which it later recovered. This is especially true for strategies that can not be back tested reliably like shorting inverse leveraged funds or any other strategy for that matter.
    8 Oct 2014, 10:03 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » @algyros

     

    Good point.

     

    My purpose here to bring up some ideas, hopefully not that commonly known, that, on the basis of historical data, could have worked well, and have high probability of working in the future.

     

    There are quite a few articles on 'real time portfolios' on the site. They have their own educational value, and my purpose is to complement what is available in plenty rather than to just present one more showcase of look this is what I bought and this is how much I made.
    8 Oct 2014, 11:50 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » By the way, the return of SPY for the period 2009-2014, with CAGR of 16.1%, has been hard to match - there was even an article about it in WSJ.

     

    Surprisingly, the returns of all the Naive Graham based Growth portfolios - iShares (18.6%), Fidelity (18.8%), Guggenheim (20.5%) and Vanguard (19.1%) - would have handily surpassed the SPY returns during the same period. Fidelity Value (19.8%) and Guggenheim Value (18.2%) returns also would have been just as good.
    9 Oct 2014, 12:35 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » All Naive Graham portfolio positive today - Oct 10, 2014. Appears to be a simple defensive strategy.
    10 Oct 2014, 06:12 PM Reply Like
  • IndyDoc1
    , contributor
    Comments (306) | Send Message
     
    Varan,

     

    It seems that Frank Grossmann has picked up a modified version of your Naive Graham strategy when he modified the GMR approach http://bit.ly/1HBWiSU

     

    The other interesting thing is that both Grossmann's and Cliff smith's out of sample bond strategies are doing well.
    23 Nov 2014, 02:37 AM Reply Like
  • ikkyu
    , contributor
    Comments (289) | Send Message
     
    Hmmm. Interesting. In so far as Grossman takes into account the Sharpe (as he funkily calculates it) to compute the bond alloction, there is almost a sort of risk parity dimension to his modification as well. That seems a bit redundant, as he uses volatility to make his initial ranking.

     

    In think it would be better to use Varan's straight performance ranking and then the optimal Sharpe to give you an indication on the bonds. Though a straight 20% allocation to the 3x levered bond fund seems effective and simple too.

     

    Please correct me, if I am missing something.
    23 Nov 2014, 08:56 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » @indydoc

     

    thanks. I will take a look.
    23 Nov 2014, 11:18 AM Reply Like
  • IndyDoc1
    , contributor
    Comments (306) | Send Message
     
    ikkyu,

     

    Your comment about the redundancy of using both volatility and sharpe ratio makes sense. It seems that momentum strategies lag the S&P 500 performance in strong secular bull markets. Buy and hold works the best in those situations. But it is winning by not losing is what will likely prevail at the end; a lesson learned from the crisis in 2009 as stated by Mbane Faber. Risk management will get you out of trouble during market downturns , which explain the resurge in interest in momentum strategies lately. On a different note, I am still amazed at the performance of the bond strategies!
    23 Nov 2014, 10:18 AM Reply Like
  • ikkyu
    , contributor
    Comments (289) | Send Message
     
    Hey IndyDoc,

     

    [By the way, I am originally from Indy and a doctor of sorts]

     

    You are right. A higher volatility environment is when the momentum systems really shrine. I trade a variation on Maximum Yield Rotation. Short volatility provides a clearer risk-off/risk-on functionality in my opinion, but it is not for everyone. For MYR I don't see much improvement adding a bond component, but it switches bi-monthly.

     

    Varan showed me just how simple one can get. 50% SSO/50% UBT rebalanced quarterly is my new personal performance benchmark. It is tough to beat!

     

    Cheers from Osaka,

     

    john

     

    23 Nov 2014, 06:20 PM Reply Like
  • IndyDoc1
    , contributor
    Comments (306) | Send Message
     
    John,

     

    I have been monitoring ( on paper ) shorting TMV and SPXS. For the last 2 1/2 months it returned 6.2 % despite a whopping loss of 15 % in TMV in the first 2 weeks of September. I am not using 50/50 but 70/30 with the winner of the last 3 months takes the bigger share; you can call it Naive Graham on steroids. It is similar to shorting TBT and SDS but with more return, volatility and maximal draw down.
    26 Nov 2014, 02:37 AM Reply Like
  • ikkyu
    , contributor
    Comments (289) | Send Message
     
    Looking more at Grossman's adaptive bond allocation, I find it to be a rather elegant solution. The risk adjusted returns are much higher than his other models, even if the absolute returns are lower. By using TMF, and thereby adding leverage, I think you will have the best possible combination. It looks especially good with ZIV.

     

    Likewise, as Indydoc said, it is quite similar to Varan's line of thinking.
    24 Nov 2014, 07:21 PM Reply Like
  • tmdoherty
    , contributor
    Comments (1146) | Send Message
     
    @ikkyu:

     

    Personally, I would be very wary of ZIV. I've read the arguments for using ZIV, but I don't buy them. I trade volatility as well (although I don't mix that in with TAA or rotation or pairs strategies). For my purposes, XIV is a superior choice.

     

    Among the problems with ZIV is the fact that it is not very liquid (roughly 100K shares per day), and hence more subject to wide spreads, supply/demand imbalances, and especially, manipulation of price. And that happens. An example occurred on Tuesday (11/25/14). The VIX dropped almost 3%, and XIV (which like ZIV, does not track the VIX) went up 0.6%. But ZIV got killed, and dropped 1.6%. On the intraday chart, it looks to me like somebody was intentionally muscling down ZIV beginning at about mid-session, and that really intensified during the last hour or so of trading.

     

    Of course, XIV is more volatile and therefore is not a good fit form many who cannot tolerate that.

     

    TMD
    28 Nov 2014, 09:32 PM Reply Like
  • ikkyu
    , contributor
    Comments (289) | Send Message
     
    Hello TMD,

     

    I appreciate your genuine energy and enthusiasm for these topics.

     

    I state "ZIV" as a proxy, but in general I actually short VIX futures in the middle of the curve. The curve has been much steeper at the front end than in the middle for the last week to 10 days, so movement my be a bit distorted. A 1.6% move would be nothing at all for XIV. On a risk adjusted basis ZIV is superior, and its volatility is closer to ETFs you would use in a momentum rotation.

     

    Cheers from Osaka,

     

    john
    28 Nov 2014, 10:37 PM Reply Like
  • tmdoherty
    , contributor
    Comments (1146) | Send Message
     
    Fair enough; to each his own I guess.

     

    Personally, I don't like to mix in volatility trading in TAA strategies. For one thing, they are just totally different strategies.

     

    Also, most TAA strategies reassess things either once or twice a month. I think one has to be much more vigilant with volatility trading; a lot can happen in a few weeks, and if XIV or ZIV is selected and the VIX decides to spike, you could be in a world of hurt in a hurry!

     

    So I trade TAA and volatility, but never in the same strategy, and not even in the same account.

     

    TMD
    29 Nov 2014, 01:38 AM Reply Like
  • tmdoherty
    , contributor
    Comments (1146) | Send Message
     
    Hi Varan,

     

    A couple of questions:

     

    1) Have you calculated rolling 12-month returns, especially mean/median values and SEs?

     

    2) Have you tested a composite strategy that trades both Vanguard Growth and Vanguard Value (or Guggenheim Growth/Guggenheim Value) simultaneously (50/50)?

     

    The reason for the first question is because I would like to get a better handle on the distribution of returns.

     

    The reason for the second question is because as I'm sure you are aware, growth regimes pass the baton to value regimes periodically. So it is conceivable that over longer periods of time, investing in both could produce a bit more consistent results by covering all bases.

     

    Thanks,

     

    Terence
    28 Nov 2014, 10:00 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » 2014 Results
    17.2% VTI/TLT
    15.4% IJJ/TLT
    21.1% IJS/TLT
    18.2% iShares Value
    19.6% iShares Growth
    17.7% Fidelity Value
    18.2% Fidelity Growth
    19.0% Guggenheim Value
    17.3% Guggenheim Growth
    19.9% Vanguard Value
    19.5% Vanguard Growth
    19.4% Leveraged

     

    18.6% 60%VTI/40% TLT
    All handily beat DIA and SPY, and a few outperformed QQQ as well.

     

    Tomorrow's re-balancing to follow.
    1 Jan 2015, 08:25 PM Reply Like
  • IndyDoc1
    , contributor
    Comments (306) | Send Message
     
    thanks Varan for all your contributions and ideas!
    2 Jan 2015, 06:47 PM Reply Like
  • Dale Roberts
    , contributor
    Comments (7454) | Send Message
     
    Awesome stuff, following along. This was a year though when a static TLT and SPY would have delivered over 20%, TLT and VTI was very close to 20%.

     

    With a simple rebalancing to 50 50 each quarter - would that have boosted returns or lessened returns?

     

    Is it rare for the static portfolio to outperform the Naive Graham?

     

    Thanks, Dale
    3 Jan 2015, 06:53 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » TLT continues to dominate the basket for Q1 2015:

     

    Market
    TLT 75.0% VTI 25.0%

     

    Mid Cap Value
    TLT 75.0% IJJ 25.0%

     

    Small Cap Value
    IJS 75.0% TLT 25.0%

     

    iShares Value
    TLT 52.0% IJS 35.0% IJJ 8.0% IVE 5.0%

     

    iShares Growth
    TLT 75.0% IJT 12.0% IJK 8.0% IVW 5.0%

     

    Fidelity Value
    TLT 75.0% FSCRX 12.0% FDVLX 8.0% FLPSX 5.0%

     

    Fidelity Growth
    TLT 75.0% FCPGX 12.0% FBGRX 8.0% FMCSX 5.0%

     

    Guggenheim Value
    TLT 75.0% RZV 12.0% RFV 8.0% RPV 5.0%

     

    Guggenheim Growth
    TLT 75.0% RZG 12.0% RPG 8.0% RFG 5.0%

     

    Vanguard Value
    TLT 75.0% VBR 12.0% VOE 8.0% VTV 5.0%

     

    Vanguard Growth
    TLT 75.0% VOT 12.0% VBK 8.0% VUG 5.0%

     

    Leveraged
    MVV 35.0% TLT 35.0% DDM 25.0% SSO 5.0%
    2 Jan 2015, 03:34 PM Reply Like
  • ls78
    , contributor
    Comments (154) | Send Message
     
    Thanks for the updates Varan. Let's hope these produce again in 2015.
    2 Jan 2015, 06:00 PM Reply Like
  • Serenity
    , contributor
    Comments (945) | Send Message
     
    This a very interesting strategy, varan.
    Graham may well have recommended it himself if he had access to ETFs.

     

    Quoted from Chapter 14 of The Intelligent Investor - Stock Selection for the Defensive Investor:
    "In setting up this diversified list he has a choice of two approaches, the DJIA-type of portfolio and the quantitatively- tested portfolio. In the first he acquires a true cross-section sample of the leading issues....[shortened]... This could be done, most simply perhaps, by buying the same amounts of all thirty of the issues in the Dow-Jones Industrial Average."

     

    However, two questions do come to mind:

     

    1. Why allocate more to the higher performing fund(s)? Doesn't that goes against Graham's general principle of buying low? Why invest more in something that may already be overpriced? Of course, better performing funds may be better managed. But if past ranking indicates future performance, why not simply stick to the best performing fund of each category?

     

    2. In the 6 fund approach, what if the top 3 are not all stock ETFs, or not all bond ETFs? This may not be a serious issue though as that would probably go well with Graham's recommendation of staying between 25% and 75%.

     

    Your insights on these questions would be valuable.

     

    Thank you!
    14 Jan 2015, 02:49 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » @serenity

     

    Thanks.

     

    As I read it, Graham suggests that some method be used to assess the current state of the market, and the stock/bond allocation be made accordingly.

     

    In absence (or more aptly my ignorance) of the best method for this purpose, I just use the simplest approach, which admittedly is naive, and hence the name.

     

    Even though recent past may indeed be an indicator of the immediate future, one may not be absolutely certain of it, and hence it may be prudent to hedge a bit.

     

    The weights as specified for the six-funds approach are such that if there are three equity funds and the rest bond funds, the allocation to either class will always be between 25% and 75% no matter what the respective ranks are.
    15 Jan 2015, 02:26 PM Reply Like
  • Serenity
    , contributor
    Comments (945) | Send Message
     
    Absolutely, varan.

     

    As already noted in the previous comment, the weights do indeed work well with Graham's rules.

     

    On the whole, this appears to be a very good strategy for those who wish to stay within Graham's rules for minimum-effort defensive investment; as well as the recommendations for equity-debt diversification.

     

    Graham did recommend keeping investment activity to a minimum too though. So the question of rebalancing rules and period is an interesting one; especially since the implications of a well performing stock (price correction) can be different from that of a well performing fund (superior management). It probably does make sense to allocate more funds to a better forming fund.

     

    Nice work!
    16 Jan 2015, 12:10 PM Reply Like
  • johnmarg
    , contributor
    Comments (190) | Send Message
     
    Just started to use your 2 basket strategy this month using ITOT and TLT in my Fidelity acct. Great strategy. Thank you for all your research and contributions here. It is appreciated.
    25 Jan 2015, 08:08 PM Reply Like
  • ls78
    , contributor
    Comments (154) | Send Message
     
    Rough start to the month!
    3 Feb 2015, 02:05 PM Reply Like
  • ls78
    , contributor
    Comments (154) | Send Message
     
    Dang, TLT is taking it on the chin...What's everyone doing? Staying the course or reducing due to rising rates?
    17 Feb 2015, 03:15 PM Reply Like
  • TrickPony
    , contributor
    Comments (33) | Send Message
     
    I guess if we have faith in the system we should stay the course and thank God that we still have 25% in TLT/SPY
    17 Feb 2015, 03:35 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » I am with you on the disappointing results. The alternative is to add some filter that allows you to get out prior to days like this. However, no system can guarantee the elimination of short term drawdowns like this.
    17 Feb 2015, 03:49 PM Reply Like
  • SpanglerDavis
    , contributor
    Comments (998) | Send Message
     
    Standard deviation analysis away from recent mean results for TLT was showing the potential for a reversal. A strategy would be to shorten maturity (IEF maybe?) to lessen leverage effect.
    18 Feb 2015, 03:35 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » IEF will work too but at the cost of lower returns.

     

    There is always a tradeoff. Hopelessly trite, but true.
    18 Feb 2015, 04:04 PM Reply Like
  • ls78
    , contributor
    Comments (154) | Send Message
     
    No system is perfect and overall, I still think this is good.
    17 Feb 2015, 04:08 PM Reply Like
  • ls78
    , contributor
    Comments (154) | Send Message
     
    Ever consider hedging with an inverse fund when in the middle of a quarter and it looks like a major down trend is in progress? Like maybe hedging high TLT exposure with TBT.
    17 Feb 2015, 04:38 PM Reply Like
  • ikkyu
    , contributor
    Comments (289) | Send Message
     
    No never. Money is made in financial market by taking on risk. Also, TBT is a negative carry instrument.
    17 Feb 2015, 10:48 PM Reply Like
  • ikkyu
    , contributor
    Comments (289) | Send Message
     
    Yeah, it is a painful and swift drawdown. Nonetheless, better to drawdown from a trade's profits. The SPX bull has not broken yet. I am staying pat 100% in long bonds, but I am drawing down around 15% from peak equity. Pretty amazing to see a market go from overbought to oversold in a few short weeks.
    17 Feb 2015, 10:46 PM Reply Like
  • drftr
    , contributor
    Comments (998) | Send Message
     
    It's like a just posted on one of Gary Gordon's articles about betting on one direction:

     

    "The proof: A leveraged bet on long bonds (UBT) YTD is about 0%. A leveraged bet on short bonds (TBT) YTD is about 0%. And the combination with a momentum "bet" YTD is about 20% in January + 19% in February + some compounding so let's call it 40%. That is in 1.5 months without chosing directions!"

     

    Pretty amazing stuff...

     

    drftr
    17 Feb 2015, 11:17 PM Reply Like
  • ikkyu
    , contributor
    Comments (289) | Send Message
     
    Ok. I'll bite. What time frame are you using? Three months would not have triggered a momentum trade on TBT. Hell, long bonds was still the choice on the 13th if you trade twice a month.

     

    Here is an excellent description of why the leveraged short bond trade tends towards loosing over long periods, even in a raising rate environment. In a nutshell, you have negative carry (roll yield).

     

    http://bit.ly/1CHpaUb
    18 Feb 2015, 02:24 AM Reply Like
  • drftr
    , contributor
    Comments (998) | Send Message
     
    I'm afraid I have to apologize posting this here. After re-reading many of Varan's articles THIS one is definitely not about momentum plays...

     

    And yes ikkyu, of course I do agree on the roll yield if you buy & hold. Good comment for this portfolio. I just had something diferent in mind. Next time I'll post a couple of hours after waking up! (posted from the Philippines)

     

    drftr
    18 Feb 2015, 07:43 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Those who are despondent over the collapse of TLT in recent weeks may find something to at least ponder over, if not to feel a bit more cheerful, in this SA post:

     

    http://bit.ly/1AmuiPq

     

    Mr. Gordon still seems to be bullish on treasury funds.
    18 Feb 2015, 05:57 PM Reply Like
  • Market Map
    , contributor
    Comments (805) | Send Message
     
    Felix Zulaf, of Barron's roundtable, is favoring bonds and dislikes stocks. IMO, he always seemed to have a more level headed brand of analysis vs. the likes of Marc Faber and Jim Rogers ...
    18 Feb 2015, 06:22 PM Reply Like
  • TheUnknownInvestor
    , contributor
    Comments (406) | Send Message
     
    Felix Zulauf is very good.

     

    Rogers and Faber are very sharp and provide quality commentary (better than most), but you have to read between the lines with them. Often sensational in their opinions, you just have to know how to interpret them.
    19 Feb 2015, 01:23 PM Reply Like
  • tmdoherty
    , contributor
    Comments (1146) | Send Message
     
    TLT formed a reversal candle today, and shows early technical signs of reversal [RSI(2) and slo sto buy signals from extreme oversold territory] at moving average support.

     

    This pullback could turn out to be just a mean reversion after TLT got way too far ahead of itself:

     

    http://bit.ly/1E7uUeB

     

    Too close to call right now, but this looks pretty encouraging for those holding TLT, EDV and the like.

     

    TMD
    18 Feb 2015, 07:27 PM Reply Like
  • 77052
    , contributor
    Comments (39) | Send Message
     
    I'm just a bit confused. Do you rank all of the equity funds below and just select the highest 3 for the equity portion. For the bond fund you use any one of the three treasury funds, and weight it either 25% or 75%, depending on whether the they rank higher or lower than the equity funds.

     

    "The following equity ETFs were used in the various baskets:

     

    Guggenheim Value: RPV RFV RZV
    Guggenheim Growth: RPG RFG RZG
    Vanguard Value: VTV VOE VBR
    Vanguard Growth: VUG VOT VBK"
    24 Feb 2015, 06:29 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Each is a separate basket. You can choose to invest in value or growth or both separately.

     

    So for Guggenheim Value, for example,

     

    If I want to invest in Guggenheim value, I rank the returns of RPV, RFV, RZV, TLT, VUSTX, and FLBIX at the beginning of every quarter.

     

    And allocate the weights according to the table under the subheading 'Six Fund Basket'.

     

    TLT, VUSTX and FLBIX are essentially the same, but I think the explanation is clearer if I use them for the description of the method.

     

    Hope this helps. I can respond in greater detail via PM if you have further questions.
    24 Feb 2015, 06:38 PM Reply Like
  • 77052
    , contributor
    Comments (39) | Send Message
     
    I like this concept and I think that using short term momentum (quarterly) makes a lot sense.
    I do wonder whether switching each quarter between value and growth based on which did best or worst the previous quarter would result in better returns? Thanks, Rich.
    24 Feb 2015, 07:05 PM Reply Like
  • clipit89
    , contributor
    Comments (28) | Send Message
     
    Varan
    Before I ask my question, I do want to say that like many others I really appreciate you sharing your work with us.

     

    Q: Any thoughts on what the inclusion of a junk bond fund and a convertible bond fund with TLT, in the six basket composition, would do to the results or are they just to far away from what Graham's idea of a bond is to be considered for this article. They would seem to offer more diversification on the bond side.

     

    clipit
    25 Feb 2015, 04:21 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Thanks.

     

    2003-2014

     

    With IVE, IJJ, IJS and TLT
    CAGR 13.1% Sharpe 1.09 Sortino 2.02
    Max DD 15.2% Worst Year 3.15% Gain

     

    With IVE, IJJ, IJS FCVSX, VWEHX and TLT
    CAGR 12.4% Sharpe 0.9 Sortino 1.48
    Max DD 32.2% Worst Year 20% Loss

     

    Quite a bit of degradation in risk-based performance metrics. Otherwise not bad.
    25 Feb 2015, 06:44 PM Reply Like
  • clipit89
    , contributor
    Comments (28) | Send Message
     
    Varan,

     

    I never would have guessed that much difference. thanks for the info.

     

    As an aside, a long time ago I read an article by a reputable writer who claimed that the best way to make money was to put 50% of your money into the SP 500 and keep the other 50% in cash and maintain that balance every day. I didn't have the computer skills to prove or disprove his claim and because it's been so long since I read the article I don't recall how far back he went with the test. It could have been back to the sixties or pre depression. Maybe earlier. It was a simple strategy with a provocative claim that impressed me and I'm just sharing that with you and the rest of the SA readers. Maybe someone recalls reading a similar article/claim and might have a follow-up thought.

     

    Trading with IB at a dollar a trade would cost you $300 or so a year. With Fidelity, eight times that much. To much for most of us.

     

    thanks again

     

    clipit
    26 Feb 2015, 06:37 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Sounds like an old wives' tale.

     

    Maximum yearly loss is reduced (-18% vs. -36% buy and hold) but the return is too low for it to be worth it - around 5%.
    26 Feb 2015, 06:57 PM Reply Like
  • clipit89
    , contributor
    Comments (28) | Send Message
     
    Varan,

     

    Thanks for the reply. I kind of thought of it as an old wives tale also, but when I was doing some searching for that old article today I came across this article from Portfolioist sighting a study done at Vanguard on a 50/50 portfolio. It's not the article that I was referring to but still has some interesting results. The start and end time of their study is probably why their results are different than yours. The following is just a short portion of the article (written Nov. 26, 2011):

     

    Portfolioist

     

    The New York Times had a piece this weekend that proposes a simple portfolio solution for worried investors.

     

    Are you ready for this?

     

    The portfolio is a 50% allocation to stocks and 50% to bonds. The conclusion that the 50/50 portfolio makes sense is based on a study by Vanguard published in October 2011 that finds that this allocation seems to generate consistent returns, regardless of whether the economy is in recession or expansion. The study is based on portfolio performance from 1926 through June 2009.

     

    The 50/50 portfolio generated an average annual return of 7.75% per year during recessions and 9.9% per year during expansions.

     

    The article I read years ago wanted you to re-balance every day, which was supposed to give superior results to these. At any rate, I do like your suggestions a lot and I am going to implement them into my investing philosophy, and I thank you for that. But, I still have to have an open mind so I figured I bounce this off you which is similar in some ways to your two etf pairings IVE/TLT. Daily re-balancing over 85 years might make a difference by catching some of that short term extreme volatility. maybe one of your pairing would do even better with daily re-balancing. thank you again.

     

    Sincerely,
    clipit
    27 Feb 2015, 11:18 PM Reply Like
  • tmdoherty
    , contributor
    Comments (1146) | Send Message
     
    Daily rebalancing would be prohibitively expensive.

     

    Presumably you would only need to sell equities or buy equities, so that would be one transaction per day.

     

    At $7 per trade, that adds up to $1,764 per year just in commissions, and that doesn't take into account slippage.

     

    That hardly seems worth it.

     

    TMD
    28 Feb 2015, 12:28 AM Reply Like
  • clipit89
    , contributor
    Comments (28) | Send Message
     
    Tmd

     

    Thanks for the reply. I agree that at Fidelity it would be prohibitive, but at IB (Interactive Brokers) it's only a $1 a trade. that's probably more like $250 per year if you actually traded five days a week. On a $50,000/$50,000 portfolio that is only .005. That compares favorably to a fund of funds expense ratio. I think.

     

    It doesn't really matter as Varan has already stated that the returns would be to small. I was kind of hoping Varan would find that re-balancing when ever the market pulled back say 5 or 10 percent would improve performance. I'm sure it doesn't or he would have said something. Thanks again for your thoughts.
    28 Feb 2015, 03:00 PM Reply Like
  • EricTheRon
    , contributor
    Comments (233) | Send Message
     
    A 50/50 stock/bond portfolio is not a bad one, but constant rebalancing is not such a great idea. Usually big downdrafts go on a long time (like most of 2000 and 2001). Even rebalancing monthly means you are buying into a falling knife. And often bull markets go on a long time, so monthly rebalancing means you are constantly selling your winner and buying your loser long before the bull is topped. This is why annual rebalancing is about as good as any other, because this long-term effect cancels out any good results from quick rebalancing to buy short-term values.
    14 Mar 2015, 02:45 AM Reply Like
  • tmcsherry
    , contributor
    Comments (12) | Send Message
     
    Thanks Varan, I enjoy your posts and appreciate your effort. I am curious if, instead of 3 copies of TLT, what happens if we throw in PCY (another non-correlated bond ETF Grossman uses in his Enhanced Bond Rotation strategy)...or even another shorter maturities bond ETF to capture some potential upside when TLT and SPY (or the correlated ETF's) are synchronously down?
    22 Mar 2015, 07:24 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » thanks. I will take a look with PCY, IEF and TLT. I expect the CAGR to go down a bit, but we shall see.
    22 Mar 2015, 09:05 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Unfortunately, the full year PCY data is available only since 2009, and so the backtest is not very useful.

     

    RPG, RFV, RZG and three copies of TLT:

     

    2009 24.40%
    2010 18.51%
    2011 33.34%
    2012 10.45%
    2013 22.07%
    2014 18.22%
    2015 4.52%

     

    CAGR 20.95%

     

    With TLT replaced by TLT, PCY and IEF

     

    2009 28.95%
    2010 18.36%
    2011 15.74%
    2012 12.84%
    2013 19.70%
    2014 11.38%
    2015 4.90%

     

    CAGR 17.87%

     

    Not too bad.

     

    If you use PREMX as a proxy for PCY:

     

    2007 11.61%
    2008 -7.33%
    2009 29.95%
    2010 18.43%
    2011 20.66%
    2012 12.69%
    2013 20.92%
    2014 10.71%
    2015 4.98%

     

    CAGR 14.46%

     

    The corresponding results if you use three copies of TLT

     

    2007 13.69%
    2008 1.96%
    2009 24.40%
    2010 18.51%
    2011 33.34%
    2012 10.45%
    2013 22.07%
    2014 18.22%
    2015 4.52%

     

    CAGR 17.58%

     

    So the 2008 loss increases, and the CAGR drops by a few points.

     

    Neverthess, if one does not want to be slave to TLT, the results with TLT, PCY and IEF look quite reasonable.

     

    On another note, the growth ETFs seem to have done better than the value ones, and that is reflected in the YTD overperformanace of the six ETF with RPG, RFG, and RZG and naive graham.
    25 Mar 2015, 10:28 PM Reply Like
  • extremebanker
    , contributor
    Comments (2100) | Send Message
     
    Performance will be lower until we have a bear market in bonds.
    23 Mar 2015, 12:35 PM Reply Like
  • tmcsherry
    , contributor
    Comments (12) | Send Message
     
    Yes, I would expect that performance would be lower (by definition) if using non-correlated instruments; however, the point would be how they perform in a bond bear market as, at that point, TLT would seemingly offer little assistance to the portfolio.
    24 Mar 2015, 10:48 AM Reply Like
  • doknabox
    , contributor
    Comments (56) | Send Message
     
    Varan, Great article. I do a similar system using ETFreplay. I put 30% in TLT, 40% in VTI, and flip 30% between TLT and VTI monthly. I have a question about your two fund system. Do you have any information on how a similar system to yours, using two non-correlated assets, would have done through the crashes of 1987 and 1929? Thanks, Jerry
    25 Mar 2015, 09:23 AM Reply Like
  • tmdoherty
    , contributor
    Comments (1146) | Send Message
     
    @doknabox,

     

    What settings do you use with Replay? I presume you have some momentum settings or moving averages that trigger reallocation from TLT to VTI and back.

     

    Thanks,

     

    TMD
    25 Mar 2015, 07:52 PM Reply Like
  • doknabox
    , contributor
    Comments (56) | Send Message
     
    tmd
    I just about always use the default parameter settings. And for the SMA I use 6.
    26 Mar 2015, 09:41 AM Reply Like
  • tmdoherty
    , contributor
    Comments (1146) | Send Message
     
    I don't understand.

     

    I don't use Replay, so I don't know what the "default parameter settings" are.

     

    So the signal is determined by which ETP (VTI or TLT) is trading higher above its 6-month SMA? Or do you mean the signal depends on where the VTI:TLT ratio is relative to the 6-month SMA of VTI:TLT?

     

    TMD
    26 Mar 2015, 04:55 PM Reply Like
  • doknabox
    , contributor
    Comments (56) | Send Message
     
    I thought you had ETFreplay. Go to the website and look over the free stuff. They use a relative strength system to pick top ETFs. I flip 30% between VTI and TLT based on which ETF has higher relative strength.
    27 Mar 2015, 12:43 PM Reply Like
  • tmdoherty
    , contributor
    Comments (1146) | Send Message
     
    @dok,

     

    I am familiar with Replay, and I know how it works.

     

    "Higher relative strength" is insufficient information because relative strength is always defined according to time. So I also need to know the time frame, or time frames, if you are using multiple relative strength filters.

     

    Typically, people who use Replay rank ETFs according to a short and long look-back period, and possibly also adjust for volatility. Replay terms these "Return A", Return B", and "Volatility" respectively. The "Returns" settings can be anything in a range from 1 day to 36 months.

     

    Additionally, you can set a cash filter default. Or, if you wish, you can use moving average pairs to define "relative strength," and the specific durations of the moving averages can be varied over a very wide range.

     

    So what settings do you use, and why did you select those? If you tested various settings, can you please describe the rationale and results?

     

    Thanks,

     

    TMD
    27 Mar 2015, 05:45 PM Reply Like
  • doknabox
    , contributor
    Comments (56) | Send Message
     
    I thought I already replied but I use the default parameters which are 3 month returns, 20 day returns and 20 day volatility.
    1 Apr 2015, 04:46 PM Reply Like
  • johnmarg
    , contributor
    Comments (190) | Send Message
     
    So you just take the ETF that is highest in the default ratings? You also mentioned the 6 month SMA. How does that enter into it
    5 Apr 2015, 09:47 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » YTD Returns

     

    Market 2.72%
    Mid Cap Value 2.94%
    Small Cap Value 1.94%
    iShares Value 2.28%
    iShares Growth 3.82%
    Fidelity Value 2.91%
    Fidelity Growth 5.55%
    Guggenheim Value 2.55%
    Guggenheim Growth 4.41%
    Vanguard Value 2.96%
    Vanguard Growth 3.48%
    Leveraged 4.55%

     

    Growth has done better this quarter. All of the portfolios except IJS/TLT have done better than QQQ, DIA and SPY.
    31 Mar 2015, 09:13 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Allocation for the three month period starting 4/1/2015:

     

    Market
    TLT 75.0% VTI 25.0%

     

    Mid Cap Value
    TLT 75.0% IJJ 25.0%

     

    Small Cap Value
    TLT 75.0% IJS 25.0%

     

    iShares Value
    TLT 75.0% IJJ 12.0% IJS 8.0% IVE 5.0%

     

    iShares Growth
    IJK 35.0% TLT 35.0% IJT 25.0% IVW 5.0%

     

    Fidelity Value
    TLT 75.0% FDVLX 12.0% FSCRX 8.0% FLPSX 5.0%

     

    Fidelity Growth
    FCPGX 35.0% FBGRX 25.0% TLT 25.0% FMCSX 15.0%

     

    Guggenheim Value
    TLT 75.0% RFV 12.0% RZV 8.0% RPV 5.0%

     

    Guggenheim Growth
    RZG 35.0% RFG 25.0% TLT 25.0% RPG 15.0%

     

    Vanguard Value
    TLT 75.0% VBR 12.0% VOE 8.0% VTV 5.0%

     

    Vanguard Growth
    VOT 35.0% TLT 35.0% VBK 25.0% VUG 5.0%

     

    Leveraged
    UBT 52.0% MVV 35.0% SSO 8.0% DDM 5.0%
    1 Apr 2015, 09:33 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Final returns for Q1 2015 (1/2/2015 thru 4/1/2015)

     

    Market 3.52%
    Mid Cap Value 3.83%
    Small Cap Value 2.48%
    iShares Value 3.02%
    iShares Growth 4.66%
    Fidelity Value 3.34%
    Fidelity Growth 6.07%
    Guggenheim Value 3.39%
    Guggenheim Growth 5.09%
    Vanguard Value 3.72%
    Vanguard Growth 4.44%
    Leveraged 4.53%

     

    For comparison (for the same period):

     

    QQQ 2.05%
    SPY 0.58%
    DIA -.15%
    2 Apr 2015, 12:12 AM Reply Like
  • edanziger0
    , contributor
    Comments (25) | Send Message
     
    First, Varan, thanks for continuing to field our comments and questions on this very interesting, simple investment system.

     

    After a couple years of developing TAA systems that work great on ETFReplay but not so great in the real world, I've started looking for ways to get consistently good returns without lots of monthly trading and funds to keep track of. I've found that a 50-50 portfolio of RSP & QQQ tends to beat SPY and VTI regularly over the last 10+ years.

     

    I took a shot at calculating the results for a Naive Graham model if VTI was replaced with RSP/QQQ (see below). RSP was introduced in mid-2003, so I can't exactly match the time frame of your chart. 2003 was a great year, so the CAGR should compare well with those you list above. It's clear Naive Graham shines brightest when the market is shaky.

     

    I'm pretty certain my calculations are correct, but still, I'm using data from Yahoo Finance, and the results look better than I expected for such a simple system that rebalance only quarterly. I'd greatly appreciate it if you could confirm what I show below.

     

    PORTFOLIO
    Stock: 50% RSP 50% QQQ
    Bond: TLT

     

    2004: 1.9%
    2005: 4.5%
    2006: 6.9%
    2007: 15.2%
    2008: 3.9%
    2009: 24.3%
    2010: 14.1%
    2011: 29.7%
    2012: 10.9%
    2013: 22.2%
    2014: 20.5%
    2015 Q1: 3.64%

     

    2004-2013 CAGR: 13.0%
    2004-2015 Q1 CAGR: 14.1%

     

    2007-2013 CAGR: 16.9%
    2007-2015 CAGR: 17.3%

     

    SIDE NOTE re: Guggenheim Pure Growth and Value ETFs. In the TAA models I've put together, RPV and RPG were the secret sauce that transformed them from good the great. However, both have only modest daily volume (~200k/day). They're great for getting smaller portfolios off the ground, but have limited use for larger portfolios.
    6 Apr 2015, 08:58 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » If by 50-50 RSP/QQQ you mean 50% each in two separate strategies one for RSP/TLT and the other for QQQ/TLT, here is what I get:

     

    RSP/TLT

     

    2004 7.86%
    2005 8.32%
    2006 9.70%
    2007 10.83%
    2008 2.20%
    2009 27.39%
    2010 13.95%
    2011 30.99%
    2012 11.20%
    2013 19.16%
    2014 18.70%
    2015 2.73%

     

    CAGR 14.19%

     

    QQQ/TLT

     

    2004 2.19%
    2005 3.53%
    2006 3.10%
    2007 15.72%
    2008 -2.24%
    2009 25.34%
    2010 12.64%
    2011 28.72%
    2012 11.92%
    2013 17.93%
    2014 20.83%
    2015 2.79%

     

    CAGR 12.25%

     

    50% in each:

     

    2004 5.02%
    2005 5.93%
    2006 6.40%
    2007 13.28%
    2008 -0.02%
    2009 26.37%
    2010 13.29%
    2011 29.86%
    2012 11.56%
    2013 18.54%
    2014 19.76%
    2015 2.76%

     

    CAGR 13.15%

     

    I think that RSP/TLT is quite good, but QQQ/TLT is bested by VTI/TLT.

     

    Thanks.
    7 Apr 2015, 01:49 AM Reply Like
  • spielerman
    , contributor
    Comments (265) | Send Message
     
    Is the methodology that he is suggesting using Native Graham as the strategy, Meaning still using the 25%/75% allocations to the two buckets, but instead of VTI being one of the allocations - you replace VTI with 50% RSP and 50% QQQ.

     

    So if the allocation was to normally have 75% to TLT and 25% to VTI - the new allocation would be:
    75% TLT
    12.5% RSP
    12.5% QQQ
    7 Apr 2015, 11:19 AM Reply Like
  • edanziger0
    , contributor
    Comments (25) | Send Message
     
    Sorry for the confusion.
    I used the half and half RSP/QQQ combination as though it was a single stock fund (as Spielerman notes above) and compared its quarterly performance with TLT to determine the next quarter's allocation.
    7 Apr 2015, 01:50 PM Reply Like
  • johnmarg
    , contributor
    Comments (190) | Send Message
     
    I ran RSP/TLT 50% each thru ETF replay for 2009 and it showed 11.4% not 27.39% as you have. Is this what you did?
    7 Apr 2015, 12:39 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » It is not 50/50. The quarterly holding were this (with the last column being the weights) for 2009:

     

    TLT 1/01/2009 TO 4/01/2009 -7.80% 75.00%
    RSP 1/01/2009 TO 4/01/2009 -11.41% 25.00%
    RSP 4/01/2009 TO 7/01/2009 23.04% 75.00%
    TLT 4/01/2009 TO 7/01/2009 -10.71% 25.00%
    RSP 7/01/2009 TO 10/01/2009 16.80% 75.00%
    TLT 7/01/2009 TO 10/01/2009 7.00% 25.00%
    RSP 10/01/2009 TO 1/01/2010 11.64% 75.00%
    TLT 10/01/2009 TO 1/01/2010 -9.01% 25.00%
    2009 -8.70% 14.61% 14.35% 6.48%

     

    Annual 27.39%

     

    CAGR 27.39%
    7 Apr 2015, 09:24 PM Reply Like
  • edanziger0
    , contributor
    Comments (25) | Send Message
     
    When interest rates start rising again (eventually) how do we think this strategy will hold up? Will TLT be a significant drag except during corrections?
    8 Apr 2015, 10:37 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » I have no idea.

     

    If TLT collapses, the subsequent lower allocation to it will probably balance things out in the time frame of a year.
    8 Apr 2015, 10:45 AM Reply Like
  • extremebanker
    , contributor
    Comments (2100) | Send Message
     
    Many times when rates rise the yield curve will become flat or inverted. The market actually sets long term rates and it is possible the rate increase is already built into current long term yields. It is possible longer term bonds will not suffer a price decline. Short term bonds may suffer more than long term bonds. It depends on what the yield curve does.
    8 Apr 2015, 12:23 PM Reply Like
  • tp2
    , contributor
    Comments (41) | Send Message
     
    Varan. On your comment (about allocations for this quarter) on April 1, (under Vanguard Growth) why is TLT at 35%? Thanks.
    27 Apr 2015, 09:20 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » tp2
    Thanks for dropping by.

     

    The return of TLT during the prior three months (12/31/2014-3/31/2015) was lower than all the other in the basket except VUG. So if you look at the table under 'six fund basket', VUG is allocated the lowest weight - 5%. The other two ETFs, ranking higher than TLT are allocated the weights for the top 2. The rest, 35%, goes to TLT.
    27 Apr 2015, 09:57 AM Reply Like
  • tp2
    , contributor
    Comments (41) | Send Message
     
    Varan, thanks. I didn't read carefully enough. I assume that the 75%/25% is always the allocation. Keep up the great work and many thanks.
    27 Apr 2015, 11:45 AM Reply Like
  • fbshi88@gmail.com
    , contributor
    Comments (5) | Send Message
     
    are you guys still heavily investing in TLT?
    1 Jul 2015, 01:57 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Bad quarter, bad six months.

     

    YTD returns:

     

    Market (VTI/TLT) -4.51%
    Mid Cap Value (IJJ/TLT) -4.59%
    Small Cap Value (IJS/TLT) -5.82%
    iShares Value -5.27%
    iShares Growth 1.03%
    Fidelity Value -4.98%
    Fidelity Growth 3.98%
    Guggenheim Value -4.71%
    Guggenheim Growth 3.19%
    Vanguard Value -4.63%
    Vanguard Growth 0.71%
    Leveraged -5.28%

     

    Allocations for July 2015

     

    Market
    VTI 75.0% TLT 25.0%

     

    Mid Cap Value
    IJJ 75.0% TLT 25.0%

     

    Small Cap Value
    IJS 75.0% TLT 25.0%

     

    iShares Value
    IVE 35.0% IJS 25.0% TLT 25.0% IJJ 15.0%

     

    iShares Growth
    IJT 35.0% IVW 25.0% TLT 25.0% IJK 15.0%

     

    Fidelity Value
    FLPSX 35.0% FDVLX 25.0% TLT 25.0% FSCRX 15.0%

     

    Fidelity Growth
    FCPGX 35.0% FBGRX 25.0% TLT 25.0% FMCSX 15.0%

     

    Guggenheim Value
    RZV 35.0% RFV 25.0% TLT 25.0% RPV 15.0%

     

    Guggenheim Growth
    RZG 35.0% RFG 25.0% TLT 25.0% RPG 15.0%

     

    Vanguard Value
    VTV 35.0% VBR 25.0% TLT 25.0% VOE 15.0%

     

    Vanguard Growth
    VUG 35.0% VBK 25.0% TLT 25.0% VOT 15.0%

     

    Leveraged
    SSO 35.0% DDM 25.0% UBT 25.0% MVV 15.0%
    1 Jul 2015, 02:06 AM Reply Like
  • tp2
    , contributor
    Comments (41) | Send Message
     
    Many thanks for all your GREAT work.
    1 Jul 2015, 10:32 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » thanks a lot.
    1 Jul 2015, 10:35 AM Reply Like
  • Algyros
    , contributor
    Comments (158) | Send Message
     
    Yes, I agree. You're very generous.
    1 Jul 2015, 05:07 PM Reply Like
  • 37935359
    , contributor
    Comment (1) | Send Message
     
    Varan, I have been reading your comments for quite some time - here and on the main board. I respect your being so candid and the work you do for objectivity
    3 Jul 2015, 07:55 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » thank you very much.
    3 Jul 2015, 09:30 AM Reply Like
  • Serenity
    , contributor
    Comments (945) | Send Message
     
    Varan,

     

    Did you notice that Buffett too recommends an S&P500 Index Fund as a good alternative investment in his 2013 letter to shareholders?

     

    Serenity's own 2012 article (http://seekingalpha.co...) had recommended a Vanguard S&P500 index fund as a good application of Graham's first strategy for investors.

     

    Once again, great work!

     

    Your instablog post provides more value than most articles one comes across these days.
    3 Jul 2015, 12:11 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Thanks a lot Serenity. My goals are to publish the results that I think may be interesting to others on SA and to use this platform to keep a permanent record of these results. Feedbacks from readers such as yours are very lucrative and satisfying bonus.
    3 Jul 2015, 02:54 PM Reply Like
  • 3832814
    , contributor
    Comments (34) | Send Message
     
    Counting down to the 2015 Q4 update and the latest YTD returns!
    28 Sep 2015, 01:02 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » I am afraid that 2015 has been kind to very few (AMZN and FSRPX for example). Till a few weeks ago growth style was not as bad as others but I have not looked at the results lately.

     

    Thanks a lot for your interest. I will be posting the data in due course.
    28 Sep 2015, 01:12 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Q3 update (strictly, the transaction occurs on 10/1, so thing will change tomorrow):

     

    YTD Returns

     

    Market -9.10% (VTI/TLT)
    Mid Cap Value -11.86%
    Small Cap Value -13.38%
    iShares Value -12.25%
    iShares Growth -2.71%
    Fidelity Value -11.54%
    Fidelity Growth -3.16%
    Guggenheim Value -14.10%
    Guggenheim Growth -1.16%
    Vanguard Value -10.65%
    Vanguard Growth -5.59%
    Leveraged -15.67%

     

    So much for value.

     

    The Q4 allocations are all 75% for TLT:

     

    Market
    TLT 75.0% VTI 25.0%

     

    Mid Cap Value
    TLT 75.0% IJJ 25.0%

     

    Small Cap Value
    TLT 75.0% IJS 25.0%

     

    iShares Value
    TLT 75.0% IVE 12.0% IJJ 8.0% IJS 5.0%

     

    iShares Growth
    TLT 75.0% IVW 12.0% IJK 8.0% IJT 5.0%

     

    Fidelity Value
    TLT 75.0% FSCRX 12.0% FLPSX 8.0% FDVLX 5.0%

     

    Fidelity Growth
    TLT 75.0% FMCSX 12.0% FBGRX 8.0% FCPGX 5.0%

     

    Guggenheim Value
    TLT 75.0% RPV 12.0% RFV 8.0% RZV 5.0%

     

    Guggenheim Growth
    TLT 75.0% RPG 12.0% RFG 8.0% RZG 5.0%

     

    Vanguard Value
    TLT 75.0% VOE 12.0% VTV 8.0% VBR 5.0%

     

    Vanguard Growth
    TLT 75.0% VUG 12.0% VOT 8.0% VBK 5.0%

     

    Leveraged
    UBT 75.0% SSO 12.0% DDM 8.0% MVV 5.0%
    1 Oct 2015, 12:46 AM Reply Like
  • yawkey5
    , contributor
    Comments (303) | Send Message
     
    Hi Varan,
    I started my Naive Graham Growth Portfolio today. Two exceptions, I used TLT (2X) and IEF (1X) and will review the trailing 3-month performance monthly (gives me something to do / retired).
    My allocation is TLT (60%), IEF (15%), IVW (12%), IJK (8%) and IJT (5%). All free to trade at Fidelity.
    Thanks for your help.
    Yawkey
    1 Oct 2015, 05:47 PM Reply Like
  • 3832814
    , contributor
    Comments (34) | Send Message
     
    Hi varan. The Guggenheim ETFs are free to trade at Schwab. However, they only have two commission free long ETF treasuries: TLO and ZROZ. Which would have had better returns, using TLO in three baskets, or 'TLO x2 and ZROZ' or 'TLO and ZROZ x2'?
    13 Oct 2015, 06:24 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » @3832814
    The historical data is such that the performance can be computed only for 2011-2015.

     

    Guggenheim Growth

     

    with all ZROZ

     

    CAGR 22.85% MaxDD 11.9% Sharpe 1.45 Sortino 3.6

     

    with ZROZ ZROZ TLO

     

    CAGR 19.9% MaxDD 10.9% Sharpe 1.54 Sortino 3.47

     

    with ZROZ ZROZ TLO

     

    CAGR 19.9% MaxDD 10.9% Sharpe 1.54 Sortino 3.47

     

    with ZROZ TLO TLO

     

    CAGR 17.6% MaxDD 9% Sharpe 1.62 Sortino 3.28
    14 Oct 2015, 10:26 AM Reply Like
  • 3832814
    , contributor
    Comments (34) | Send Message
     
    Awesome! Thx! But I think you repeated the results for ZROZ ZROZ TLO twice.
    Do you have the results for all TLO?
    Also, what about the results for the same time period (2011-2015) for SCHB/TLO or SCHB/ZROZ as a substitute for VTI/TLT 75/25? I'll see if a Naïve Graham strategy in Schwab is something I can run. Gotta make use of those commission free ETFs!
    14 Oct 2015, 03:59 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Sorry, typo. The last one was TLO TLO TLO not ZROZ TLO TLO.

     

    The best two fund pair is RFG/ZROZ.

     

    2011-2015

     

    CAGR 22.8% MaxDD 9.6% Sharpe 1.4 Sortino 3.3
    14 Oct 2015, 04:10 PM Reply Like
  • 3832814
    , contributor
    Comments (34) | Send Message
     
    varan - RFG/ZROZ is a Mid-Cap and Long Treasury pair. Will results be improved using other commission-free mid-cap funds at Schwab? MDYG/ZROZ or SCHM/ZROZ? Both MDYG and SCHM have lower expense ratios than RFG. But then again performance is not all about expense ratios.
    2 Nov 2015, 05:13 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » For 2011-2015, MDYG/ZROZ is quite good.

     

    2011 56.27%
    2012 11.95%
    2013 14.47%
    2014 33.84%
    2015 -1.47%

     

    CAGR 22.23%

     

    as compared with RFG/TLT:

     

    2011 34.10%
    2012 12.38%
    2013 18.91%
    2014 18.99%
    2015 -0.57%

     

    CAGR 16.80%

     

    SCHM/ZROZ

     

    2012 12.29%
    2013 17.44%
    2014 35.28%
    2015 -2.64%

     

    CAGR 15.47%

     

    Looks like MDYG is the way to go if you have account in Schwab.
    2 Nov 2015, 05:22 PM Reply Like
  • 3832814
    , contributor
    Comments (34) | Send Message
     
    The SCHM/ZROZ period starts on 2012 instead of 2011. Is that because the inception date of SCHM is 1/13/2011, thus not a full year?
    So just to keep thing the same, what would be the CAGR for MDYG/ZROZ if we use the same period as SCHM/ZROZ, which excludes 2011 and is just from 2012-2015?
    2 Nov 2015, 06:14 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » yes.

     

    On a second look not much difference between the two to suggest a definitive choice.
    2 Nov 2015, 07:24 PM Reply Like
  • fbshi88@gmail.com
    , contributor
    Comments (5) | Send Message
     
    Would it make less sense to invest in any bound as the interest rate is expected to move higher? The quarter to date data seems support this view, plus a strong seasonal tendency for better stock (not bond) performance towards the end of year. If Fed is not raising the rate in mid of December (unlikely), TLT will go higher. However, the price and moving average trends can not predict/support this conclusion. It is a hard investment decision but Fed policy cannot be ignored...
    6 Dec 2015, 10:37 AM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Agreed. If one can accurately predict the occurrence and the effect of the binary events like the Fed decision on the rates, the strategy can definitely benefit from the modifications derived from such analysis.
    6 Dec 2015, 11:18 AM Reply Like
  • ls78
    , contributor
    Comments (154) | Send Message
     
    Problem is, no one knows. We've been speculating on rate increases all year. I'm just sticking with the system.
    6 Dec 2015, 11:03 AM Reply Like
  • TrickPony
    , contributor
    Comments (33) | Send Message
     
    Is78
    I agree completely.
    Kurt
    7 Dec 2015, 08:25 AM Reply Like
  • TrickPony
    , contributor
    Comments (33) | Send Message
     
    Counting down to the 2016 Q4 update and the latest YTD returns! Yikes
    Kurt
    19 Dec 2015, 03:56 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » I am with you TP.
    19 Dec 2015, 03:58 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » Due to the implosion of value and of the treasury funds, 2015 was quite unpleasant. Here is the final tally:

     

    Market -8.92% 2015-2015
    Mid Cap Value -11.93% 2015-2015
    Small Cap Value -13.36% 2015-2015
    iShares Value -11.77% 2015-2015
    iShares Growth -2.86% 2015-2015
    Fidelity Value -10.63% 2015-2015
    Fidelity Growth 0.22% 2015-2015
    Guggenheim Value -14.33% 2015-2015
    Guggenheim Growth -2.12% 2015-2015
    Vanguard Value -9.86% 2015-2015
    Vanguard Growth -4.43% 2015-2015
    Leveraged -14.44% 2015-2015

     

    I will continue this for another year as no strategy is perfect, and this approach to tactical investing has led to superior performance during the last ten years. (If you select the Fund Group 'Allocation' in the M* tool http://bit.ly/N9TS0j and enter one (-8.9%), three (8.2%), five (12.7%) and ten (11.7%) year CAGRs for Naive Graham VTI/TLT, M* finds no fund such that all of its CAGRs were better than these.)

     

    For 2016 Q1, here are the allocations:

     

    Market
    VTI 75.0% TLT 25.0%

     

    Mid Cap Value
    IJJ 75.0% TLT 25.0%

     

    Small Cap Value
    IJS 75.0% TLT 25.0%

     

    iShares Value
    IVE 35.0% IJS 25.0% TLT 25.0% IJJ 15.0%

     

    iShares Growth
    IVW 35.0% IJT 25.0% TLT 25.0% IJK 15.0%

     

    Fidelity Value
    FDVLX 35.0% FLPSX 25.0% TLT 25.0% FSCRX 15.0%

     

    Fidelity Growth
    FBGRX 35.0% FCPGX 25.0% TLT 25.0% FMCSX 15.0%

     

    Guggenheim Value
    RPV 35.0% RZV 25.0% TLT 25.0% RFV 15.0%

     

    Guggenheim Growth
    RPG 35.0% RFG 25.0% TLT 25.0% RZG 15.0%

     

    Vanguard Value
    VTV 35.0% VOE 25.0% TLT 25.0% VBR 15.0%

     

    Vanguard Growth
    VUG 35.0% VBK 25.0% TLT 25.0% VOT 15.0%

     

    Leveraged
    DDM 35.0% SSO 25.0% UBT 25.0% MVV 15.0%
    3 Jan, 01:45 PM Reply Like
  • Market Map
    , contributor
    Comments (805) | Send Message
     
    Over 90 years, when "Sell in May" anomaly was incorporated with the tactical model, alpha premium has been added ( using small cap value universe ).

     

    The model indicated 2015 as a "high risk" profile year and contained a "statistically significant 4th quarter" ... We held VBR from Sep 29 2014 - May 1 2015 (slide 6 here http://bit.ly/1mc0ej9 ) Return was 5.8% ...
    Returns degraded from May 1 - Dec 31 = -7.4% ( affected by typical "high risk" year behavior ? )

     

    We went back in on Nov 2 2015 ...
    3 Jan, 07:36 PM Reply Like
  • fbshi88@gmail.com
    , contributor
    Comments (5) | Send Message
     
    A smart way is to allocate 75% in TLT and 25% in VTI or 50/50, which goes against a common wisdom. Happy investing!
    4 Jan, 11:44 AM Reply Like
  • TrickPony
    , contributor
    Comments (33) | Send Message
     
    It looks like another switch to bonds?
    30 Mar, 06:15 PM Reply Like
  • varan
    , contributor
    Comments (5434) | Send Message
     
    Author’s reply » you are right.

     

    Market
    TLT 75.0% VTI 25.0%

     

    Mid Cap Value
    TLT 75.0% IJJ 25.0%

     

    Small Cap Value
    TLT 75.0% IJS 25.0%

     

    iShares Value
    TLT 75.0% IJJ 12.0% IJS 8.0% IVE 5.0%

     

    iShares Growth
    TLT 75.0% IJK 12.0% IVW 8.0% IJT 5.0%

     

    Fidelity Value
    TLT 75.0% FSCRX 12.0% FDVLX 8.0% FLPSX 5.0%

     

    Fidelity Growth
    TLT 75.0% FMCSX 12.0% FBGRX 8.0% FCPGX 5.0%

     

    Guggenheim Value
    TLT 75.0% RFV 12.0% RZV 8.0% RPV 5.0%

     

    Guggenheim Growth
    TLT 75.0% RPG 12.0% RZG 8.0% RFG 5.0%

     

    Vanguard Value
    TLT 75.0% VBR 12.0% VOE 8.0% VTV 5.0%

     

    Vanguard Growth
    TLT 75.0% VOT 12.0% VUG 8.0% VBK 5.0%

     

    Leveraged
    UBT 75.0% MVV 12.0% DDM 8.0% SSO 5.0%

     

    This year the performnce has been better than the last.

     

    Market 3.75%
    Mid Cap Value 7.57%
    Small Cap Value 7.37%
    iShares Value 6.08%
    iShares Growth 3.97%
    Fidelity Value 4.45%
    Fidelity Growth 0.55%
    Guggenheim Value 5.99%
    Guggenheim Growth 2.19%
    Vanguard Value 4.10%
    Vanguard Growth 2.61%
    Leveraged 8.32%

     

    The year has seen the reversal in relative returns of value vs. growth.
    30 Mar, 06:22 PM Reply Like
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