Dual Momentum Investing

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LittleD
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Re: Dual Momentum Investing

Post by LittleD » Sat Aug 29, 2015 3:57 pm

freyj6 wrote:Maybe I'm not being clear. This has nothing to do with market timing or optimizing based on past results (!!!!).

What I'm wondering is whether Gary's model is similarly successful over the long term if you get unlucky with your rebalancing dates (again, yes, it's random/unknowable going forward. Got it. I'm just curious about the consistency of the backtest).
I did not buy his book but, have read all of his papers on his blog. Maybe you can find your answers on his blog site. I've always
felt that backtesting is not all that useful because the future is seldom exactly like the past. If his models and investment selection
approach appeals to you and you follow his methodology, you could be successful over a long investment time frame. I suspect there
will also be periods of underperformance too.

Good Luck with your investments!

http://www.dualmomentum.net/

All of his posts are on this site...

Martin
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Re: Dual Momentum Investing

Post by Martin » Sat Aug 29, 2015 4:58 pm

freyj6 wrote:I have a portion of my portfolio dedicated as well. The strategy as a whole seems sound, but when the market is bouncing around really close to the t-bill rate it's a little bit nerve racking. Maybe you readjust your holdings and lock in a 10% loss, or maybe you're slightly above and lose another 15% over the next month. It's just crazy how the day you rebalance changes things so dramatically.

@Martin - Have you (or anyone else) experimented how luck with day of the month influences long term returns? It would be interesting to see how long term returns of GEM would vary based on what day you got in/out. If your date lined up very badly with a correction, you might have a 10% lower year than you would have if your rebalance date was a week later.

Perhaps the best reasonable way to know the resilience of the strategy would be if the returns are pretty consistent over 30 different possible rebalancing days.
there is a study I remember reading that address the day of the month rebalancing. I remember there was some impact, I just don't remember because I do a more constant monitoring and don't rebalance unless there is a significant difference between two funds, ie about 10%. this was based on extensive back testing work that saw little upside from flipping funds over a small difference. this really allows you to minimize flipping.

WoofWoof
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Re: Dual Momentum Investing

Post by WoofWoof » Fri Sep 04, 2015 10:17 am

So, anyone else move to their 'safe' harbor this month?

I'm using the return on BIL as my yardstick and according to that it's time to get out.

edit:VVVV I use the end of the month return for calculations. I haven't back tested it but I would expect that using arbitrary inconsistent time periods for calculating momentum would cause a lot of error.
Last edited by WoofWoof on Fri Sep 04, 2015 11:28 am, edited 1 time in total.

LittleD
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Re: Dual Momentum Investing

Post by LittleD » Fri Sep 04, 2015 11:09 am

Three weeks ago was the time to do it if you were inclined to do it. Might be too late now. Stay the course and rebalance if you need to maintain
your desired allocations.

Martin
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Re: Dual Momentum Investing

Post by Martin » Fri Sep 04, 2015 11:28 am

WoofWoof wrote:So, anyone else move to their 'safe' harbor this month?

I'm using the return on BIL as my yardstick and according to that it's time to get out.
I pulled completely out of Mid Cap Growth on 8/21. I was likely a little quicker to the draw since I monitor and evaluate pretty much daily. Unfortunately I'm in cash at about 2% but there just isn't very good alternatives. the only equity I'm still in in VGHCX (Heath care) in one account. It's still hanging in above cash. It's very hard to watch the momentum value go down without acting but I am trying to stay true to the "system"

LittleD
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Re: Dual Momentum Investing

Post by LittleD » Fri Sep 04, 2015 11:42 am

There are very few sectors that would pass the 12-month momentum or 10-month trend momentum right now.
Probably TLT or TLO is the only sector (long term bonds) that would still pass the tests. I would sit in cash if so
positioned until a new buy signal occurs or just maintain stance and wait out the downturn.

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Robert T
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Re: Dual Momentum Investing

Post by Robert T » Fri Sep 04, 2015 8:58 pm

WoofWoof wrote:I'm using the return on BIL as my yardstick and according to that it's time to get out.

edit:VVVV I use the end of the month return for calculations. I haven't back tested it but I would expect that using arbitrary inconsistent time periods for calculating momentum would cause a lot of error.
A strict application of the GEM portfolio, as I understand from the book, would still be 100% S&P500 (using total return), at least through end-September.

For example iShares S&P500 (IVV) 1-year return to end-August 2015 was +0.43%, which was still above the BIL return of -0.11 for the same period.

https://www.ishares.com/us/products/239 ... sp-500-etf

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seersucker
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Re: Dual Momentum Investing

Post by seersucker » Fri Sep 04, 2015 9:24 pm

What I don't understand is if you're going to use AGG as the bond fund, why not just use that instead of BIL for comparison purposes?

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Robert T
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Re: Dual Momentum Investing

Post by Robert T » Sat Sep 05, 2015 4:42 am

seersucker wrote:What I don't understand is if you're going to use AGG as the bond fund, why not just use that instead of BIL for comparison purposes?
Its a question I also had. If you do use agg. bond instead of T-bills the historical annualized returns are about 2% lower (as far as I can tell), so it smells a bit like data mining on the choice, although perhaps its driven by a closer focus on the equity premium (defined as market minus T-bills). i.e. if past 1-year market returns > T-bills returns => stay in stocks. Same as saying, if past 1-year equity premium > 0, stay in stocks (market=equity premium+T-bills, so equity premium+T-bills > T-bills is equivalent to equity premium > 0).
.

seersucker
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Re: Dual Momentum Investing

Post by seersucker » Mon Sep 07, 2015 9:35 pm

Very interesting Robert, thanks for the explanation. That's pretty eye opening regarding the drop in returns if you use AGG versus T-bills.

Here's another question, what duration of T-bills does he use in the book? I can't remember what he specifically said and I've loaned my book to my dad. Thanks!

Martin
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Re: Dual Momentum Investing

Post by Martin » Mon Sep 07, 2015 10:15 pm

seersucker wrote:Very interesting Robert, thanks for the explanation. That's pretty eye opening regarding the drop in returns if you use AGG versus T-bills.

Here's another question, what duration of T-bills does he use in the book? I can't remember what he specifically said and I've loaned my book to my dad. Thanks!
In the end it really doesn't matter. You can throw every ETF in a blender including long and short term bonds and let the momentum calculation figure it out. In a way I'm not sure why there is a separate distinction between the absolute and relative calculation. Given the returns that long term Treasuries have had I would include them as one of the evaluated options. In fact given the low historic correlation with US equities I would definitely include LT Treasuries. But I would also include ST treasuries or cash equivalent as well.

By the way, in his book he uses short term treasuries as the safety.

333trey
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Re: Dual Momentum Investing

Post by 333trey » Tue Oct 13, 2015 11:25 am

some great discourse on the subject of dual momentum investing....first a disclosure
i am a financial adivsor and i manage about $100M in a descretionary momentum strategy that is very similar to Gary's "system"- so clearly i am biased regarding the subjects of active investing and momentum investing.

I am not going to go into a deep review of EMT and momentum. Tons of heavyweights have written volumes on the subject. I think most agree that momentum exists. the disagreement comes when discussing why it exists or is it an "alpha generator?" Mr Asness does a good job on that subject.

what makes index investing work so well is it is disciplined. using VFINX as a proxy, the fund's rebalancing rules are simple (disciplined) and Vanguard has made it easy to own the "S&P500 Index System". Own the index with a 10+ year time horizon (that never shortens) and you are all set.

One of the best "nuggets" i pulled from Gary's book was "discipline." His system reviews momentum once per month and trades that day if a trade is called for. Then the "trading window" is closed for 30 days. This discipline is critical when managing my behavorial biases that are flamed every day by the news (noise) flow.

I always chuckle at the "if it worked everyone would do it" argument. See Joel Greenblatt's explanation why humans will never congregate en masse to trade away a market inefficientcy.

So i have a disciplined system, that "works" some months and years and does not "work" some months and years. i have seen my approach save too many clients from having to go back to work to be swayed...but i have also sat across the table from a client who has been in my strategy during a period of underperformance. they cant stand it and they go elsewhere (lack of discipline).

The biggest advantage to momentum analysis- it fixes the time horizon problem asscociated with index investing. simply put, a 63 year old "indexer" in 1999, or 2005 is in for a difficult ride. Humans are finite, our time horizons are finite. Indexing requires a constant 10 year time horizon. Momentum improves the odds of retirement success by providing a disciplined exit and entry point into "the market" when traditional indexing is throwing its disciples all over the deck

small_index
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Re: Dual Momentum Investing

Post by small_index » Tue Oct 13, 2015 6:30 pm

333trey wrote:what makes index investing work so well is it is disciplined. using VFINX as a proxy, the fund's rebalancing rules are simple (disciplined) and Vanguard has made it easy to own the "S&P500 Index System". Own the index with a 10+ year time horizon (that never shortens) and you are all set.
Costs matter. Index funds have lower expense ratios and less turnover, reducing trading costs and tax-related impacts. Indexing beats active investing on a risk-adjusted basis because of costs, not discipline.

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Maynard F. Speer
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Re: Dual Momentum Investing

Post by Maynard F. Speer » Tue Oct 13, 2015 6:58 pm

small_index wrote:
333trey wrote:what makes index investing work so well is it is disciplined. using VFINX as a proxy, the fund's rebalancing rules are simple (disciplined) and Vanguard has made it easy to own the "S&P500 Index System". Own the index with a 10+ year time horizon (that never shortens) and you are all set.
Costs matter. Index funds have lower expense ratios and less turnover, reducing trading costs and tax-related impacts. Indexing beats active investing on a risk-adjusted basis because of costs, not discipline.
Actually discipline seems to be a greater issue

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Maynard F. Speer
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Re: Dual Momentum Investing

Post by Maynard F. Speer » Tue Oct 13, 2015 7:18 pm

333trey wrote:some great discourse on the subject of dual momentum investing....first a disclosure
i am a financial adivsor and i manage about $100M in a descretionary momentum strategy that is very similar to Gary's "system"- so clearly i am biased regarding the subjects of active investing and momentum investing.

I am not going to go into a deep review of EMT and momentum. Tons of heavyweights have written volumes on the subject. I think most agree that momentum exists. the disagreement comes when discussing why it exists or is it an "alpha generator?" Mr Asness does a good job on that subject.

what makes index investing work so well is it is disciplined. using VFINX as a proxy, the fund's rebalancing rules are simple (disciplined) and Vanguard has made it easy to own the "S&P500 Index System". Own the index with a 10+ year time horizon (that never shortens) and you are all set.

One of the best "nuggets" i pulled from Gary's book was "discipline." His system reviews momentum once per month and trades that day if a trade is called for. Then the "trading window" is closed for 30 days. This discipline is critical when managing my behavorial biases that are flamed every day by the news (noise) flow.

I always chuckle at the "if it worked everyone would do it" argument. See Joel Greenblatt's explanation why humans will never congregate en masse to trade away a market inefficientcy.

So i have a disciplined system, that "works" some months and years and does not "work" some months and years. i have seen my approach save too many clients from having to go back to work to be swayed...but i have also sat across the table from a client who has been in my strategy during a period of underperformance. they cant stand it and they go elsewhere (lack of discipline).

The biggest advantage to momentum analysis- it fixes the time horizon problem asscociated with index investing. simply put, a 63 year old "indexer" in 1999, or 2005 is in for a difficult ride. Humans are finite, our time horizons are finite. Indexing requires a constant 10 year time horizon. Momentum improves the odds of retirement success by providing a disciplined exit and entry point into "the market" when traditional indexing is throwing its disciples all over the deck
I've come back to momentum investing recently - I like to have 1/3rd of my portfolio seeking market returns, 1/3rd absolute returns, and 1/3rd cash/bonds/hedging .. And momentum fits very well in the absolute return section - and I think it's one of these areas where a smaller investor can eek out quite an edge

I find we all suffer from inconsistency when it comes to evaluating active vs passive strategies .. When a passive investment drops 15%, we rush to rebalance, assuming it's going to recover .. When an active strategy drops 15%, we convince ourselves it's stopped working .. There's something more personal - perhaps more connected to ego - when these things go wrong

The other way around too - at the moment I've got 10% in a new momentum strategy, and it feels like a great day (today for example) when that part of my portfolio's up (even if the rest is headed the other way)
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

vetris
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GEM with GTT

Post by vetris » Sat Mar 19, 2016 8:02 am

Sorry to revive an old thread, but I just found out about dual momentum a couple weeks ago. After reading the book and researching the theory, I came across a similar theory presented by Philosophical Economics about Growth Trend Timing http://www.philosophicaleconomics.com/2016/01/gtt/. It's pretty similar to Dual Momentum, but uses moving averages instead.

His next article goes on to find a recession indicator http://www.philosophicaleconomics.com/2016/02/uetrend/ where he shows that the recessions are perfectly matched (and preceded in most cases) by a rise in the civilian unemployment rate https://research.stlouisfed.org/fred2/graph/?g=3wSg. He suggests to use a 10 month moving average filter on the data and whenever the moving average is lower to turn the indicator on. Through some testing of my own, I found that a 6 month moving average is able to capture more recession periods (96.99% from 1/11948 to 2/1/2016) at the cost of more false alarms.

I was thinking that maybe these two ideas could be merged. Using only relative momentum while the indicator is off and dual momentum while the indicator is on. Potentially, this could help against the problem of whipsaws which I see as being the main detriment to Dual Momentum. I don't have the means to thoroughly test this theory, but I could see it being useful.

kannankeril
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Re: Dual Momentum Investing

Post by kannankeril » Tue Jan 03, 2017 3:22 am

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.


"My Thoughts on Gary Antonacci’s Dual Momentum" by Ben Carlson
http://awealthofcommonsense.com/2015/07 ... -momentum/

airelleofmusic
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Re: Dual Momentum Investing

Post by airelleofmusic » Mon May 01, 2017 4:34 pm

Have been implementing the GEM strategy for 1,5Y with 4 inflows at different times:
Results: +6,70% as of 05/01/2017 (underperformance vs SPX due to both whipsaws and inflows at #times)

Issues/risks with this strategy:
-When you enter the strategy (can lower the returns)
-Whipsaws

To avoid whipsaws I suggest to add an unemployment filter: if unemployment rate is below its 12 SMA, you stay invested either in SPX or International equities, if unemployment rate is above its 12 SMA you check the absolute momentum filter (vanilla GEM)

What do you think about adding this filter ? Any ideas to improve the GEM strategy ?

Many thanks
LBYM and enjoy life ! Thanks BH !

freyj6
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Re: Dual Momentum Investing

Post by freyj6 » Mon May 01, 2017 11:20 pm

airelleofmusic wrote:Have been implementing the GEM strategy for 1,5Y with 4 inflows at different times:
Results: +6,70% as of 05/01/2017 (underperformance vs SPX due to both whipsaws and inflows at #times)

Issues/risks with this strategy:
-When you enter the strategy (can lower the returns)
-Whipsaws

To avoid whipsaws I suggest to add an unemployment filter: if unemployment rate is below its 12 SMA, you stay invested either in SPX or International equities, if unemployment rate is above its 12 SMA you check the absolute momentum filter (vanilla GEM)

What do you think about adding this filter ? Any ideas to improve the GEM strategy ?

Many thanks
Gary often says in his interviews/posts that there are a lot of other filters that seem to add something, but are usually just data mining and won't work as well out of sample. For example, if you added the screen "if S&P is down 45% or more from peak, go 100% long in stocks". That would have netted you huge gains in 2003 and 2009. However, it may not hold up as a good strategy going forward.

Long story short, if you're adding anything to Gary's model, make sure you're not just fitting the data.

airelleofmusic
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Re: Dual Momentum Investing

Post by airelleofmusic » Tue May 02, 2017 6:06 am

freyj6 wrote:
airelleofmusic wrote:Have been implementing the GEM strategy for 1,5Y with 4 inflows at different times:
Results: +6,70% as of 05/01/2017 (underperformance vs SPX due to both whipsaws and inflows at #times)

Issues/risks with this strategy:
-When you enter the strategy (can lower the returns)
-Whipsaws

To avoid whipsaws I suggest to add an unemployment filter: if unemployment rate is below its 12 SMA, you stay invested either in SPX or International equities, if unemployment rate is above its 12 SMA you check the absolute momentum filter (vanilla GEM)

What do you think about adding this filter ? Any ideas to improve the GEM strategy ?

Many thanks
Gary often says in his interviews/posts that there are a lot of other filters that seem to add something, but are usually just data mining and won't work as well out of sample. For example, if you added the screen "if S&P is down 45% or more from peak, go 100% long in stocks". That would have netted you huge gains in 2003 and 2009. However, it may not hold up as a good strategy going forward.

Long story short, if you're adding anything to Gary's model, make sure you're not just fitting the data.
Thanks.
Yes trying to fit the data can be a trap in the investing world. However addding an unemployment filter may be interesting because the strategy itself (it is going long stocks if UR is below its 12M SMA, cash if it's above) has worked very well alone.
LBYM and enjoy life ! Thanks BH !

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BlueEars
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Re: Dual Momentum Investing

Post by BlueEars » Tue May 02, 2017 9:22 am

airelleofmusic wrote:...
To avoid whipsaws I suggest to add an unemployment filter: if unemployment rate is below its 12 SMA, you stay invested either in SPX or International equities, if unemployment rate is above its 12 SMA you check the absolute momentum filter (vanilla GEM)

What do you think about adding this filter ? Any ideas to improve the GEM strategy ?
...
Sounds like a sensible filter to me. I think the filter might be better if done as: if unemployment rate is below 12 SMA for last 3 months then ...

Their was a nice discussion of the unemployment rate as a recession indicator here: http://www.philosophicaleconomics.com/2016/02/uetrend/

patience...
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Re: Dual Momentum Investing

Post by patience... » Thu Aug 24, 2017 3:56 pm

I think the word "momentum" is misleading for this strategy. The meat of the system consist in trading out of equities when the 1 year stock market returns are inferior to bills returns. In my mind this is closer to a yield curve inversion (2 years yield higher than 10 years) than assets momentum.

Would you change your stock allocation when the yield curve is inverted?

vikx02
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Re: Dual Momentum Investing

Post by vikx02 » Thu Aug 24, 2017 4:55 pm

The strategy is simply to invest in the asset that has the highest 12 month momentum. The assets chosen are equities (Local and International), high yield fixed income (corporate bonds) and cash simply because of the posited lack of high correlation between the first two and negative correlation between the first two and the third. The fourth is possibly just a proxy for cash.

Looking at it as a play on yield curve is interesting but I think that neither was it the motivation nor is it equivalent. I see how relative yield (bond ytm vs equity E/P) could be used to do relative valuation; however, there is a distinct moment component in the strategy. You could have a higher yield for the equities (E/P) yet if the bonds have a higher price momentum, the strategy would prefer the bonds over equities.

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willthrill81
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Re: Dual Momentum Investing

Post by willthrill81 » Thu Aug 24, 2017 10:16 pm

White Coat Investor wrote:
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.
+10
White Coat Investor wrote:
Tue Feb 17, 2015 11:35 am
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.
Simple trend following (i.e. 200 DMA) may result in slightly higher or lower returns than buying and holding, but there's little disputing that it has removed most of the volatility in stocks (as measured by std. dev.). My admittedly simple analysis using 200 DMA indicates that the biggest advantage of this approach is that it has largely protected investors from severe bear markets (i.e. 2000-2002, 2008-2009).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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BlueEars
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Re: Dual Momentum Investing

Post by BlueEars » Fri Aug 25, 2017 3:33 am

patience... wrote:
Thu Aug 24, 2017 3:56 pm
I think the word "momentum" is misleading for this strategy. The meat of the system consist in trading out of equities when the 1 year stock market returns are inferior to bills returns. In my mind this is closer to a yield curve inversion (2 years yield higher than 10 years) than assets momentum.

Would you change your stock allocation when the yield curve is inverted?
My independent analysis going back to 1920's says that yield curve inversion is a clear sign to begin reducing equities. Bill Gross recently mentioned that the low yields might make this a more sensitive situation to near inversion.

Bogleheads will scoff at this stuff. I remain pragmatic.☺

vikx02
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Re: Dual Momentum Investing

Post by vikx02 » Fri Aug 25, 2017 7:07 am

Campbell Harvey has done a lot of research in this area of yield curve investion and I am very familiar with the idea. Indeed, yield curve inversion is a sign of impending recession and as such during recession equities perform poorly and bonds shine. So you are right that yield curve invesrion can be used and in fact it is presently used by many people as a signal for lightening up on equities.

However, dual momentum strategy does not use yield curve inversion as a factor. In some sense, the factors used by dual momentum are lagging factors (12 month momentum) while yield curve inversion is a leading factor.

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BlueEars
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Re: Dual Momentum Investing

Post by BlueEars » Fri Aug 25, 2017 10:32 am

Right and yield curve inversion can lead by several months which explains why many do not see a good correlation with equity declines. Timing is tough.

patience...
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Re: Dual Momentum Investing

Post by patience... » Fri Aug 25, 2017 10:33 am

vikx02 wrote:
Fri Aug 25, 2017 7:07 am
Campbell Harvey has done a lot of research in this area of yield curve investion and I am very familiar with the idea. Indeed, yield curve inversion is a sign of impending recession and as such during recession equities perform poorly and bonds shine. So you are right that yield curve invesrion can be used and in fact it is presently used by many people as a signal for lightening up on equities.
To be fair there are studies claiming a yield curve inversion won't work as well as in the past because of the unprecedented low interest rates policies affecting bills yields. That was the case for Japan in the 90s: https://seekingalpha.com/article/225677 ... -recession.

But that's not my point. What I mean is that a negative momentum in stocks relative to bills has been a good indicator of poor stock returns going forward (or worse), like a flattening yield curve or a negative GDP forecast (I remember reading somewhere that investing only during periods of GDP expansion as published by the NBER delayed indicator improves Sharpe returns significantly). Should we ignore these extreme economic signals? Would Bogle, Buffet and Lynch not taking an investing opportunity when the market is severely oversold? Conversely, I remember Buffet planning to exit the investing business in 2000, when stock valuations were out of the roof. Wasn't that a sell timing call based on an extreme valuation signal, just like his glorious buy market calls published on the NYT?

airelleofmusic
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Re: Dual Momentum Investing

Post by airelleofmusic » Sun Nov 19, 2017 4:15 pm

Hey,

Have been implementing it for 2 years now and I am very satisfied with the results. Last year I was a bit whipsawed (-5% compared to SPX) but this year I get same results than SPX.

Expect to improve it a little bit by adding Emerging Markets to traditional indices US & World exUS (max 50% of the portfolio due to high volatility of EM).

And for those who think that the strategy is bound to produce lower returns in the future due to its popularity, I wanted to say that every strategy can be arbitraged away (even a 3-fund boglehead portfolio because you get high returns with lower volatility).

Are some of you still implementing the strategy and what are your thoughts ?

Thanks :)
LBYM and enjoy life ! Thanks BH !

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Re: Dual Momentum Investing

Post by Citi » Mon Nov 20, 2017 12:13 am

I was considering this strategy, but decided not to use it. I would like to share my reasoning:

1. Evidence of real investors, funds or companies that successfully used such strategy are weak.
2. Evidence come from academia, rather than actual performance. This is main difference compared to Buy and Hold, where many people who managed to keep the course made a fortune.
3. Strategy might stop working and I could not tell a difference between that and a period of underperformance.
4. Even if such strategy continues to work, a long period of severe under performance might be enough for me to stop using it.
5. Additional costs compared to Buy and Hold.
6. It's biased to US market history.

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Re: Dual Momentum Investing

Post by airelleofmusic » Tue Nov 21, 2017 4:02 am

@Citi, thanks.

Yes maybe the more difficult in this strategy is that you have to stick to it even if it can suffer many years of underperformance.
LBYM and enjoy life ! Thanks BH !

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Re: Dual Momentum Investing

Post by willthrill81 » Tue Nov 21, 2017 11:13 am

Like most other market timing strategies, it seems that dual momentum tends to perform slightly worse during bull markets but much better during bear markets. If you were only analyzing the impact of such a strategy from 2009 until now, buy-and-hold would almost certainly come out ahead. If you include 2008 until now, the outcome reverses.

Downside protection, rather than higher returns, is the biggest potential benefit of market timing strategies. Preliminary analysis I've conducted suggests that during the withdrawal phase (i.e. retirement), an investor using this could have had a dramatically higher sustainable withdrawal rate than a buy-and-hold investor.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Dual Momentum Investing

Post by Citi » Thu Nov 23, 2017 9:04 pm

Like most of the market timing stategies this one worked in the previous bear markets, those that did not are not discussed anywhere.
But what if the next downturn is different ? In a hypothetical example, if a stategy does well in 4 out if 5 next market crashes, but the one it fails is the first one, could you still with it ?

My concern is that there is no proof of anyone who did so, no proof of real world successful performance.

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Re: Dual Momentum Investing

Post by willthrill81 » Fri Nov 24, 2017 10:43 am

Citi wrote:
Thu Nov 23, 2017 9:04 pm
Like most of the market timing stategies this one worked in the previous bear markets, those that did not are not discussed anywhere.
But what if the next downturn is different ? In a hypothetical example, if a stategy does well in 4 out if 5 next market crashes, but the one it fails is the first one, could you still with it ?

My concern is that there is no proof of anyone who did so, no proof of real world successful performance.
Every major market timing strategy (e.g. 200 DMA, momentum rotation, dual momentum) I've seen sailed through 2008 far better than buy-and-hold. From 2009 until now, virtually all of them have had lower returns and bigger drawdowns. So if you're only examining the 'good times', buy-and-hold certainly seems optimal. But when you examine the 'bad times', market timing strategies far outperform buy-and-hold in pretty much every way.

There is no more or less 'proof' that anyone did better with buy-and-hold than market timing apart from examining what would have happened had either followed their strategy (i.e. backtesting). But for the record, Paul Merriman has been successfully using market timing for over 35 years. He says that he doesn't do so to achieve higher returns but to minimize his downside risk. After having gone through several bear markets, he says that it's worked very well for him.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Dual Momentum Investing

Post by 220volt » Thu Feb 01, 2018 10:57 pm

I too read the book last summer, but one thing still not clicking with me.
Let's say I'm currently holding International market Index which has the 12-month performance of 24% over the US which has 21%.
Now, to avoid a bear market, both the International and the US indices would have to go down from 24% (or from 21%) to T-bill level. Which is substantially lower at 2.4%
That is a huge drop from 24% to 2.4%. Not sure how would that save me from a substantial loss since I would have to hold either the US or International throughout the whole ride until one of those indices reached TT bill levels and gave me the signal to exit.

I am wondering how op and some other people from this thread did so far when they first started using Dual Momentum did back in 2015.
"If I had only followed the advice of financial analysts in 2008, I'd have a million dollars today, provided I started with a hundred million dollars" - Jon Stewart

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Re: Dual Momentum Investing

Post by Lauretta » Fri Feb 02, 2018 7:47 am

220volt wrote:
Thu Feb 01, 2018 10:57 pm
I too read the book last summer, but one thing still not clicking with me.
Let's say I'm currently holding International market Index which has the 12-month performance of 24% over the US which has 21%.
Now, to avoid a bear market, both the International and the US indices would have to go down from 24% (or from 21%) to T-bill level. Which is substantially lower at 2.4%
That is a huge drop from 24% to 2.4%. Not sure how would that save me from a substantial loss since I would have to hold either the US or International throughout the whole ride until one of those indices reached TT bill levels and gave me the signal to exit.

I am wondering how op and some other people from this thread did so far when they first started using Dual Momentum did back in 2015.
Exactly, you would still have substantial drawdowns with momentum. For example in 1929 trend following and relative momentum would have still produced drawdowns of the order of 50%.
When reading Dual momentum I remember that I felt this point was not clearly conveyed.
There are several technical reasons I have doubts about this method (I have already expressed some of them in other threads).
Also, on the Amazon reviews of the book, I found the fervor of the mysterious Max Henke, bravely fighting all the views that are contrary to those of the author, a bit strange...
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Re: Dual Momentum Investing

Post by patience... » Fri Feb 02, 2018 7:59 am

220volt wrote:
Thu Feb 01, 2018 10:57 pm
I too read the book last summer, but one thing still not clicking with me.
Let's say I'm currently holding International market Index which has the 12-month performance of 24% over the US which has 21%.
Now, to avoid a bear market, both the International and the US indices would have to go down from 24% (or from 21%) to T-bill level. Which is substantially lower at 2.4%
That is a huge drop from 24% to 2.4%. Not sure how would that save me from a substantial loss since I would have to hold either the US or International throughout the whole ride until one of those indices reached TT bill levels and gave me the signal to exit.

I am wondering how op and some other people from this thread did so far when they first started using Dual Momentum did back in 2015.
A valid point, but the market does not have to drop 20% or higher to indicate a sell signal. The returns are calculated on a rolling 12 months window, so if the market *stops* rising (as opposed to dropping suddenly), after a number of month the rolling returns will be lower than 3 month bills, especially if interest rates keep rising.

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Re: Dual Momentum Investing

Post by 220volt » Fri Feb 02, 2018 9:14 am

patience... wrote:
Fri Feb 02, 2018 7:59 am
220volt wrote:
Thu Feb 01, 2018 10:57 pm
I too read the book last summer, but one thing still not clicking with me.
Let's say I'm currently holding International market Index which has the 12-month performance of 24% over the US which has 21%.
Now, to avoid a bear market, both the International and the US indices would have to go down from 24% (or from 21%) to T-bill level. Which is substantially lower at 2.4%
That is a huge drop from 24% to 2.4%. Not sure how would that save me from a substantial loss since I would have to hold either the US or International throughout the whole ride until one of those indices reached TT bill levels and gave me the signal to exit.

I am wondering how op and some other people from this thread did so far when they first started using Dual Momentum did back in 2015.
A valid point, but the market does not have to drop 20% or higher to indicate a sell signal. The returns are calculated on a rolling 12 months window, so if the market *stops* rising (as opposed to dropping suddenly), after a number of month the rolling returns will be lower than 3 month bills, especially if interest rates keep rising.
I thought about that, but it doesn't have to be a rapid fall. Even with slow rolling returns, percentage drop is the percentage drop, right?
The strategy seems like moving the average indicator to me, which is a lagging indicator and will not save me much from a bear market and will hinder me on the upside as well.
I actually emailed Gary Antonacci and he pointed me to the FAQ on his page under the topic: The stock market is up a lot this past year. Is there a lot of risks if I get started now?
https://www.optimalmomentum.com/faq.html

I've read it several times, but it still seems like I am missing some crucial detail.
"If I had only followed the advice of financial analysts in 2008, I'd have a million dollars today, provided I started with a hundred million dollars" - Jon Stewart

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Re: Dual Momentum Investing

Post by kober.paul » Sat Feb 03, 2018 1:42 pm

I am a 55 year old still working in the Tech Industry. After a couple of months of research I took a plunge and implemented “Dual Momentum”. I have convinced myself enough that I have put 100% of my tax sheltered as well as taxable liquid assets to use this method . It has been about four months since I started. It has been an unusually good stock market - so far so good. Even though I think I have thought about this investment method from every angle, understandably I am still a little bit nervous. But I am quite optimistic about my prospects. If you think I am a crazy person to take such a plunge, please let me know in a constructive way.
Last edited by kober.paul on Sun Feb 04, 2018 1:29 pm, edited 1 time in total.

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Re: Dual Momentum Investing

Post by LadyGeek » Sat Feb 03, 2018 2:21 pm

Welcome! If you want to know what we think, may I recommend you start a thread in Investing - Help with Personal Investments forum?

Post your portfolio using the Asking Portfolio Questions format. It will make you think about the "big picture" while giving us the info we need to point you in the right direction (if needed).
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Re: Dual Momentum Investing

Post by willthrill81 » Sat Feb 03, 2018 4:17 pm

patience... wrote:
Fri Feb 02, 2018 7:59 am
220volt wrote:
Thu Feb 01, 2018 10:57 pm
I too read the book last summer, but one thing still not clicking with me.
Let's say I'm currently holding International market Index which has the 12-month performance of 24% over the US which has 21%.
Now, to avoid a bear market, both the International and the US indices would have to go down from 24% (or from 21%) to T-bill level. Which is substantially lower at 2.4%
That is a huge drop from 24% to 2.4%. Not sure how would that save me from a substantial loss since I would have to hold either the US or International throughout the whole ride until one of those indices reached TT bill levels and gave me the signal to exit.

I am wondering how op and some other people from this thread did so far when they first started using Dual Momentum did back in 2015.
A valid point, but the market does not have to drop 20% or higher to indicate a sell signal. The returns are calculated on a rolling 12 months window, so if the market *stops* rising (as opposed to dropping suddenly), after a number of month the rolling returns will be lower than 3 month bills, especially if interest rates keep rising.
Right. Stocks never have to go into the red at all before a sell signal may be indicated.

I personally use the relative strength momentum approach with a 7 month timing window. This means that I'm currently invested in whatever has had the best relative performance in terms of absolute returns over the last 7 months (among my investment options). Right now, that's large-cap growth in my 401k and emerging markets in our HSA and IRAs.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Dual Momentum Investing

Post by kober.paul » Sun Feb 04, 2018 9:20 am

LadyGeek wrote:
Sat Feb 03, 2018 2:21 pm
Welcome! If you want to know what we think, may I recommend you start a thread in Investing - Help with Personal Investments forum?

Post your portfolio using the Asking Portfolio Questions format. It will make you think about the "big picture" while giving us the info we need to point you in the right direction (if needed).
Thank you! I thought about posting it there. But I guess I am more interested in a theoretical discussion of this methodology than a personal critique as applied to my specific situation. Looking at my post, I do understand why you are asking me to post there. I will instead lurk on this thread and contribute my view point and gain confidence that way.

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Re: Dual Momentum Investing

Post by Tycoon » Sun Feb 04, 2018 9:29 am

ginmqi wrote:
Sun Feb 15, 2015 7:14 pm
As someone said earlier in this thread, the only sure way that someone is making is money is...well the author and publisher.

Also if this is such a great strategy, why not keep it a secret. Why divulge to the mass public.
Benevolence? I doubt it!
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Re: Dual Momentum Investing

Post by LadyGeek » Sun Feb 04, 2018 10:08 am

kober.paul wrote:
Sun Feb 04, 2018 9:20 am
Thank you! I thought about posting it there. But I guess I am more interested in a theoretical discussion of this methodology than a personal critique as applied to my specific situation. Looking at my post, I do understand why you are asking me to post there. I will instead lurk on this thread and contribute my view point and gain confidence that way.
That's fine. I'd like to point out that "dual momentum" investing is not for beginners. In fact, you don't need to understand it at all.

The best place to start is here: Getting started

If you don't know how to complete the Asking Portfolio Questions format, just do the best you can and ask for help. It's not a problem, that's why we're here.

(I don't know your level of experience, so I'm giving a basic intro. Other new investors are welcome to follow this advice.)
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Re: Dual Momentum Investing

Post by kober.paul » Sun Feb 04, 2018 10:12 am

Citi wrote:
Mon Nov 20, 2017 12:13 am
I was considering this strategy, but decided not to use it. I would like to share my reasoning:

1. Evidence of real investors, funds or companies that successfully used such strategy are weak.
2. Evidence come from academia, rather than actual performance. This is main difference compared to Buy and Hold, where many people who managed to keep the course made a fortune.
3. Strategy might stop working and I could not tell a difference between that and a period of underperformance.
4. Even if such strategy continues to work, a long period of severe under performance might be enough for me to stop using it.
5. Additional costs compared to Buy and Hold.
6. It's biased to US market history.
I too have carefully considered the strategy and decided to use "Dual Momentum" to 100% of my liquid assets both taxable and non-taxable. The main reason is I tried to convince myself why this strategy is inferior to buy-and-hold of a diversified mix of assets and I could not come up with any. So if I believed if any single point in the list you pointed is true for me, I wouldn't have taken a plunge like that. So here is my view specifically to the points above. (Needless to say I respect your conclusions and wish you well)

1. Evidence of real investors ... I would say this is the point I pondered most and gave me the biggest pause. But I moved on because this concern is illogical. The reason I seek this because I am a human and I love company. A beaten path is a more comfortable path. But I am willing to trade returns for comfort. Dual Momentum is a kind of market timing methodology. Market timing is frowned upon. There is a whole bunch of reasons Gary outlined that convinced me that it is ok for this to be not a main stream methodology.

2. Evidence come from academia ... To me this is same as 1 with some twist. I don't take what academia says lightly. Science, reasoning and evidence are the best tools we have to predict future. Imagine a weather prediction apparatus that doesn't apply the mountains of academic research in service of it. I would have liked real world performance AND academic evidence. But if I have to choose one, I choose academic evidence than real world performance when it comes to investing, especially when the academic evidence is simple and intuitively makes sense.

3. Strategy might stop working ... That is true of any strategy. This is where your conviction and research is tested.

4. Even if such strategy continues to work ... What you are saying is you would more likely to stick with a proven method. This is again same as 1.

5. Additional costs compared to Buy and Hold. But considering significantly higher expected returns, the additional costs are justified. But this is still a very low trading method. (avg 1.5 trades per year)

6. The strategy is back tested in various markets and with various asset classes.

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Re: Dual Momentum Investing

Post by kober.paul » Sun Feb 04, 2018 11:03 am

LadyGeek wrote:
Sun Feb 04, 2018 10:08 am
(I don't know your level of experience, so I'm giving a basic intro. Other new investors are welcome to follow this advice.)
Thank you very much for taking time to welcome me. I am not exactly a beginner. My main motivation is that my understanding about "Dual Momentum" strategy to be tested.

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Re: Dual Momentum Investing

Post by kober.paul » Sun Feb 04, 2018 1:24 pm

yogiyoda wrote:
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/
.
Thank you very much for your review. One of the best and most comprehensive rebuttals to DM I have seen. It even drew a re-rebuttal from Gary which I thought was pretty good. But I haven't seen you respond to it other than simply reiterating what you believe. A point by point re-re-rebuttal would have been highly informative and educational.

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Re: Dual Momentum Investing

Post by 220volt » Sun Feb 04, 2018 6:10 pm

Even though I am skeptical about this strategy, I like to diversify not just across sectors and globally, but across different strategies.
So I too have implemented Dual Momentum in my 401k but within a smaller portion. My employer is matching 6% and then throws in 3% on top of that. So I've implemented Dual Momentum on that 3% (which is substantially lower sum than my core 401K) since January 1st this year. We'll see what happens. I simply do not dare to go all the way with this strategy.
"If I had only followed the advice of financial analysts in 2008, I'd have a million dollars today, provided I started with a hundred million dollars" - Jon Stewart

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Re: Dual Momentum Investing

Post by glenmalan » Sun Feb 04, 2018 7:46 pm

I have used DM for some time now. It makes sense and is thoroughly back tested with data over a century old. I have found Antonacci to be generally objective, well researched and very responsive as I have had any questions.

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Re: Dual Momentum Investing

Post by Lauretta » Mon Feb 05, 2018 1:10 am

kober.paul wrote:
Sun Feb 04, 2018 10:12 am
Citi wrote:
Mon Nov 20, 2017 12:13 am
I was considering this strategy, but decided not to use it. I would like to share my reasoning:

1. Evidence of real investors, funds or companies that successfully used such strategy are weak.
2. Evidence come from academia, rather than actual performance. This is main difference compared to Buy and Hold, where many people who managed to keep the course made a fortune.
3. Strategy might stop working and I could not tell a difference between that and a period of underperformance.
4. Even if such strategy continues to work, a long period of severe under performance might be enough for me to stop using it.
5. Additional costs compared to Buy and Hold.
6. It's biased to US market history.
I too have carefully considered the strategy and decided to use "Dual Momentum" to 100% of my liquid assets both taxable and non-taxable. The main reason is I tried to convince myself why this strategy is inferior to buy-and-hold of a diversified mix of assets and I could not come up with any. So if I believed if any single point in the list you pointed is true for me, I wouldn't have taken a plunge like that. So here is my view specifically to the points above. (Needless to say I respect your conclusions and wish you well)

1. Evidence of real investors ... I would say this is the point I pondered most and gave me the biggest pause. But I moved on because this concern is illogical. The reason I seek this because I am a human and I love company. A beaten path is a more comfortable path. But I am willing to trade returns for comfort. Dual Momentum is a kind of market timing methodology. Market timing is frowned upon. There is a whole bunch of reasons Gary outlined that convinced me that it is ok for this to be not a main stream methodology.

2. Evidence come from academia ... To me this is same as 1 with some twist. I don't take what academia says lightly. Science, reasoning and evidence are the best tools we have to predict future. Imagine a weather prediction apparatus that doesn't apply the mountains of academic research in service of it. I would have liked real world performance AND academic evidence. But if I have to choose one, I choose academic evidence than real world performance when it comes to investing, especially when the academic evidence is simple and intuitively makes sense.

3. Strategy might stop working ... That is true of any strategy. This is where your conviction and research is tested.

4. Even if such strategy continues to work ... What you are saying is you would more likely to stick with a proven method. This is again same as 1.

5. Additional costs compared to Buy and Hold. But considering significantly higher expected returns, the additional costs are justified. But this is still a very low trading method. (avg 1.5 trades per year)

6. The strategy is back tested in various markets and with various asset classes.
Hi Paul,

being 100% in Dual momentum seems to me irrational since, as for example Clifford Asness noted in one of his papers, 'while momentum has performed well over the long-term, it has suffered periods of sharp underperformance'.
Thus if you begin the back-tests in the 1970s and end today, you get good results.
But if you begin in the late 1940s and end today, you don't.
If you go back to the 1920s, the results improve again.

Since you only get one shot at investing in your life, using a strategy that might not work during your lifetime doesn't seem a very well thought out method. Besides, you might end up abandoning it at the wrong time, after many years of underperfomance, because you think it's now stopped working.

I am also curious, as I have seen on Amazon people like 'Max Henke' spend a lot of time and effort defending Antonacci's book in the review section, and now I see new people registering on Bogleheads and doing the same. May I ask what your motivations are for defending this book? In the end having many people acting as a mouthpiece for the author (so to speak) may have the opposite from the desired effect. At least it has done so for me.
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