Dual Momentum Investing

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RunningRad
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Dual Momentum Investing

Post by RunningRad » Sat Feb 14, 2015 10:13 am

I know that this topic may be an anathema to true Bogelheadism, but since it is an academic investing topic and utilizes index funds, I thought it appropriate for discussion here. (I also searched the forum and found no specific previous discussion.) End of preamble. ;)

I just finished reading Antonacci's Dual Momentum Investing. Briefly, it provides the historical and academic backdrop for a strategy using absolute (trend following) momentum to determine when to be in equities vs. bond index and relative strength momentum to determine whether one should be in international equities or the S&P 500. A variant of the "three fund portfolio", eh? :oops:

There are other variants to the strategy that are more complicated, some provide higher returns, some reduce drawdowns. I am interested to know if anyone here has any experience with this or similar strategies, as part or their whole investment portfolio.
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texasdiver
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Re: Dual Momentum Investing

Post by texasdiver » Sat Feb 14, 2015 10:37 am

Not having heard of it I looked up the book on Amazon and he sure has a lot of rave reviews and followers, almost too good to be believed. From what I could discern, it is basically a sophisticated market timing strategy and he only gives you a taste of the strategy in the book. You have to pay him more to get the "good stuff"

I don't have any intelligent comments other than to say that I know for certain I'm not sophisticated enough to beat the market and I don't have the time or interest to even try. That is the biggest and most important lesson I've absorbed from this forum over the past 6 years.

Five Scoop
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Re: Dual Momentum Investing

Post by Five Scoop » Sat Feb 14, 2015 10:48 am

If one has enough backtesting data to support an investing scheme, they can publish a book. The problem is that you and the author have no idea if investing according to that scheme is going to work in the future. Neither you or the author will know, possibly for decades, if the strategy works going forward. So, there is little risk to be borne by the author, and all the risk taken by the investor. People are always looking to juice investment returns rather than accept what the market gives. So, you had a three factor model that was all the rage, then additional factors were" discovered." Momentum is all the rage and I suppose dual momentum is something else. But, in the real world, to real investors, do these things actually make a difference?



For instance, people were all excited here a while ago about some AQR funds. Well, here is the performance of the AQR momentum fund, large cap, compared to Vanguard S&P 500 over the same time period. If momentum is so persistent and pervasive, as prominent authors like Swedroe argue, then why hasn't it returned more than the Vanguard S&P 500? The Vanguard S&P 500 index is the yellow line, the AQR large cap momentum is the blue line. So, there does not appear to be any discernible benefit to this momentum fund, and I would imagine the same for most others.



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RunningRad
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Re: Dual Momentum Investing

Post by RunningRad » Sat Feb 14, 2015 12:12 pm

Five scoop,

The thesis in the book is heavily based on academic peer-reviewed studies, include the author's own work, and has historical data back to 1801 (which is much further back than indexing).

The primary driver of the excess return and more limited volatility is the absolute momentum, not the relative strength momentum. Unfortunately, "momentum" is used as a word in both of these terms, but they are different concepts. The AQR product is a relative strength momentum fund, which has nothing to do with the strategy. Comparing dual momentum to the AQR fund is not even apples to oranges; it is like apples to car radiators.

I am looking for input from someone else who read the book and/or had any experience with dual momemtum or like strategy. I would especially like to read some holes in the argument for using the strategy from those who understand and/or have used it in their investing lives.
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution

RunningRad
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Re: Dual Momentum Investing

Post by RunningRad » Sat Feb 14, 2015 12:14 pm

texasdiver wrote:Not having heard of it I looked up the book on Amazon and he sure has a lot of rave reviews and followers, almost too good to be believed. From what I could discern, it is basically a sophisticated market timing strategy and he only gives you a taste of the strategy in the book. You have to pay him more to get the "good stuff"

I don't have any intelligent comments other than to say that I know for certain I'm not sophisticated enough to beat the market and I don't have the time or interest to even try. That is the biggest and most important lesson I've absorbed from this forum over the past 6 years.
I read the book, and the simple strategy is laid out in a flow chart. I could teach my 16 year old son how to execute it.
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution

ResearchMed
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Re: Dual Momentum Investing

Post by ResearchMed » Sat Feb 14, 2015 12:32 pm

RunningRad wrote:Five scoop,

The thesis in the book is heavily based on academic peer-reviewed studies, include the author's own work, and has historical data back to 1801 (which is much further back than indexing).

The primary driver of the excess return and more limited volatility is the absolute momentum, not the relative strength momentum. Unfortunately, "momentum" is used as a word in both of these terms, but they are different concepts. The AQR product is a relative strength momentum fund, which has nothing to do with the strategy. Comparing dual momentum to the AQR fund is not even apples to oranges; it is like apples to car radiators.

I am looking for input from someone else who read the book and/or had any experience with dual momemtum or like strategy. I would especially like to read some holes in the argument for using the strategy from those who understand and/or have used it in their investing lives.
I have NOT read the book.
And I do believe that there is *some* evidence for momentum effects, at least in the short term (less than one year, from what little I've focused on), although I don't know now if that was absolute or relative momentum. My own studying of this was looking at absolute momentum, mostly in the 3 - 6 or 3 - 12 month range.

However, and THIS IS THE PROBLEM FOR ALMOST ALL "STRATEGIES", even if the strategy "really worked in the past" (as opposed to being noticed by data dredging, aka data mining nowadays, but I like the sea :happy ) ... there is NO inherent reason why it "should work" in the future.
So many things could have changed, conditions that were critical (noticed or not) to the "success" previously.

And of course, if the strategy did *not* "really work" in the past, but was just something "noticed during analyses", then there certainly isn't any reason to think it would continue, because there's nothing "there" to continue at all.

That said, I still think there is something to momentum. But I don't have the time or resources that would be needed to explore it fully.
(I'll occasionally make some relatively short term fund decisions based upon what "appears to me" to be momentum", and then I'm left with the problem of "well, when do I bail out, or is this just a minor downward blip, etc.?" So far it's "worked" fairly well, but with such a small percentage of our assets that it's going to be a "blip" no matter what. And that's fine, too.)

RM
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ginmqi
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Re: Dual Momentum Investing

Post by ginmqi » Sun Feb 15, 2015 7:14 pm

Ha, I was just about to post a thread on Dual Momentum Investing. I came across this a few weeks ago on a physician blog I read (similar to White Coat Investor) and he touted the greatness of this investing strategy. (http://www.milesdividendmd.com/two-faced-investing/)

Now the very first red flag that came up with me, and I did read the reviews on Amazon and actually also the comments section in the latest active management blog on white coat investor (http://whitecoatinvestor.com/people-sti ... anagement/)...the red flag is this: it sounds too good to be true.

Distilled down to a 5th grade level, it essentially says that you can increase profits AND reduce draw-downs using a combined "dual momentum" strategy.

I also did some more digging, and found several youtube videos, one by an academic at Columbia who did a lunch lecture on the pervasiveness of momentum (I think he was talking about absolute momentum). Video here: https://www.youtube.com/watch?v=2w1OYDeTfsk

And I listened to an interview with Antonacci here: http://www.michaelcovel.com/2015/02/06/ ... ing-radio/

The author, Antonacci, talks about how he first came into contact with a momentum-esque (what he termed "trend following") trader when he was just starting out at some Wall St firm and this was back in the 1970s!

So my other question is this...if this is so pervasive (dating back to hundreds of years) and it works so well....then why do not most if not all of the active money managers on Wall St making tons of money in their actively managed funds? Why is it that study after study still says there is no extra alpha, in general, for the investor after fees are accounted for?

Another thing is I am not willing just yet to shell out $40 on Amazon for this book that seem to promise this great investing idea. As someone said earlier in this thread, the only sure way that someone is making is money is...well the author and publisher. Because who wouldn't love that magic active management strategy that will truly get you above the rest.

Also Antonacci brings up the eternal debate of the Efficient Market Hypothesis, which in his interview he does not believe in. So again who does this benefit? Does it really benefit the mass investing public....or does it benefit the "professional" money managers who take fees to implement this strategy?

I hope more will respond to this. Also I would like for someone to actually post what this strategy is....I don't mean to make copyright infringements....but when I tried to look this stuff up....its all behind a paywall of some sort....like having to pay for the book.

Also if this is such a great strategy, why not keep it a secret. Why divulge to the mass public. Or maybe they know writing and selling a book would be one sure way to make a lot of money...again i do sound very skeptical but from what it seems there has been a history of "fad investing" ideas and I'm going to stay Boglehead until proven otherwise.

Don't get me wrong, I'd LOVE to know how to beat the market consistently. I mean that would be great. The question is..if you are not a Peter Lynch or Warren Buffett...then is there such a technique like this that can be taught to the "amateur" investing public?

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nisiprius
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Re: Dual Momentum Investing

Post by nisiprius » Sun Feb 15, 2015 7:23 pm

ginmqi wrote:...The author, Antonacci, talks about how he first came into contact with a momentum-esque (what he termed "trend following") trader when he was just starting out at some Wall St firm and this was back in the 1970s! ...
The first peer-reviewed academic paper on momentum was published in 1937, Cowles 3rd, Alfred E. and Herbert E. Jones (1937), "Some A Posteriori Probabilities in Stock Market Action", Econometrica 5 (3): 280–294. And I've found references from the early 1900s describing "momentum" in stock prices.

We are to believe that an important anomaly has been widely known for a century without being overgrazed.
Last edited by nisiprius on Sun Feb 15, 2015 7:37 pm, edited 1 time in total.
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ginmqi
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Re: Dual Momentum Investing

Post by ginmqi » Sun Feb 15, 2015 7:33 pm

nisiprius wrote:
ginmqi wrote:...The author, Antonacci, talks about how he first came into contact with a momentum-esque (what he termed "trend following") trader when he was just starting out at some Wall St firm and this was back in the 1970s! ...
1970s, nothing. The first peer-reviewed academic paper on momentum was published in 1937, Cowles 3rd, Alfred E. and Herbert E. Jones (1937), "Some A Posteriori Probabilities in Stock Market Action", Econometrica 5 (3): 280–294. And I've found references from the early 1900s describing "momentum" in stock prices.

We are to believe that an important anomaly has been widely known for a century without being overgrazed.
Good point. Antonacci does mention that paper I think actually, if I remember, he says the very first momentum phenomenon was recognized in the 1930s/ early 1900s but says that was widely ignored.

But you're right, I found that alot of people and professionals "knew" about this but it's weird how now its gaining alot of hot momentum, so to speak, among the investing public at large. So it really begs the question then if this is so widely known....then how come not everyone is already doing this....or are the high powered money managers "kind" enough to let us amateurs in on their secret money making technique?

Sounds too good to be true at this point.

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alpenglow
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Re: Dual Momentum Investing

Post by alpenglow » Sun Feb 15, 2015 7:38 pm

Here is Antonacci's paper: http://papers.ssrn.com/sol3/papers.cfm? ... id=2244633

And one person's implementation of the system: http://www.scottsinvestments.com/dual-etf-momentum/

I haven't read the book nor do I use any of these strategies.

RunningRad
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Re: Dual Momentum Investing

Post by RunningRad » Sun Feb 15, 2015 7:47 pm

I will answer some of your questions. To be honest, if you really want to understand the historical and academic underpinnings, you will have to read his book...or go to the website, read the (free) blogs and connect the dots. The Money Tree podcast goes into the strategy much more than the Covel podcast. Even if you do not buy into the strategy, the $40 is well-spent on a mini-treatise on the history of academic finance 20th century and behavioral economics.

I am not going to divulge the strategy any further here. Your fifth grade level explanation is correct for a fifth grader, but for an experienced adult investor, the story is much more nuanced. Ironically, the Global Equity Momentum strategy is so simple to implement that a fifth grader (okay, maybe a ninth grader) could pull it off.

This table shows the results of the most basic dual momentum strategy (and is updated monthly):
http://www.optimalmomentum.com/trackrecord3.html

What baffles me is why people feel that they can review the reviews of the book or hear opinions of others and then make authoritative statements about why the strategy cannot work. I had hoped that the Boglehead forum had a more academic spirit for discussion. There are some really bright folks who contribute here! Is it against forum policy to question the orthodoxy? Remember, Bogle himself had many doubters and nonbelievers early on( and still does in some circles).
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution

LittleD
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Re: Dual Momentum Investing

Post by LittleD » Sun Feb 15, 2015 8:40 pm

I'm sad to be the one telling you but, if you want to discuss any kind of market timing strategy or process this is
not the board or forum for you. There are forums over at Morningstar that would provide you with a better
set of fellow traders willing to discuss trading systems but not here.

This is mostly a John Bogle forum that promotes KISS portfolios and a Cost Matters Hypothesis approach with a dash
of rebalancing mixed in to lock in the set it and almost forget it investing strategy. Very few here would like
to spend the time and effort to micro manage a portfolio and just want to live the good life without hassles and over
complications.

Good luck with your investments though!

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JoMoney
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Re: Dual Momentum Investing

Post by JoMoney » Mon Feb 16, 2015 3:24 pm

I think following momentum and contrarian mean-reversion styles are more "speculating" than investing. When someone does trading it generally will follow a pattern that's similar to one style or the other, but I don't think either has an inherent advantage, the nature of when and how they benefit will depend more on the nature of the market that's not really predictable. Momentum styles will favor long-streaks of the same direction (flipping a coin and having it turn up heads several times in a row), mean-reversion will favor short choppy waves of direction changes. If that's the basis for your investment strategy you can do it in a casino.
The contrarian mean-reversion strategy when it works will tend to have lots of small wins, but when a long downturn occurs and the person finds themselves betting more and more into a position that keeps falling (or taking more and more out of the position that's been doing the best) it can be pretty hard to stomach, and unless your absolutely certain that the situation will change you may find that the strategy was "picking up pennies in front of a steam roller".
The trend following momentor will find themselves constantly getting whip-sawed in a choppy market, never really getting ahead, but when they manage to catch a streak the returns can be stupendous growing at exponential rates - but with the amounts at risk also going higher and when it ends it crashes hard with equally exponential losses. The people that follow it want to believe that they'll catch a trend early enough to ride it for a long time and get out before it's over, which are both hard to do. Getting out before it's over is especially hard because the growth at the end is relatively the best part where the bankroll is growing quite large at each successive move up. But the end is devastating because when the trend ends it can turn quickly, if the trend is over who are you supposed to sell out to? Nobody is buying and if your trying to get out too it just exasperates the situation.
Either style can work or fail, but I don't think it's a good framework for the foundation of why you're investing the way you are.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Dual Momentum Investing

Post by dratkinson » Tue Feb 17, 2015 2:54 am

RunningRad wrote:... I read the book, and the simple strategy is laid out in a flow chart. I could teach my 16 year old son how to execute it.
Excellent. Problems solved. Implement strategy and report as you make your changes so we may follow along with your results. (I'm looking for something to do as my fun money is burning a hole in my pocket.)

Recall Swedroe saying that selling hurts momentum winner, and never figured out how to implement a momentum play without selling. Recall Swedroe saying the best we can is use 5/20 rebalance bands and rebalance half way back to target allocation.



Full disclosure. I'm simulating a 3-fund investment on the Hong Kong Stock Exchange for a Chinese penpal. Expect it may require 3-5 years before I have a good feel for its tracking success. But no reason to discuss it here as foreign brokerage investing is not this forum's primary focus.

You will find more support/experience for your proposal on a market timing forum.

Best of success.
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ginmqi
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Re: Dual Momentum Investing

Post by ginmqi » Tue Feb 17, 2015 10:20 am

Update: I was able to get a free ecopy to read for 21days on an e reader via my local public library. Making my way through 5th chapter. I will try to update with a brief summary/commentary as I go along.

So far he's poked holes in the efficient market hypothesis and also has been very bogleish about the lack of return for investors at large of active and hedge funds and individuals picking stocks.

Beliavsky
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Re: Dual Momentum Investing

Post by Beliavsky » Tue Feb 17, 2015 11:12 am

ginmqi wrote:Another thing is I am not willing just yet to shell out $40 on Amazon for this book that seem to promise this great investing idea. As someone said earlier in this thread, the only sure way that someone is making is money is...well the author and publisher. Because who wouldn't love that magic active management strategy that will truly get you above the rest.
If it takes even a few hours for you to reproduce the research in a book, $40 is a bargain. The author is not trying to charge me a recurring percentage of my assets, either.

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ginmqi
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Re: Dual Momentum Investing

Post by ginmqi » Tue Feb 17, 2015 11:32 am

Beliavsky wrote:
ginmqi wrote:Another thing is I am not willing just yet to shell out $40 on Amazon for this book that seem to promise this great investing idea. As someone said earlier in this thread, the only sure way that someone is making is money is...well the author and publisher. Because who wouldn't love that magic active management strategy that will truly get you above the rest.
If it takes even a few hours for you to reproduce the research in a book, $40 is a bargain. The author is not trying to charge me a recurring percentage of my assets, either.
That is true. One should be invested in acquiring and and expanding knowledge and viewpoints. There certainly worse ways to spend $40 than on a book.

I was able to procure this via my local public library system as a borrowed e book for 21days for $0. :-)

Of course the issue is with those like me who are looking for long term results it will be decades before we can say...yes this system works for the layman...at that time antonacci and co. Have already made a good sum from book sales.

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Re: Dual Momentum Investing

Post by White Coat Investor » Tue Feb 17, 2015 11:35 am

I'm cautiously optimistic about the benefits and back-tested results of trend following, which is primarily what I understand Antonacci's technique to be.

Keep in mind that Bogleheads are very skeptical folks because that skepticism has been rewarded time and time again. That doesn't mean that it prevents them from making some money from time to time. For example, those who were skeptical about 3 factor investing around the first of the millenium and stuck with a total market approach were hurt by that. It may be the same with something like this. Most Bogleheads don't invest in P2P Loans like I do, being content with their 1.5-2% bond/CD returns while I'm making 12%. Am I taking more risk? Sure. Am I being rewarded adequately for it? I think so. Did I put my entire bond portfolio into them? Of course not. You make your bets and you take your chances. It's the same with real estate investing. Most Bogleheads are skeptical but there are lots of people making good money in real estate. Might you be well rewarded for a dual momentum strategy over a buy and hold strategy? Quite possibly. So don't let the general skepticism of this board keep you from learning about and even implementing something.

But there are a few things worth keeping in mind that all Bogleheads will agree with. The first is that cost matters. The biggest cost is usually taxes, but investment expenses matter too. So if you implement the strategy, do all you can to minimize expenses and taxes. Make the trades in a tax protected account. Use the lowest cost ETFs/index funds possible. Avoid paying commissions etc. Try to do it yourself rather than paying someone else to do it etc.

Second, remember the dangers of trend following. You will be out of the market at market bottoms, so you'll miss the first rise off the bottom, which is often dramatic. You will also get the first drop off the top, which is also often dramatic. You also actually have to pay attention to your investments and current market performance, which does take some time which is valuable. I often don't look at my investments for several months and basically only look at market performance once a month (when I write my newsletter.) The less closely you watch with a trend following system, the more of the drop from the top you eat and the more of the rise from the bottom you miss. You also have to beware of being whipsawed. In a whipsawing market, you're basically buying high and selling low repeatedly. Backtested trend following data is designed to minimize the whipsawing, because if the whipsawing + expenses cost more than you're losing with downturns doing simple buy and hold, the trend following comes out behind. However, you never know how well the backtested technique is going to do against the whipsawing going forward. Perhaps the whipsawing will become more violent as more and more people trend follow.

At any rate, just some thoughts from someone who hasn't read the book but has had it described to me a bunch.
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Re: Dual Momentum Investing

Post by LittleD » Tue Feb 17, 2015 12:05 pm

He has published a couple of papers on his system theories and is quite similar to Mebane
Fabers 10 month sma models for 5 asset classes. These systems may or may not beat the
market indexes they match to. What these trend following systems do do is that they
almost always cut the volatility of the returns substantially. They will not get you in
at the bottom and will not get you out at the top. The truth according to Mebane Faber is
that over 70% of large down and up days in the market occur below the 200 day moving average.
Since the markets advance about 70% of the time and there are likely more up days than down days
trend following as a strategy is prudent to get near market returns with less volatility. If you seek
that type of system which does take some effort and tending, then keep reading and visiting these
types of sources.

http://mebfaber.com/timing-model/
http://www.dualmomentum.net/



Good Luck with your investments!

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Re: Dual Momentum Investing

Post by RunningRad » Tue Feb 17, 2015 4:05 pm

ginmqi wrote:
Beliavsky wrote:
ginmqi wrote:Another thing is I am not willing just yet to shell out $40 on Amazon for this book that seem to promise this great investing idea. As someone said earlier in this thread, the only sure way that someone is making is money is...well the author and publisher. Because who wouldn't love that magic active management strategy that will truly get you above the rest.
If it takes even a few hours for you to reproduce the research in a book, $40 is a bargain. The author is not trying to charge me a recurring percentage of my assets, either.
That is true. One should be invested in acquiring and and expanding knowledge and viewpoints. There certainly worse ways to spend $40 than on a book.

I was able to procure this via my local public library system as a borrowed e book for 21days for $0. :-)

Of course the issue is with those like me who are looking for long term results it will be decades before we can say...yes this system works for the layman...at that time antonacci and co. Have already made a good sum from book sales.
Excellent! I checked with my library before I downloaded.

I will be interested in reading your opinion. As I indicated, it is interesting reading on the subject of investing theory and history, even if you have no intention in implementing the strategy.
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution

RunningRad
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Re: Dual Momentum Investing

Post by RunningRad » Tue Feb 17, 2015 4:16 pm

EmergDoc wrote:I'm cautiously optimistic about the benefits and back-tested results of trend following, which is primarily what I understand Antonacci's technique to be.

Keep in mind that Bogleheads are very skeptical folks because that skepticism has been rewarded time and time again...
Very good points, all of them. I was just hoping for some discussion, especially among people who read the book and more so again from those who read the book and made a personal decision to use or not use the strategy. I am planning to devote 10% of my self-directed workplace retirement plan to the dual momentum strategy, and that is part of my rationale. Some forms of diversification might entail diversifying strategy, as well as assets.
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution

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ginmqi
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Re: Dual Momentum Investing

Post by ginmqi » Tue Feb 17, 2015 5:37 pm

RunningRad wrote:Excellent! I checked with my library before I downloaded.

I will be interested in reading your opinion. As I indicated, it is interesting reading on the subject of investing theory and history, even if you have no intention in implementing the strategy.
Yes! I was very ecstatic to see the ebook version available. There is one hard copy in the local shelves but it is being checked out now and has 2 holds on it...so people are itching to get their hands on this it seems!

I am by no means an expert, but I will definitely provide my thoughts. I had already did some digging up of a quote he provided in the very beginning of the book by MIT economist Andrew Lo, where Professor Lo says in 2012 in Money Magazine that "buy and hold" doesn't work anymore. I actually looked up his name on this forum and came across this thread discussing his exact quote: viewtopic.php?f=10&t=91349

Looks like Lo's quote 1) may be taken out of context, and 2) a few posters actually read his responses more than just that sentence and (unfortunately this was only in print and not online apaprently) Lo goes on to explain the irrationality of human behavior causes buy and hold to not work (ie, selling out at lows and buy in at highs....cue Jason Zweig and behavioral economics).

Also Lo is seen as a smarty guy and most recently was (maybe still is) working for a hedge fund (AlphaSimplex) and apparently he was managing this hedge fund: http://quotes.morningstar.com/fund/GAFYX/f?t=GAFYX (not sure if he's still there)

Simple comparison using Yahoo! Finance comparing this fund to SP500 shows the hedge fund much less draw down in 2008-2009 but then underperforming quite a bit in the past 3 years.

What's more credible, imo, than that Lo quote, is Fama's quote that momentum is the premier anomaly.

But more amusing is Antonacci's scathing review of hedge funds (oh hello there Professor Lo) that showed something like 80%+ of hedge fund profits going to the managers and 2% going to the investors.

And the statistic that the top 25 hedge fund managers made more money than the Fortune 500 CEOs...combined :shock:

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Re: Dual Momentum Investing

Post by Tristan » Tue Feb 17, 2015 7:25 pm

I have read the book and find the strategy very compelling. Global Equity Momentum backtesting to 1974 shows an annualized return of 15.79% (US 11.49%, EAFE 11.86%) with half the maximum drawdown (-23.01%) and double the Sharpe ratio. He did not back test further because, he said, there was no bond index data prior to Jan 1973. He details a lot of evidence for momentum prior to that date.

The strategy for Global Equity Momentum is very simple. You simply take a US stock index, an international stock index and a bond index (eg VTI, VXUS and BND) and look back a year or 6 months (he recommends a year), at the end of each month, and compare their performance to t-bills. You invest in the best performing equity fund if both are ahead of t-bills, the one equity fund if there is only one ahead of t-bills, or in bonds if neither of the two equity funds are ahead of t-bills. He describes in his book how to plot the funds on stockcharts.com to make it very easy to check once a month.

The strategy performs best at times of market crashes as it gets you out of the market fairly early on and back in in reasonable time. Also when you are out of the market you are in bonds, during a crash, so doing quite well then also. In the last decade it performed extremely well as it got you out of the 2000 and 2008 crash and back in in reasonable time for the recovery. In choppy markets it won't work so well as you can get whipsawed, and in a 1987 style crashes it doesn't help at all.

Momentum has the greatest premium of all the factors, and is pervasive across time, geography and almost all asset classes. It is felt to be behaviourally based so is likely to persist. Maybe this is the best way to capture the premium? Trades occur about 0.8 times a year so a tax protected account would be best.

Despite it's appeal, I have decided not to switch from passive indexing. I'm reluctant to ditch a strategy that has a such a deep and wide history of working so well in practice for one that has not, as yet. I may take my 5% fun money and implement it in a tax protected account.

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Re: Dual Momentum Investing

Post by texasdiver » Wed Feb 18, 2015 9:21 am

Tristan wrote:I have read the book and find the strategy very compelling. Global Equity Momentum backtesting to 1974 shows an annualized return of 15.79% (US 11.49%, EAFE 11.86%) with half the maximum drawdown (-23.01%) and double the Sharpe ratio. He did not back test further because, he said, there was no bond index data prior to Jan 1973. He details a lot of evidence for momentum prior to that date.

The strategy for Global Equity Momentum is very simple. You simply take a US stock index, an international stock index and a bond index (eg VTI, VXUS and BND) and look back a year or 6 months (he recommends a year), at the end of each month, and compare their performance to t-bills. You invest in the best performing equity fund if both are ahead of t-bills, the one equity fund if there is only one ahead of t-bills, or in bonds if neither of the two equity funds are ahead of t-bills. He describes in his book how to plot the funds on stockcharts.com to make it very easy to check once a month.

The strategy performs best at times of market crashes as it gets you out of the market fairly early on and back in in reasonable time. Also when you are out of the market you are in bonds, during a crash, so doing quite well then also. In the last decade it performed extremely well as it got you out of the 2000 and 2008 crash and back in in reasonable time for the recovery. In choppy markets it won't work so well as you can get whipsawed, and in a 1987 style crashes it doesn't help at all.

Momentum has the greatest premium of all the factors, and is pervasive across time, geography and almost all asset classes. It is felt to be behaviourally based so is likely to persist. Maybe this is the best way to capture the premium? Trades occur about 0.8 times a year so a tax protected account would be best.

Despite it's appeal, I have decided not to switch from passive indexing. I'm reluctant to ditch a strategy that has a such a deep and wide history of working so well in practice for one that has not, as yet. I may take my 5% fun money and implement it in a tax protected account.
For those of us who haven't read the book. Can you elaborate further? Are we moving all our investments between these sectors or just new money? Say someone has an existing 401k portfolio of $100,000 split equally between 3 Vanguard funds, Total Stock, Total Int'l, and Total Bond. And that person is investing $1500 of new money each month. Does this momentum rule only govern the new contributions, or is one moving the entire portfolio back and forth between these 3 funds every month, or is it some combination?

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Re: Dual Momentum Investing

Post by RunningRad » Wed Feb 18, 2015 9:52 am

texasdiver wrote:
Tristan wrote:I have read the book and find the strategy very compelling. Global Equity Momentum backtesting to 1974 shows an annualized return of 15.79% (US 11.49%, EAFE 11.86%) with half the maximum drawdown (-23.01%) and double the Sharpe ratio. He did not back test further because, he said, there was no bond index data prior to Jan 1973. He details a lot of evidence for momentum prior to that date.

The strategy for Global Equity Momentum is very simple. You simply take a US stock index, an international stock index and a bond index (eg VTI, VXUS and BND) and look back a year or 6 months (he recommends a year), at the end of each month, and compare their performance to t-bills. You invest in the best performing equity fund if both are ahead of t-bills, the one equity fund if there is only one ahead of t-bills, or in bonds if neither of the two equity funds are ahead of t-bills. He describes in his book how to plot the funds on stockcharts.com to make it very easy to check once a month.

The strategy performs best at times of market crashes as it gets you out of the market fairly early on and back in in reasonable time. Also when you are out of the market you are in bonds, during a crash, so doing quite well then also. In the last decade it performed extremely well as it got you out of the 2000 and 2008 crash and back in in reasonable time for the recovery. In choppy markets it won't work so well as you can get whipsawed, and in a 1987 style crashes it doesn't help at all.

Momentum has the greatest premium of all the factors, and is pervasive across time, geography and almost all asset classes. It is felt to be behaviourally based so is likely to persist. Maybe this is the best way to capture the premium? Trades occur about 0.8 times a year so a tax protected account would be best.

Despite it's appeal, I have decided not to switch from passive indexing. I'm reluctant to ditch a strategy that has a such a deep and wide history of working so well in practice for one that has not, as yet. I may take my 5% fun money and implement it in a tax protected account.
For those of us who haven't read the book. Can you elaborate further? Are we moving all our investments between these sectors or just new money? Say someone has an existing 401k portfolio of $100,000 split equally between 3 Vanguard funds, Total Stock, Total Int'l, and Total Bond. And that person is investing $1500 of new money each month. Does this momentum rule only govern the new contributions, or is one moving the entire portfolio back and forth between these 3 funds every month, or is it some combination?
I suppose that it can be implemented any way the individual chooses. As discussed in the book, the model assumes that you start with a pool of money and move the same pool as dictated by the strategy.

I have siphoned off some retirement money from IRAs and my self-directed retirement account. I plan to invest it in the strategy on March 1. New money that flows into my retirement plan will be subject to the strategy on a monthly basis. Currently, this is a small amount of my tax-deferred retirement assets (probably about 5%), and I have no plans to change strategy in the taxable accounts or the rest of the tax-deferred accounts from a conventional asset allocation buy-hold-rebalance strategy.

Here are two issues that I am considering with the implementation (mostly splitting hairs):
1. Use SPY or VTI as the US equity component. (Actually, I will use ishares equivalent of either because they trade for free in Fidelity account.)
2. Use total bond market, intermediate term bond market or short term bond market for fixed income allocation.
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Re: Dual Momentum Investing

Post by Tristan » Wed Feb 18, 2015 11:48 am

My apologies - you don't include a bond fund in the look back period, (indeed there would be no point in doing so), just the stock funds. You invest in the best performing stock fund compared to t-bills and and in a bond fund if neither of the stock funds are ahead of t-bills. It is that simple.

Yes, you could implement the strategy with any percentage of your portfolio you so choose.

I don't think it would make much difference whether you use SPY or VTI. In the book he recommends a total bond fund, but if you prefer the lower volatility of short term bonds, I don't think that would matter much either. It's really a matter of personal preference.
Last edited by Tristan on Sun Feb 22, 2015 10:25 am, edited 1 time in total.

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Re: Dual Momentum Investing

Post by texasdiver » Wed Feb 18, 2015 4:52 pm

So basically Dual Momentum investing is a refutation of the old axiom "Past Performance is not an Indicator of Future Results" that is printed on every mutual fund prospectus and is really nothing more than a systematic method of using a 1-year running average of past performance to determine future investments strategy.

Okay. I supposed someone could take half their portfolio and momentum invest it and the keep the other half in static investments and then compare the results after a couple of years. That would be an interesting experiment. I would expect that all that trading back and forth would also generate a much greater tax liability if it was done in taxable accounts. So there is that to consider.

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Re: Dual Momentum Investing

Post by RunningRad » Wed Feb 18, 2015 5:08 pm

texasdiver wrote:So basically Dual Momentum investing is a refutation of the old axiom "Past Performance is not an Indicator of Future Results" that is printed on every mutual fund prospectus and is really nothing more than a systematic method of using a 1-year running average of past performance to determine future investments strategy.

Okay. I supposed someone could take half their portfolio and momentum invest it and the keep the other half in static investments and then compare the results after a couple of years. That would be an interesting experiment. I would expect that all that trading back and forth would also generate a much greater tax liability if it was done in taxable accounts. So there is that to consider.
Actually, what the academic research demonstrates is that past performance of an asset class tends to follow along the same path for some time--stocks, bonds, gold, pork bellies, real estate, whatever. It's not a running (moving) average so much as it is a look back.

That is what I have decided to do (in a tax-deferred account), separate a portion of my portfolio (10% initially) and execute the dual momentum strategy, in addition to allocating new money to this strategy.
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Re: Dual Momentum Investing

Post by LadyGeek » Wed Feb 18, 2015 8:01 pm

RunningRad wrote:...I was just hoping for some discussion, especially among people who read the book and more so again from those who read the book and made a personal decision to use or not use the strategy. I am planning to devote 10% of my self-directed workplace retirement plan to the dual momentum strategy, and that is part of my rationale. Some forms of diversification might entail diversifying strategy, as well as assets.
To be clear, the OP using 10% of his portfolio for this investing style. That's more than the 5% we suggest for "play money". But if something goes awry, it's not a disaster.

Have you done any back-testing with Simba's backtesting spreadsheet?
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Re: Dual Momentum Investing

Post by ginmqi » Wed Feb 18, 2015 8:55 pm

Some graphics that may be eye-brow raising. I came across this blog post (a blog I regularly check up on) that first brought to my attention the idea of dual momentum strategy: http://www.milesdividendmd.com/two-faced-investing/



Note: Starts at 1995 because the author who backtested this strategy used these four funds and oldest dated back to 1995: VFINX,DFALX,DFEMX,VFISX



Pretty incredible results as shown below. And this is the dual momentum strategy backtested using those 4 funds dating back to 1995:

Image



Image



Image

The "balanced" portfolio is 60/40 stock/bond mix.

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Re: Dual Momentum Investing

Post by White Coat Investor » Thu Feb 19, 2015 12:27 am

Remember that any strategy that comes from backtesting is going to look fantastic when you compare it to backtested data. Because that's where it comes from. It does no good to go back and look at more backtested data to see how it did, especially recent backtested data. The proof is in the pudding, and the pudding is in going forward from the date of book publication.

So what can make this strategy be terrible? Lots of flash crashes and whipsawing, especially in a taxable account. So you have to ask yourself, what is the likelihood of that sort of thing happening more frequently in the future than in the past.

Like I said, cautiously optimistic. If someone wants to do this with 5%, 10%, 25% or perhaps even 50% of their portfolio using low cost ETFs in tax protected accounts and is convinced they can stay the course, I don't think that's terribly foolish. But I'm not out there recommending it to others based on nothing but backtested data and a hope that the future will resemble the past. However, a critic could say that is what a recommendation for buy and hold investing is doing.
Last edited by White Coat Investor on Thu Feb 19, 2015 11:49 am, edited 1 time in total.
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Re: Dual Momentum Investing

Post by SwissBogle » Thu Feb 19, 2015 4:21 am

In my opinion those chart are flawed because while they show the increase of a first purchase, they don't show a real-life investing profile.

If you invest regularly (let's say 15% of the median salary inflation adjusted) over the long run there are times where your overall portfolio is maybe much lower in total value then a dual-momentum (aka more volatility) but since you are buying every month you are buying at the bottom.

With a dual momentum you are skipping this phases of "buying cheap".....so I don't know I've tried to simulate in excel/matlab a regular investing of 15% of a median salary using swiss data (for both buy&hold and momentum, starting in 1975) and the end results wasn't nearly as impressive for dual momentum. It was better (in the end you were around 10% richer), but I didn't consider transactions costs/tax in my simple model.
What was impressive is that all the advantage of DualMomentum in the end was only because it skipped the 2008-09 bottom, but up to 2007 the two profile had very similar appreciation, although dual momenutm had less volatility. So maybe the exceptionality of 2008-09 depression was decisive to improve the results of dual momentum strategies.
I'm not sure I did it right so I want to check again but maybe someone else is motivated to do something similar....

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Re: Dual Momentum Investing

Post by Sammy_M » Thu Feb 19, 2015 6:37 am


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Re: Dual Momentum Investing

Post by texasdiver » Thu Feb 19, 2015 9:18 am

LadyGeek wrote:
RunningRad wrote:...I was just hoping for some discussion, especially among people who read the book and more so again from those who read the book and made a personal decision to use or not use the strategy. I am planning to devote 10% of my self-directed workplace retirement plan to the dual momentum strategy, and that is part of my rationale. Some forms of diversification might entail diversifying strategy, as well as assets.
To be clear, the OP using 10% of his portfolio for this investing style. That's more than the 5% we suggest for "play money". But if something goes awry, it's not a disaster.

Have you done any back-testing with Simba's backtesting spreadsheet?
So if someone has a typical portfolio of 1/3 domestic, 1/3 international, and 1/3 bond and devotes 10% of the portfolio to momentum investing, all one is really doing is monthly adjustments within a 10% range. So, for example, the equity/fixed ratio would swing on a monthly basis between 75/25 and 65/35 and no more than that provided the rest of the portfolio continues to be rebalanced. I don't really see a big issue here. It's not like we are talking about buying on margin or something.

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Re: Dual Momentum Investing

Post by Park » Thu Feb 19, 2015 9:43 am

http://sg.morningstar.com/AP/news/12837 ... -Tool.aspx

A link form morningstar on trend following My interpretation of the article is that trend following may be beneficial when markets are expensive, but less so when they are cheap.

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Re: Dual Momentum Investing

Post by garlandwhizzer » Thu Feb 19, 2015 1:36 pm

The chart posted by ginmqi makes a compelling case for Dual Momentum Investing. Interestingly, it underperformed initially in the later stages of the great bull market that ended in 2000 but more than made up for it in the bear market of 2000 - 2003. It got out of stocks early in that collapse and got back in early when the market took off again in 2003. Once again it did quite well in the Great Bear Market of 2008 - 2009, getting out early and getting back in early when it started going up again. Its outperformance during this period can be attributed to capital preservation during these two massive bear markets and early re-investment in stocks after they ended. It also protected to some degree from the underperformance of international equities relative to US equities in recent years and the opposite in the years preceding that. When stock versus T-bill and US versus Intl. equity trends are substantial and persistent for years it appears to take advantage of that. This has been for the case for the last 15 years or so, hence the impressive graph.

Two potential flies in the ointment. First, if this strategy becomes widely utilized (which it may well do), it will eventually like other outperforming strategies overgraze the available alpha. If too many people are doing the same trade at the same time the trade becomes overcrowded and typically the outperformance disappears. Second, this strategy has operated well during a volatile time in equity markets, the 2 greatest bear markets since 1929 and the two greatest bull markets in history (the run up to the 2000 collapse and the bull since 2009). When there are massive persistent market swings it does well. In less volatile markets without these major events it is not at all clear that it will outperform. In a persistent slowly rising bull market it would be expected to underperform. Add to this the increased expense, the increased trading, and the tax inefficiency. A case can be made for utilizing this strategy in a tax advantaged account and if the future is a repeat of the past, it will work. Like all outperformance seeking strategies (including factor tilt strategies) that look compelling on backtesting, the future offers no guarantees.

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Re: Dual Momentum Investing

Post by RunningRad » Thu Feb 19, 2015 5:07 pm

LadyGeek wrote:
RunningRad wrote:...I was just hoping for some discussion, especially among people who read the book and more so again from those who read the book and made a personal decision to use or not use the strategy. I am planning to devote 10% of my self-directed workplace retirement plan to the dual momentum strategy, and that is part of my rationale. Some forms of diversification might entail diversifying strategy, as well as assets.
To be clear, the OP using 10% of his portfolio for this investing style. That's more than the 5% we suggest for "play money". But if something goes awry, it's not a disaster.

Have you done any back-testing with Simba's backtesting spreadsheet?
Hi, LG,

I do not consider this to be a "play money" effort. No, I have not used the backtesting spreadsheet, but I will check it out. Thank you. :)
Like I said, cautiously optimistic. If someone wants to do this with 5%, 10%, 25% or perhaps even 50% of their portfolio using low cost ETFs in tax protected accounts and is convinced they can stay the course, I don't think that's terribly foolish. But I'm not out there recommending it to others based on nothing but backtested data and a hope that the future will resemble the past. However, a critic could say that is what a recommendation for buy and hold investing is doing.
Agreed. This past is knowable and analyzable. The future is neither.

Swiss Bogle, I agree with your point, and I agree that the major benefit is the smoothing of returns, not the outperformance. If effective, it could significantly reduce a (negative) sequence of returns impact.
So if someone has a typical portfolio of 1/3 domestic, 1/3 international, and 1/3 bond and devotes 10% of the portfolio to momentum investing, all one is really doing is monthly adjustments within a 10% range. So, for example, the equity/fixed ratio would swing on a monthly basis between 75/25 and 65/35 and no more than that provided the rest of the portfolio continues to be rebalanced. I don't really see a big issue here. It's not like we are talking about buying on margin or something.
That is sort of what I was thinking, too. My retirement portfolio is currently 60:40. I will syphon off some money and invest such that part of the time I will be 65:35 and the other part I will be 55:45 or so. That said, I do plan to continue to add new retirement money to the strategy.
Two potential flies in the ointment. First, if this strategy becomes widely utilized (which it may well do), it will eventually like other outperforming strategies overgraze the available alpha. If too many people are doing the same trade at the same time the trade becomes overcrowded and typically the outperformance disappears. Second, this strategy has operated well during a volatile time in equity markets, the 2 greatest bear markets since 1929 and the two greatest bull markets in history (the run up to the 2000 collapse and the bull since 2009). When there are massive persistent market swings it does well. In less volatile markets without these major events it is not at all clear that it will outperform.
Excellent issues, and I have thought about both.

1. I think that will it is simple to execute, the buy-in to it requires some thought, time investment, and commitment. It also goes against what we are told and perhaps, at times, exploits human nature. It is also somewhat harder to market, harder than "smart beta", "indexing", "buy-and-hold". The term "momentum" itself is somewhat of a downer, harkening negative images of Global Crossing ,JDSU, and the tech meltdown from the late 90's (to me, anyway).

2. Again, to me, the main draw is the dampening of the drawdowns, not so much the outperformance. That just happens to be where I am in the life cycle.

Great discussion--this is what I envisioned when I started the thread. :)
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution

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Re: Dual Momentum Investing

Post by garlandwhizzer » Thu Feb 19, 2015 9:03 pm

RunningRad, thank you for this very interesting post. I find the strategy interesting and expect that it will dampen overall portfolio volatility and possibly increase return at least in market cycles like we've just been through. In essence it is is a fixed formula for large tactical asset allocation shifts according to market conditions. I make tactical asset allocation shifts myself from time to time when I think market conditions warrant it, but only with a very modest percentage of my portfolio. I've been investing for a long time and seen a lot of what appeared to be slam dunks turn into strikeouts. The closest thing I've found to a sure fire method for timing the market is for me to take a big stake in something in which case it is very likely to go down in price. For now, I'll stay on the sidelines with my simpler strategy. Pleaser let us know how it works out in practice for you.

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Re: Dual Momentum Investing

Post by leonard » Thu Feb 19, 2015 10:15 pm

OP - what specifically do you find compelling about this approach? You appear to be 9 months in to the Boglehead philosophy - now a right turn. Just curious why this is so compelling relative to just doing a buy, hold, and rebalance portfolio.
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Re: Dual Momentum Investing

Post by LittleD » Fri Feb 20, 2015 8:12 am

There seems to be a lot of interest in the Dual Momentum approach to investment strategy by some on the board.
(Go Figure). So I thought I would post a paper which uses a similar/competing methodology/system that looks
at investing in similar asset classes. I suspect that several companies will refine and promote such a
system if customers flock to their money management sites.

Here goes and enjoy....!

http://www.alphaarchitect.com/blog/2015 ... OcyqKMo59A


Good Luck with your investments!

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Re: Dual Momentum Investing

Post by RunningRad » Fri Feb 20, 2015 8:59 am

leonard wrote:OP - what specifically do you find compelling about this approach? You appear to be 9 months in to the Boglehead philosophy - now a right turn. Just curious why this is so compelling relative to just doing a buy, hold, and rebalance portfolio.
Just because I have only been posting on this forum for a short time does not mean I am a babe in the woods. I bought my first index fund (VFINX) nearly 20 years ago. I am a student of the investing process and am at a point in my personal and professional life where capital preservation is increasingly important. The dual momentum strategy offers the potential for lower draw downs without sacrificing much, if any, on the return side, which I find very compelling indeed.
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution

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Re: Dual Momentum Investing

Post by leonard » Fri Feb 20, 2015 1:35 pm

RunningRad wrote:
leonard wrote:OP - what specifically do you find compelling about this approach? You appear to be 9 months in to the Boglehead philosophy - now a right turn. Just curious why this is so compelling relative to just doing a buy, hold, and rebalance portfolio.
Just because I have only been posting on this forum for a short time does not mean I am a babe in the woods. I bought my first index fund (VFINX) nearly 20 years ago. I am a student of the investing process and am at a point in my personal and professional life where capital preservation is increasingly important. The dual momentum strategy offers the potential for lower draw downs without sacrificing much, if any, on the return side, which I find very compelling indeed.
I wasn't implying inexperience. I was implying some level of investment in the BH approach.
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Re: Dual Momentum Investing

Post by heartwood » Fri Feb 20, 2015 1:52 pm

I've read the thread and find it interesting. Can anyone point to what the algorithm is saying now?

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Re: Dual Momentum Investing

Post by Rox » Fri Feb 20, 2015 2:32 pm

I don’t think I have large enough underwear to participate in a full momentum strategy, and 1/3 of my portfolio is in taxable making the tax situation/cost structure a little messier. Having said that, I like exercising my mind and my options … ! I appreciate all this discussion and input and it’s a great thread to read, thank you OP.

I think most of us on this board are already exercising a form of momentum without realizing it. In practice, I think most of us are neither fully contrarian investors nor are we fully momentum investors.

DISCLAIMER: These are just hypothetical and I don’t advocate or specifically subscribe to these examples of portfolio management. Just for talks .. !

The Contrarian characteristics:
Every time I contribute new money into a losing asset class, I am investing in a contrarian fashion. International assets are undervalued in comparison to domestic assets in my portfolio. I am adding new money every month into this loser with the belief that there will be a reversion to the mean. Why else would I invest in a “loser” unless I believed in a reversion of its current valuation, … right? HOWEVER, I do NOT move ALL my funds into International.

Momentum:
Most posters here rebalance with the use of bands (5/20%) and/or at a predetermined annual time. Bands/yearly rebalancing does two things (as I understand it) – one is to limit the amount of rebalancing transactions (costs) in a year and two is to take advantage of autocorrelation, or momentum. When I choose to rebalance at the one year mark or when my bands are hit, I am “looking back” on my personal portfolio performance and evaluating the relative momentum of that asset class (relative to the other classes I hold). Has Domestic US Equity increased in value compared to my other assets? I let winners ride up to a predetermined “band” or until a rebalancing date thus taking advantage of momentum. Why would I sell Domestic US now when I just rebalanced in December — that would limit my profit. HOWEVER, I do NOT move ALL my funds to Domestics.

In this example, I would be neither a completely contrarian investor nor a completely momentum investor. In general, I am buying low and selling high. And I’m not overdoing the rebalancing bit by limiting my transactions. But I could increase the effect of momentum vs. contrarian strategy on my portfolio in the following ways:

For Momentum

New money contributions:
I can contribute new contributions monthly by looking at the ABSOLUTE momentum of the each slice and fund that which has performed well. I can look back at each slice and see which one has a better performance “in the last 12 months” irrespective of its relative performance in my portfolio. REITs/VNQ is a better performing slice with a better YoY performance than other slices, like EM/VWO. Applying momentum this way would have a GREATER effect (good or bad) on smaller portfolios where contributions are large in comparison (a 100,000 portfolio with a 20,000 annual contribution).

Rebalancing:
I can use momentum to define a triggering event, to define a rebalancing band or to dictate a floating band. If REITs/VNQ have been doing well in the last 12 months, I can let the REIT band of my portfolio stretch beyond the 5/20% allocation every month until the momentum becomes negative. Or I can use this absolute momentum (past 12 month fund performance) to dictate that my rebalancing efforts will only allow me to sell the winner back to “half way” toward it’s target, thus allowing for more profit. This way I can use momentum to define different relative bands (to avoid the question “should US SmVal have a different band than Int’l Large Gr”). Applying momentum this way would have a GREATER effect (good or bad) on larger portfolios where total portfolio is large in comparison to annual contributions (a 4,000,000 portfolio with a 15,000 contribution)

For Contrarian Effect

New money contributions:
- see above. New money into losers.

Rebalancing:
I can use the contrarian strategy when my performance bands are hit on the low end. If EM/VWO is doing poorly, and it hits a low part of its band, I can OVERBALANCE past my target and OVERWEIGHT my holding to take advantage of a belief/trust in reversion to the mean.


A combination strategy to hedge on both sides of contrarian and momentum ideas:

1) I allocate new annual money to my portfolio in the same percentage as dictated by goal allocations in my IPS and I set 5/20% bands.
2) I look monthly or on RBD’s to see if my bands are crossed. If so,
3) I rebalance and slightly overweight the biggest losers when possible.
4) At the same time, I let momentum dictate how far I will let any band stretch on the high end and/or rebalance back to half way toward my target rather than ALL the way back to target.
5) If any profitable asset displays characteristics of negative momentum, bring the value of that asset class back to its target

This way of using momentum could be implemented alongside a traditional balanced portfolio without the need to “syphon” away from the usual portfolio. This evaluation of momentum and using it to help influence rebalancing can help address some concerns about “asymmetric bands” (different low/high, different bands for different asset classes). It can also help limit the problem of “refractory portfolio movement” when stock allocations are extreme as illustrated by TFB’s post: http://thefinancebuff.com/5-percent-reb ... -band.html by defining an additional set of rebalancing triggers. At the same time, all of this checking has been show to result in relatively small amount of transactions (smaller than I thought anyway, see some links below for references). And since it only involves “looking back” at a fund’s “last 12 month” performance, might be relatively easy to implement.

As I mentioned, I don't think I could risk dumping all of a loser in favor of momentum. The OP is discussing using a small portion of the portfolio and isolate it for a dual momentum strategy. I'm just offering some ideas how the OP or others might use (or already use!) the strategies discussed in a slightly different way. More food for thought (from Gatorman et al. on his thread “Any momentum investors out there?” and some links provided from there):

Opportunistic Rebalancing http://www.tdainstitutional.com/pdf/Opp ... yanani.pdf
Faber study implementing momentum across asset classes http://papers.ssrn.com/sol3/papers.cfm? ... id=1585517
Methodology section showing how to implement absolute momentum strategies http://papers.ssrn.com/sol3/papers.cfm? ... id=2089463

yogiyoda
Posts: 78
Joined: Mon Jan 25, 2010 10:15 pm

Re: Dual Momentum Investing

Post by yogiyoda » Fri Feb 20, 2015 7:36 pm

Hello,

I have read the book in question and was highly persuaded by its arguments at first. But the more I look behind the curtain, the more issues I see. For more information, please read my detailed review of the book on Amazon.

http://www.amazon.com/review/R1VH4QEKVTD8F9/

Don't hesitate to rate the review in either direction. Hope it helps someone though. I kind of got carried away with it :shock:

---Edit Feb 23, 2015

Also, there appears to be an effort by a group of book's supporters to cultivate the books "internet image". Just wanted people to be aware of that when evaluating various reviews, ratings, and posts.
Last edited by yogiyoda on Tue Feb 24, 2015 11:38 am, edited 2 times in total.

RunningRad
Posts: 324
Joined: Wed May 21, 2014 2:06 pm

Re: Dual Momentum Investing

Post by RunningRad » Sat Feb 21, 2015 4:12 pm

yogiyoda wrote:Hello,

I have read the book in question and was highly persuaded by its arguments at first. But the more I look behind the curtain, the more issues I see. For more information, please read my detailed review of the book on Amazon.

http://www.amazon.com/review/R1VH4QEKVTD8F9/

Don't hesitate to rate the review in either direction. Hope it helps someone though. I kind of got carried away with it :shock:

Also, there appears to be an effort by the book's author and a group of supporters to cultivate the books "internet image". I'm not making specific accusations, but take that into account when reading post above in this thread from people with less than a year under their belts at the time of posting.
Excellent review, which generated some discussion and even input from the author. I am of the opinion that the whipsaw effect should be dampened by the 12 month lookback, but it is certainly possible that adhering to the discipline could create two unfortunate trades in a period of extreme volatility.

I am not aware if any image crafting, have no relationship with the author, have not contacted anyone seeking a response, etc.

Edit: There are 5 participants in this thread who joined the forum in 2014. Other than myself, one, perhaps two, of the remaining four show some interest in the strategy, and frankly I think that such a "non-accusation accusation" is not in the spirit of the forum. If you search my posts since I joined up, the topics have ranged from my broke in-laws to which car to buy to tilting and other alternative investments.
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution

yogiyoda
Posts: 78
Joined: Mon Jan 25, 2010 10:15 pm

Re: Dual Momentum Investing

Post by yogiyoda » Sat Feb 21, 2015 6:09 pm

Nothing personal RunningRad. As you say it is as “non-accusation accusation”. After encountering some unusual behavior by the author and a few other posters on Amazon, I came here to see the majority of posters expressing interest and knowledge of the “wonders" of Dual Momentum have joined the forum within the last year. Just seems odd. Also, much of the information spread by said posters just isn’t correct. I will change my post if the moderators ask me.

As you can see by my post count I don’t post much, but I have been a Boglehead investor for about 15 years and visit the forum to “lurk” once in a while.

The more I examine Dual Momentum, the more I see it is a house of cards. There is much to add to my Amazon review down the road.

bogle2013
Posts: 79
Joined: Tue Jan 22, 2013 3:56 pm

Re: Dual Momentum Investing

Post by bogle2013 » Sat Feb 21, 2015 6:20 pm

The backtested data is compelling - no doubt. the strategy is no doubt more sound than a lot of others. I can't decide if it is in the realm for me of a excessive small value tilt or the Larry Portfolio which I find compelling too.

My mind continues to return to the thought: "the strategy works great until it doesn't". some people say the same about the three-fund portfolio, but it works for me and I feel like I can stick to it b/c of its simplicity.

yogiyoda
Posts: 78
Joined: Mon Jan 25, 2010 10:15 pm

Re: Dual Momentum Investing

Post by yogiyoda » Sat Feb 21, 2015 6:44 pm

bogle2013 wrote:The backtested data is compelling - no doubt. ... My mind continues to return to the thought: "the strategy works great until it doesn't".
Exactly. What the author has done is find a strategy that would work great if you had a time machine to return to 1973. He then writes a book trying to give the impression that the academic literature, showing some evidence for momentum in equities, supports his specific investment methods. But it does not. The only evidence that supports his specific method is his own back-testing which is inadequate. I would recommend this investment method whole-heartedly to anyone with a time machine. Otherwise, remember the old adage "If it looks to good to be true"...

yogiyoda
Posts: 78
Joined: Mon Jan 25, 2010 10:15 pm

Re: Dual Momentum Investing

Post by yogiyoda » Sat Feb 21, 2015 7:25 pm

Just to be clear, I am not completely ruling out the use of all momentum strategies, especially when used as a diversifier to a more balanced portfolio. I just feel this book oversells and under-proves a particular investment method and some readers will jump in with false expectations.
Last edited by yogiyoda on Sat Feb 21, 2015 7:50 pm, edited 1 time in total.

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