Search found 18 matches

by maxDrawdown
Tue Dec 25, 2018 8:51 pm
Forum: Investing - Theory, News & General
Topic: buy HIGH and sell LOW?
Replies: 18
Views: 3398

Re: buy HIGH an sell LOW?

Second, they might want to buy back in at $60 but it never falls that low. Say it only falls to $70 then starts to go back up on the way to $100. They are waiting for it to fall to $60 and it never does. Now what? When do they buy back in? $80? They've still created a 20% loss for themselves. That'...
by maxDrawdown
Mon Dec 24, 2018 10:03 am
Forum: Investing - Theory, News & General
Topic: All the "should I be 100% stocks" threads over the last year.
Replies: 185
Views: 16904

Re: All the "should I be 100% stocks" threads over the last year.

I expect the Fed Funds rate to be set to zero or negative in a heartbeat and QE to be reinstated in short order if inflation got anywhere near -10% nowadays. Setting interest rates to zero during high inflation would be throwing gasoline on a fire and make things worse. Negative 10% inflation, as d...
by maxDrawdown
Mon Dec 24, 2018 8:41 am
Forum: Investing - Theory, News & General
Topic: All the "should I be 100% stocks" threads over the last year.
Replies: 185
Views: 16904

Re: All the "should I be 100% stocks" threads over the last year.

If the market drops 60, 70, 80%, then most of those holding 100% stocks will sell out. Does anyone want to argue that the market cannot fall that much? [...] I'm no expert on the Great Depression, but I hear that this drawdown was aggravated by monetary policy mistakes that wouldn't happen today. U...
by maxDrawdown
Sun Dec 23, 2018 2:20 pm
Forum: Investing - Theory, News & General
Topic: All the "should I be 100% stocks" threads over the last year.
Replies: 185
Views: 16904

Re: All the "should I be 100% stocks" threads over the last year.

If the market drops 60, 70, 80%, then most of those holding 100% stocks will sell out. Does anyone want to argue that the market cannot fall that much? A quick calculation based on Shiller's data suggests that, including dividends and deflation, the maximum drawdown during the great depression was ...
by maxDrawdown
Sat Dec 22, 2018 10:12 am
Forum: Investing - Theory, News & General
Topic: All the "should I be 100% stocks" threads over the last year.
Replies: 185
Views: 16904

Re: All the "should I be 100% stocks" threads over the last year.

I'm near 100% equity too, but not fully passive (I'm using 6- and 12-month momentum, recent volatility and correlation to current portfolio to choose from a universe of about 80 factor, minimum volatility, region, sector and size ETFs -- or at least trying to do so; still tinkering with it). I'm fin...
by maxDrawdown
Tue Nov 27, 2018 10:11 pm
Forum: Investing - Theory, News & General
Topic: Vanguard's Hidden Factor ETFs?
Replies: 23
Views: 3166

Re: Vanguard's Hidden Factor ETFs?

columbia wrote: Mon Nov 26, 2018 7:52 pm I was unaware that they offer ETFs for each of the S&P sectors.

Who buys such a thing?
One application would be sector-level momentum strategies. The abstracts cited there sound promising, but the usual caveats about the past and the future apply of course.
by maxDrawdown
Tue Nov 13, 2018 7:29 am
Forum: Investing - Theory, News & General
Topic: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?
Replies: 64
Views: 4057

Re: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?

The failure of some of Meb's funds has more to do with investors being impatient than anything else, I believe. That sounds a bit like blaming the victim. Failure to be patient is a very common problem with active investors. Fund investors buying/selling does not directly affect the per-share perfo...
by maxDrawdown
Sun Nov 11, 2018 5:56 pm
Forum: Investing - Theory, News & General
Topic: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?
Replies: 64
Views: 4057

Re: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?

As a side node, IMHO using bonds as the safe asset in the backtest is overly optimistic considering the era PV has data for. The chance of treasuries repeating their performance since 1980 is basically zero unless you think yields could drop to -5% or so. Especially as a Euro area guy, I'm not expec...
by maxDrawdown
Sun Nov 11, 2018 3:11 pm
Forum: Investing - Theory, News & General
Topic: SWAN ETF - 10% Leaps / 90% Treasuries
Replies: 168
Views: 18519

Re: SWAN ETF - 10% Leaps / 90% Treasuries

in contrast for example with PUTWRITE concept which also has limited risk, there's a fund or two doing it I think: without ER's that had seemingly anomalously high Sharpe Ratio for many years. I wouldn't be surprised if it continues to have a great Sharpe ratio - Sharpe only looks at the mean and v...
by maxDrawdown
Sat Nov 10, 2018 6:04 pm
Forum: Investing - Theory, News & General
Topic: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?
Replies: 64
Views: 4057

Re: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?

I guess one of the dangers is letting your 12-month trend following strategy turn into a 30-month strategy when you finally capitulate on an asset class. IIRC, there are no momentum effects on timescales longer than about 12 months. (If anything, mean reversion.)
by maxDrawdown
Sat Nov 10, 2018 5:37 pm
Forum: Investing - Theory, News & General
Topic: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?
Replies: 64
Views: 4057

Re: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?

This might happen in the short-run, but over an extended period of time, I've never seen anything remotely like that happen with any asset class. Yes, and a predictable oscillating pattern (sine-like) would be implausible because it would be easy to arbitrage away. Just hoping the market doesn't en...
by maxDrawdown
Sat Nov 10, 2018 4:59 pm
Forum: Investing - Theory, News & General
Topic: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?
Replies: 64
Views: 4057

Re: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?

1) Why isn't this more popular? 1. It 'shouldn't' be possible according to the EMH. I don't know, but one hopeful behavioral explanation would be that the strategy often mandates selling at a loss, which is painful and is normally advised against. Similarly, it advocates remaining invested in long ...
by maxDrawdown
Sat Nov 10, 2018 4:51 pm
Forum: Investing - Theory, News & General
Topic: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?
Replies: 64
Views: 4057

Re: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?

Whipsaws may have been affordable and worth it in the past, but in principle, a market oscillating at just the wrong frequency could produce massive drawdowns for the strategy without much drawdown in the market.
by maxDrawdown
Sat Nov 10, 2018 3:05 pm
Forum: Investing - Theory, News & General
Topic: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?
Replies: 64
Views: 4057

Re: "Rules-Based Risk Management System" = Market Timing = Momentum/Trend Following?

It is so easy to come up with a market timing strategy that worked in the past. I'm normally one of the first to mentally scream "backtest overfitting", but I think basic trend-following is well above that suspicion. It doesn't have a lot of parameters to tweak in the first place, and appears to be...
by maxDrawdown
Sat Nov 10, 2018 1:49 pm
Forum: Investing - Theory, News & General
Topic: SWAN ETF - 10% Leaps / 90% Treasuries
Replies: 168
Views: 18519

Re: SWAN ETF - 10% Leaps / 90% Treasuries

I'd think of this fund as an allocation of 70% US equity, 90% Treasuries, -80% cash, and some insurance on the equity portion in the form of puts. Nobody likes negative skewness, so you tend to pay richly for the latter (cf. the variance risk premium). IIRC, option- selling strategies produce robust...
by maxDrawdown
Mon Nov 05, 2018 1:38 pm
Forum: Investing - Theory, News & General
Topic: Risk-based factor explanations: How can factors be non-diversifiable risk?
Replies: 8
Views: 915

Re: Risk-based factor explanations: How can factors be non-diversifiable risk?

I can't think of a better way to lose money foolishly than to sit down at the casino's Factor Table. When you look around the Table, you see one well-dressed guy with shades on representing The House, and the rest a bunch of patsies, dressed in their best Theory outfits. The House always lets a suc...
by maxDrawdown
Sun Nov 04, 2018 1:03 pm
Forum: Investing - Theory, News & General
Topic: Risk-based factor explanations: How can factors be non-diversifiable risk?
Replies: 8
Views: 915

Re: Risk-based factor explanations: How can factors be non-diversifiable risk?

I highly recommend reading "Portfolio advice for a multifactor world" by John Cochrane ( link ) which provides a good introduction to this topic. Thank you, that's a remarkably lucid article. I read the multifactor part and plan to read the rest later :) I think one of my main issues was that risk-...
by maxDrawdown
Sun Nov 04, 2018 9:59 am
Forum: Investing - Theory, News & General
Topic: Risk-based factor explanations: How can factors be non-diversifiable risk?
Replies: 8
Views: 915

Risk-based factor explanations: How can factors be non-diversifiable risk?

Hello everyone, long-time lurker delurking here :) Pretty basic question, but I can't seem to Google it correctly: How can factors possibly be non-diversifiable risk? In other words, why doesn't the standard argument on how the market should only reward systematic risk, not idiosyncratic stock risk,...