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varan

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  • Simple Tactical Methods Incorporated Into An Equity-Treasury Hedge Strategy [View article]
    This might be useful

    http://bit.ly/1oOcRUv

    Backtest results have to be adequately deflated.

    There are many strategies whose returns are mind-boggling in back tests for short time periods, sometimes even for the last ten years, especially if you optimize some parameters. For some, e.g. GMR, it is possible to perform back tests for a longer period using the almost equivalent mutual funds, and the results are always worse.

    The main reason is that the correlations (or more precisely the lack of correlations) change over time - e.g. correlation between VFINX and VUSTX during 1991-2014 vs. the correlation between SPY and TLT during 2003-2014.

    Which is not to say that the strategies that you have described will not be better than many alternatives. I just want to dampen the enthusiasm a bit in light of the other work in this area. The best example of the over-enthusiasm on the basis of back tests is the slow burn of the ETF GTAA which was launched with great fanfare but did not at all live up to its promise generated by the results of years of back tests.
    Aug 19 01:36 PM | 1 Like Like |Link to Comment
  • Simple Tactical Methods Incorporated Into An Equity-Treasury Hedge Strategy [View article]
    Thanks Algyros.

    I found this summary of the pitfalls of expecting to consistently get over 20% annual returns over a long period.

    http://bit.ly/1oXbtJt
    Aug 19 01:05 PM | Likes Like |Link to Comment
  • Simple Tactical Methods Incorporated Into An Equity-Treasury Hedge Strategy [View article]
    Any strategy that gives you growth > 20% (or even >18%) is bound to ultimately fail. Your sights are too high. Someone once did a calculation and published the results somewhere that 20% CAGR will lead you to own the whole stock market in a certain number of years.

    The best balanced fund in terms of drawdown is VWINX, whose drawdown was around 18.9% in 2008-2009. Anything lower than that is good enough.
    Aug 19 11:33 AM | 1 Like Like |Link to Comment
  • Simple Tactical Methods Incorporated Into An Equity-Treasury Hedge Strategy [View article]
    My purpose was not to present VTI/TLT as something better (the apt comparison would be with the TLT/SPY in this article), but point to a simpler method that does not depend on moving averages etc.

    Anyway, here are the results for quarterly switching of VTI/TLT (there may differences from ETFReplay, as I switch on the first trading day of the quarter, and use the returns for the three prior calendar months):
    2003 15.47%
    2004 1.59%
    2005 5.89%
    2006 11.37%
    2007 19.11%
    2008 11.09%
    2009 32.99%
    2010 7.75%
    2011 38.40%
    2012 10.11%
    2013 29.01%
    2014 13.24%

    CAGR 16.37%

    Max drawdown 16.9%
    Sharpe 1.05

    The drawdown is quite high with respect to the author's SPY/TLT, but I think that the substantially higher CAGR (16.9% vs. 9.3%) more than compensates for it.

    If you are uncomfortable with going all in with one of VTI or TLT, you can use Naive Graham ( http://bit.ly/1jbcPEt and http://bit.ly/1oWOpuk ) . With VTI/TLT you get a CAGR of 13.1%, max DD of 14.3% and Sharpe of 1.14.

    With both paired-switching and Naive Graham, their are no annual losses during 2003-2014.
    Aug 19 09:58 AM | 1 Like Like |Link to Comment
  • Simple Tactical Methods Incorporated Into An Equity-Treasury Hedge Strategy [View article]
    The simplest strategy using TLT because of its negative correlation with the market is to switch between VTI and TLT (paired switching) on the first trading day of every quarter depending on which one did better during the prior quarter. You can do this every month as well, but use the prior quarter's return. This strategy would have done very well during 2003-todate, and would have completely avoided the 2008 melt down (11% annual return in 2008 with quarterly switching, and 17% annual return in 2008 with quarterly switching). YTD the quarterly strategy as returned over 13%. The strategy works with varying degree of out-performance if VTI is replaced by any other ETF/mutual fund which is nominally correlated with the market such as IJJ, IVE, RPV, etc. The simplicity of this approach is quite remarkable especially since the performance would have been so good during the last ten years.

    Correspondingly you can do the same with the MVV/UBT, SSO/UBT. QLD/UBT, DDM/TLT, and UWM/UBT pairs, but MVV yields the best results.

    Likewise the UMDD/TMF pair also yields very good results. Back tests based on simulated data for UMDD and TMF suggest that the best switching period for this pair may be one or two months (about 30% CAGR for 1997-2014 on the basis of simulated data).

    I am a bit wary of methods based on search for the optimal weights as that may lead to non-robust strategies that may at some point not perform as well as in the back tests.
    Aug 19 01:38 AM | 3 Likes Like |Link to Comment
  • Supply-Side Versus Keynesian Economics [View article]
    You take Kudlow and the hack from Heritage (everyone from Heritage is a hack) this seriously?
    Aug 18 11:50 PM | 3 Likes Like |Link to Comment
  • A Diversified, All Hedged ETF Portfolio [View article]
    Nice, but is there any way to evaluate the performance for a longer time period? Obviously, less than a year of history cannot be used to make any definitive judgment.
    Aug 18 01:17 PM | 1 Like Like |Link to Comment
  • Build A 'Whatever Happens' Portfolio... Now [View article]
    @JLS

    The portfolio of 50% even in these stocks and 50% TLT would have done reasonably well during 2003-todate (actually slightly better than SPY), with only about 5% loss in 2008.

    Proper allocation is something that is not given as much emphasis in this forum as necessary.
    Aug 17 05:22 PM | Likes Like |Link to Comment
  • The Contradiction Of 'Passive' Index Fund Investing [View article]
    You found an argument to reach a pre-determined conclusion.

    Excellent.

    Does not reach the same level as the DGIs who as a group are so eminently and exquisitely capable of twisting every piece of empirical data to reach the conclusion that anyone who does not do DGI is going to die begging on the streets of Addis Ababa, or at best, in New York.
    Aug 17 02:14 PM | 6 Likes Like |Link to Comment
  • Build A 'Whatever Happens' Portfolio... Now [View article]
    I think that proper strategic allocation with a basket of well known assets is much better than to try to continually assess the overall state of the market, and to change the asset mix by buying obscure or esoteric products or products with very little history when your evaluation of the market conditions leads you to conclude that the market direction is going to change drastically.

    Simplest example: equally weighted 50% in the tech stars of the nineties (MSFT, AAPL, INTC, CSCO, QCOM) and 50% in VUSTX, with yearly rebalancing would have yielded more than twice the CAGR of SPY, and much smaller annual drawdowns in the period starting in 2000, the first year of the tech meltdown. Of course if the likes of AMZN, EBAY, PCLN, GOOGL, and FB were added along the way, but with the stock portion limited to 50% of the portfolio, the returns would have been still better. No need for obscure and esoteric products like long short funds, inverse etfs, VQT etc.

    Investment based on macro factors should be left to the advisers who after all have better resources and backgrounds to conduct the needed research, though I doubt that their performance is much better than that of the portfolios based the simpler methods.
    Aug 17 01:26 PM | 1 Like Like |Link to Comment
  • Build A 'Whatever Happens' Portfolio... Now [View article]

    @Loosesrtiny

    USSPX is essentially the same as SPY.
    Aug 17 12:49 PM | 1 Like Like |Link to Comment
  • Shorting The U.S. Treasury Bond With ETFs [View article]
    Ha. An MBA friend, who obviously had the greatest confidence in his ability to trade on the basis of macroeconomic conditions, bought TBT sometime around 2008 when TLT had rocketed up. He is still holding it to prove to himself that he was not wrong.
    Aug 17 11:30 AM | 3 Likes Like |Link to Comment
  • Build A 'Whatever Happens' Portfolio... Now [View article]
    Equally weighted VTI, EFA, and TLT is the simplest portfolio that worked well in 2008, and has provided decent returns since 2003.

    A bit more diversification can be achieved by replacing VTI by VTI, IJJ and IJS, using EFA and EEM instead of EFA alone, and adding PCY to the bond component TLT.
    Aug 16 09:19 PM | Likes Like |Link to Comment
  • Frothy Market, Impending Correction - What's A Dividend Growth Investor To Do? [View article]
    @Pendragon

    "Only when more that 4% of that CAGR is due to unrealized capital gains!"

    Thanks a lot for the clarification.
    Aug 16 02:42 PM | Likes Like |Link to Comment
  • Frothy Market, Impending Correction - What's A Dividend Growth Investor To Do? [View article]
    @dnorm

    The 'secret' is that 8% CAGR is better than 12% CAGR even over a five year period.
    Aug 15 07:26 PM | Likes Like |Link to Comment
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