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.
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.