rudi

A Simple Momentum System for Beating the Market

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

A Simple Momentum System for Beating the Market

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!

A Simple Momentum System for Beating the Market

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

E-Z Stealth ETF Portfolio

Hi Thomas,
I hope you don't mind me posting a few comments on the portfolio. I agree that one shouldn't try to play the market. This is in fact, however, also good advice for experts.
The portfolio as described above is obviously not a passive portfolio, but bets on a badly performing US economy. I would go so far as too say it is de facto an extremely active approach, and certainly cannot be reconciled with efficient market theory. (Which I hope you believe in, considering you are giving advice to a growing community here.)


While historically the stock market has outperformed bonds marginally, the volatility of equities is three times that of bonds.
And regarding the negative correlation between these asset classes and relying on Markowitz, one should have about 60%-90% bonds.
I would therefore suggest adding a very substantial position of WIP, for example. It is well diversified and inflation linked. Secondly, I don't understand why you arbitrarily buy different sectors and SPY as well. If you don't want to bet but to invest, buy ACWI.
Thus reducing fees, whilst establishing a greater level of diversification.
In order to fine-tune the portfolio, I would suggest reducing the RJI position, as the expected return is around the rate of inflation. So it just works as a hedge (which you do not need if you do not lever).

I would increase the carry trade position as it further diversifies the portfolio, whilst the returns are similar to those of bonds. Bear in mind, that DBV (if i remember correctly) charges 0.65% fees, which is definitely too much. One can easily look up the monthly composition of DBV and buy the currencies manually and save 90% of the fees.

There could be more fine-tuning, by adding some more asset classes and adjusting the percentages. But I am afraid I would be divulging trade secrets if I were to go any further.
Finally, a portfolio with 50% WIP added and levered by 1.5-2.0 will certainly and consistently outperform your portfolio!

best regards
Rudi