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AGG Forum Topics
- All Comments on AGG
- General Discussion on AGG
- Report from the Bond War Frontlines [view article]
- Income Planning and Safe Withdrawal Rates [view article]
- Endowment Investing 2008, Yale-Style [view article]
- Defining a Set of Core Asset Classes [view article]
- Why I'm Against Fixed Income ETFs [view article]
- Bond Expert: Monday Wrap [view article]
- A Simple Momentum System for Beating the Market [view article]
- REITs Pop While Commodities Flop [view article]
- A 360 View of Returns (July 2008) [view article]
- U.S. Trade Deficit Shrinks; GDP Outlook Bright [view article]
- Bond Specialist Pimco Files to Enter ETF Marketplace [view article]
- ETF Industry Data Summary: 1H'08 [view article]
loading ...Recent AGG Articles
- Report from the Bond War Frontlines
- Income Planning and Safe Withdrawal Rates
- Bond Expert: Monday Wrap
- Defining a Set of Core Asset Classes
- Short-Term Returns for the Major Asset Classes
- A Simple Momentum System for Beating the Market
- REITs Pop While Commodities Flop
- A 360 View of Returns (July 2008)
- Bond Specialist Pimco Files to Enter ETF Marketplace
- ETF Industry Data Summary: 1H'08
- Full List of Articles »
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A Simple Momentum System for Beating the Market [view article]
Agree with the statemen investing is part art and part science. 3 members of my free website are u this year with over 95% success rates on more than 250 investments cumulative. Making the trend your friend is certainly a key concept as the author states. Key is knowing the right stocks at the right prices ReplyA Simple Momentum System for Beating the Market [view article]
Besides the 8-9% that stock markets make, one can only win what others loose. So who are the loosers when everybody outperformes by 10%?This is what EMH supporters tell hard cases.
Matt:
"Naturally all analysis is post"
You can develop a strategy with old data, say 1900 to 1980, and then validate the strategy with the data from 1980 until today. There are still some difficulties with that but you test the model on data which you didn't use to build the model, thats essential.
I can't believe I answered that seriously.
If you guys like, we can do an experiment, just say: "I'd like to".
cheers
rudi Reply
A Simple Momentum System for Beating the Market [view article]
Clearly Graham and Ken Fisher have been some of the most successful investors and both somehow managed to find time to write books while Fisher also has many peer reviewed papers published.The buy and hold arguement holds because eventually most stocks rise, and if you wait long enough your selections will as well. Combining sector rotation with long term objectives has been a hallmark of success for many long term holders thought of as buy and hold, the rotation is just slower for some people (Buffett) than others (Fisher). And some are much faster (Town).
It is not possible to copy Buffett's returns without copying his methodology, and that includes being an active manager, whether a a board member at Washington Post and Coke, or through selecting and retaining the management of the wholy owned companies.
Naturally all analysis is post, as are all back-testing analysis. You obviously can't analyze what hasn't happened, so that arguement seem disingenuous.
The risk is chasing old returns, so balancing over trading with getting in after the momentum has changed requires more thought. A less risky model may be to take benchmark risk against a market cap based world index like MSCI World by varying up or down the allocation of the sectors.
One thing missing is industry rotation in the article. Those that rotated out of retail, homebuilders, discretionary and autos last summer are and will likely continue to do well.
Matt Reply
A Simple Momentum System for Beating the Market [view article]
as far as i can tell there is sector and asset class rotation ata speed and with a power like never before. Imho this is precisely the to be expected effect of myriads of dumb quant funds chasing more or less the same momentum strategies. Since they follow price, not value they tend to actually hunt their own echos if they exercise a sufficiently large influence over the market. it seems to me, that this stage has arrived. so they rotate out of oil and oil stocks and out of solar into biotech and financials - producing a rapid price deline of the former and a rapid price jump for the latter. If both trends have gone far enough they will move on to the next sectors and assets. In the process, a growing market weight of that will tend to ever more shorten these cycles until they occur on weekly rather than multi-month cycles. Finally the speed at which the portfolios can be turned over will act as a natural border. When all is said and done though, longterm stock prices will rise nor faster or slower than without these momentum folks. But there will be a heck of volatility around the mean.What's my take? I gladly look out for value opportunities created by the brainless stampede of the momentum herd. They can chase the pennies (dwindling excess returns versus broad indexes of 2-3 percent per annum) while i will look to make the bucks (5-10%) outperformance on average. Reply
A Simple Momentum System for Beating the Market [view article]
Ikkyu:Ok I read the paper a second time:
If you assume a daily standard deviation of say 1%, then you get an approximate standard deviation (ignoring fat tails, using a hundret years, etc.) of sqrt(1*250*100) = 158%. If you would like to do a simple test you would compare the difference of both charts (Exhibit 2 and 3) to twice that standarddeviation. The cumulated returns of the traded series shoud be 300% larger than the buy and hold strategy to be 95% sure, not to have an incidental phenomenon.
To get the mentioned "scientific proof", a lot more would be neccesary. One thing that did never happen is a test of the hypothesis on true validation data. i.e. you apply an (appropriate) econometric test to data, that you never used for your analysis and which you don't use a second time!
"you guys act like Mr. Faber is some kinda snake-oil salesman!! "
Exactly. Because he does marketing for his book and he is unscientific.
I bet he would never put all his money in that strategy and lever. Neither would he (and wouldn't be able to) administer larger sums of money with that strategy.
I am very willing to discuss this further, if it helps to clarify!
Reply
A Simple Momentum System for Beating the Market [view article]
Price is a reflection of value. The value of an asset is equal to the total of all future earnings, such as dividends, which will be obtained from it, discounted for the interest that will be lost from having to wait to get these earnings. That said, Mr. Faber, kindly run this computation in Mathematica.ListLinePlot[Accumulat...
Prove to me that what we see in the markets is not, in fact, the above in disguise. Until then, I couldn't care less about your rotation/momentum system (or your book, for that matter).
Reply
A Simple Momentum System for Beating the Market [view article]
Excellent article. Thanks very much. ReplyA Simple Momentum System for Beating the Market [view article]
Puddi said: "Most such systems will make some money some of the time. If any system exists that makes good money all of the time, its inventor isn’t going to be writing a book about it."No trading system purports to make money all of the time. In fact, you can have less than 50% winning trades and can still make money. I suggest you read up on some basic trading theory.
Rudi said: "You didn't reveal any scientific proof because you can't."
Ah, dude first chill and then look at his peer-reviewed published academic paper! This is one of the most documented, pervasive effects in finance and you guys act like Mr. Faber is some kinda snake-oil salesman!!
Mebane, maybe these comments are an indicator as to why the momentum effect keeps on working....
Cheers from Osaka,
john Reply
A Simple Momentum System for Beating the Market [view article]
There can be long periods when markets are not trending and price keeps crossing above and below the 10-month (or whatever) moving average one is using to buy or sell. For example, if I were using PCRIX as my commodity investment there were two buy-sell round trips in 2005 and four round trips in 2006 which ground out loss after loss. I wouldn't have been able to stay with it over that 2 year period - would you? ReplyA Simple Momentum System for Beating the Market [view article]
Investment and trading is part art and part science. Momentum system as broadly defined here is definitely a mainstream strategy which many have benefited from, just as many have benefited from the Warren Buffet buy and hold strategy. Each strategy has strong points and drawbacks, but momentum strategy calls for control of risk [stop loss] and locking in profits [sell stop]; these are important features which many find appealing and practical. ReplyA Simple Momentum System for Beating the Market [view article]
Those are all ex-post analysis, aren't they? Comparing winners to loosers afterwards for sure shows an outperformance ;)You didn't reveal any scientific proof because you can't.
cheers
rudi Reply
A Simple Momentum System for Beating the Market [view article]
Like many other discussions of momentum analysis, this article makes broad assertions of the virtues while skirting the difficult details. Of course momentum exists in individual stocks – few people subscribe to the pure form of the random walk.The underlying economic principles are readily understandable. For a single company, steady earnings growth over the past few quarters is in most instances the result of circumstances that won’t change on a dime, so, all other factors being equal, betting on a continuation of a good trend is better than betting on the reversal of a series of bad quarters. An ETF approach is simply the single company approach applied to a sector.
The difficult details are the choice of entry and exit points. Most trends are interrupted by breaks, and all eventually reverse. All momentum-investing systems rely upon rules that purport to filter out the noise, cut the losses, hang in through the head-fake breaks, and exit before the true reversal, rolling the investment into another stock’s uptrend.
Most such systems will make some money some of the time. If any system exists that makes good money all of the time, its inventor isn’t going to be writing a book about it.
Reply
REITs Pop While Commodities Flop [view article]
can some one explain what this means?TIPS spreads are now collapsing Reply
A 360 View of Returns (July 2008) [view article]
Finally, a universal overview that gives the reader direction for areas to research for future investment. Great job! ReplyA 360 View of Returns (July 2008) [view article]
Thank you, very helpful. Reply