Why don't I read about this strategy more? [12-month moving average, momentum]

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betablocker
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Re: Why don't I read about this strategy more? It seems to beat everything else

Post by betablocker » Fri Sep 28, 2018 2:37 pm

staythecourse wrote:
Thu Sep 27, 2018 5:17 pm
betablocker wrote:
Thu Sep 27, 2018 12:49 pm
staythecourse wrote:
Thu Sep 27, 2018 9:34 am
moving averages were made REALLY popular by Mebane Farber on his "Ivy League" book. Based on that fame he started his own mutual fund. Think it was ?GTAA or something like that. How did it do? Who knows as it closed down and is no longer in existence. So a real life IN VITRO experiment showed it is NOT that easy to do. Mind you HE ran the fund and was actively managed so you can bet he/ computer watched the market on a nano second time period and it didn't help him.

All I can say is the ONLY strategy I have seen work IN VITRO for the masses with a HIGH probability of repeating is the bogleheads approach. Nothing comes close. Trust me I wish it did. I love the idea of outsmarting everyone else, but am resigned to to passive investing as it has the HIGHEST probability of success over a 50 year lifespan.

Good luck.
Meb runs Cambria which has a a dozen ETFs some of which use trend following. Not sure about GTAA but don't think your statements above are true.
Welcome to active management tricks. It was Mebane Farber starting it with GTAA. Trust me I have a good memory. It did lousy so he shut it down. Now he markets these Cambria funds. Look at how long they have been in business and you will start to understand. Guess what will happen if they do poorly? They will get shut down as well. Don't blame him if you have enough investors who just buy everything told to them then why change your spots.

Look at Nisi post above or just search this site alone about GTAA.

Good luck.
As I maintained above, this post proves that trend following doesn't work. Thanks for making that clear to me.

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HomerJ
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Re: Why don't I read about this strategy more? It seems to beat everything else

Post by HomerJ » Fri Sep 28, 2018 2:57 pm

Dink2018 wrote:
Thu Sep 27, 2018 12:20 am
Why not simply buy an index (like S&P500) when the 12 month moving average is flat or going up, and sell when it is going down. I don't believe I can predict the future at all, but I know for sure I can tell which way a line is going on a graph over a period of time. The key distinction here is that I want to react based on what HAPPENED, not what someone else or myself THINKS might happen. The past is very easy to see and quite easy to quantify, the future not so much.
But you're assuming the past will predict the future. You're assuming the future will continue in the same direction as the past. So you ARE trying to predict the future.

Just because the line was going down in the past, that doesn't mean it will continue going down in the future. What if it turns up the day you sell?
Is there anyone I could hire to run scenarios for me? EG:

$1k a week DCA with 100% into VOO if trend line is flat or upward then 100% to BND when trend line heads down for 3 months
$1k a week DCA with 80% VOO and 20% BND when trend line is flat or upward then switch to 20% VOO and 80% BND

Longest time periods possible...
Ah, this is called data mining. What you will do is keep trying different scenarios until you find one that worked well in the past. Lots of people try that. But the one you find that worked well in the past may not work in the future.

It may have just been a coincidence that an 82/18 portfolio switched based on a 24 week moving average had the best results in the past. And it may not work going forward.

In fact, it often doesn't. Many people have tried exactly what you describe.
The J stands for Jay

Dink2018
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Re: Why don't I read about this strategy more? It seems to reasonable and fairly straightforward.

Post by Dink2018 » Fri Sep 28, 2018 3:26 pm

Dink2018 wrote:
Thu Sep 27, 2018 12:20 am
Hello Everyone, first time post but I've been reading for about a year.

I've read 7 or so books in the recent past about portfolio allocation, etc. I find the 3 Fund Portfolio very compelling compared to many other allocations.

What I can't get my head around is why I don't read more about using a 12 month moving average to signal buy and sell conditions relative to an index.

So here's the question:

Why not simply buy an index (like S&P500) when the 12 month moving average is flat or going up, and sell when it is going down. I don't believe I can predict the future at all, but I know for sure I can tell which way a line is going on a graph over a period of time. The key distinction here is that I want to react based on what HAPPENED, not what someone else or myself THINKS might happen. The past is very easy to see and quite easy to quantify, the future not so much.

What am I missing here, this seems far too obvious for other people far smarter than me to not have noticed. After 2k posts and several books I'm wondering why I don't see more examples of this.

Is there anyone I could hire to run scenarios for me? EG:

$1k a week DCA with 100% into VOO if trend line is flat or upward then 100% to BND when trend line heads down for 3 months
$1k a week DCA with 80% VOO and 20% BND when trend line is flat or upward then switch to 20% VOO and 80% BND

Longest time periods possible...

Two interesting posts I found (mod feel free to delete link if this isn't allowed) some of these examples use cash vs bonds.

https://realinvestmentadvice.com/you-sh ... he-market/
http://thepatternsite.com/12MonthMA.html

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Re: Why don't I read about this strategy more? It seems to beat everything else

Post by Dink2018 » Fri Sep 28, 2018 3:27 pm

nisiprius wrote:
Thu Sep 27, 2018 7:29 am
Would you consider editing your thread title (just click on the pencil link in the posting and change the subject line) to read "Why don't I read about this strategy more? It seems to have beaten everything else?"
Yes updated.

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Re: Why don't I read about this strategy more? It seems to beat everything else

Post by nisiprius » Fri Sep 28, 2018 3:29 pm

betablocker wrote:
Fri Sep 28, 2018 2:31 pm
If I showed you three year underperformance of any fund would you then agree to sell it? I'm not defending this fund. I don't own it nor do I own any Cambria funds. I just disagree with cherry picking stuff and using it as proof.
I don't agree that "all available data" is cherry picking. The fact that the fund only existed for a short period of time is not my fault.

I'm sorry that I don't have the entire history of the fund (including the period after he was managing it) but it was similar.

Added: It turns out that another posting had a little more history, but unfortunately Google Images only captured a small, blurry image--and the image was hosted on a free hosting service that no long has the image. Anyway, I dispute that I was cherry picking.

You can't see details, but you can see clearly enough that after Faber left, GTAA continued on much as it had been doing.

Image
Last edited by nisiprius on Fri Sep 28, 2018 3:38 pm, edited 2 times in total.
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Re: Why don't I read about this strategy more? It seems to beat everything else

Post by Dink2018 » Fri Sep 28, 2018 3:35 pm

staythecourse wrote:
Thu Sep 27, 2018 9:34 am
moving averages were made REALLY popular by Mebane Farber on his "Ivy League" book. Based on that fame he started his own mutual fund. Think it was ?GTAA or something like that. How did it do? Who knows as it closed down and is no longer in existence. So a real life IN VITRO experiment showed it is NOT that easy to do. Mind you HE ran the fund and was actively managed so you can bet he/ computer watched the market on a nano second time period and it didn't help him.

All I can say is the ONLY strategy I have seen work IN VITRO for the masses with a HIGH probability of repeating is the bogleheads approach. Nothing comes close. Trust me I wish it did. I love the idea of outsmarting everyone else, but am resigned to to passive investing as it has the HIGHEST probability of success over a 50 year lifespan.

Good luck.
That's why I'm enjoying learning so much here. The 3 or 4 fund approach is so simple I know that I can do it, pretty much anyone can do it so long as they set it up right and just put it on auto draft from their account. I appreciate all the feedback! Thanks all.

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by dknightd » Fri Sep 28, 2018 3:37 pm

An alternate strategy might be to sell when things are going up, and buy when things are going down. Sell high, buy low. Neither really works over the long term. Because nobody can know how high (or low) it might go.

Dink2018
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Re: Why don't I read about this strategy more? It seems to beat everything else

Post by Dink2018 » Fri Sep 28, 2018 3:52 pm

onourway wrote:
Fri Sep 28, 2018 4:55 am
It appears that despite being popular fodder for the investing press for well over 30 years, there isn't a single successful fund following this strategy.

That should give anyone thinking of attempting this on their own pause...
By all means that's why I'm asking. I don't know how to post an image but when I look at this graph it looks painfully obvious to make the switch when the line switches position either up or down. When other say "you can't know the future" I agree, but we can all look at a line and see which way it is going.

http://thepatternsite.com/12MonthMA.html

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by Dink2018 » Fri Sep 28, 2018 3:59 pm

Given all the responses (thank you). It makes me consider the core of all this is the input capital. That's really the main issue at hand that makes the biggest impact over one's life.

If I stuff 1k a week into my account vs 3k there is no portfolio in the world that is going to make that sort of difference in asset allocation. It's so much more important to get the core capital invested.

I'm working 70 hours a week so that's why I'm looking toward equities vs cash flow real estate, I can't take another labor or time suck type of situation. With equities I can automate the vast majority of this.

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by dave_k » Fri Sep 28, 2018 4:18 pm

Aside from the problems with this strategy that others have mentioned, the idea of using simple moving averages as signals bothers me because of how they behave mathematically.

The daily change in a moving average is based only on the current day's change, and the change on one day a year ago (or however long it is), equally and in the opposite direction. It's rather arbitrary that what happened on one day a year ago should have that much influence. A weighted moving average or exponential smoothing filter would make more sense as a signal than a simple moving average (not that any such signals should necessarily be used for investing). See https://en.wikipedia.org/wiki/Moving_average, https://en.wikipedia.org/wiki/Exponential_smoothing

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by willthrill81 » Fri Sep 28, 2018 6:34 pm

dave_k wrote:
Fri Sep 28, 2018 4:18 pm
Aside from the problems with this strategy that others have mentioned, the idea of using simple moving averages as signals bothers me because of how they behave mathematically.

The daily change in a moving average is based only on the current day's change, and the change on one day a year ago (or however long it is), equally and in the opposite direction. It's rather arbitrary that what happened on one day a year ago should have that much influence. A weighted moving average or exponential smoothing filter would make more sense as a signal than a simple moving average (not that any such signals should necessarily be used for investing). See https://en.wikipedia.org/wiki/Moving_average, https://en.wikipedia.org/wiki/Exponential_smoothing
I've not seen any evidence that over the long-term that there is an advantage to using an exponential moving average to a simple moving average. That being said, moving averages of stocks' prices are only part of my trend following strategy.
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"Market Timing -- What Experts Say"

Post by Taylor Larimore » Fri Sep 28, 2018 7:27 pm

Dink2018 wrote: So here's the question: Why not simply buy an index (like S&P500) when the 12 month moving average is flat or going up, and sell when it is going down.
Dink2018:

You are describing a very common type of market-timing. This is What Experts Say:
Advisor Perspectives (8-8-2016): "The question is whether any of these (57) tactical allocation mutual funds have shown any ability to outperform a simple, passively managed 60/40 portfolio. The answer, at least for the last five years, is a resounding “no.”

Alliance Bernstein Research: "In 2005 we interviewed more than 500 financial advisors. 83% of the advisors we polled felt that if investors had stuck to their original asset allocation plan prior to 2000, they could have cut their losses by more than half over the following few years."

Frank Armstrong, author and adviser: "Endless tinkering is unlikely to improve performance, and chasing last period's stellar achiever is a losing strategy."

David Babson, co-author of Investing for a Successful Future: "It must be apparent to intelligent investors--if anyone possessed the ability to do so (market time) he would become a billionaire quickly."

Barron's Guide to Making Investment Decisions: "If we haven't said it enough, we'll say it again: Market timing is dangerous."

Bernard Baruch, famed investor: "Only liars manage to always be "out" during bad times and "in' during good times."

Peter Bernstein, author of 10 finance books: "You have to keep reminding yourself. We don't know what's going to happen with anything, ever."

Wm. Bernstein, author and adviser: "There are two kinds of investors, be they large or small: Those who don't know where the market is headed, and those who don't know that they don't know."

Jack Bogle: "After nearly 50 years in this business, I do not know of anybody who has done market timing successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently."

I started the Boglehead Contest in January 2001. Of 99 Diehard guesses that year, only 11 even guessed the direction of the stock market. Boglehead forecasts were worse in 2008. Only 2 out of 284 Bogleheads guessed how low the S&P 500 Index would plunge.

Bogleheads' Guide to Investing: "No one can predict what the stock market will do or which mutual fund will outperform in the future. This is why we diversify -- so that whatever happens we will not have all our money in losing investments."

Jack Brennan, former Vanguard CEO and author of Straight Talk on Investing: "If you're determined to succeed at investing, make it your first priority to become a buy-and-hold investor."

Warren Buffet: “The only value of stock forecasters is to make fortune-tellers look good."

Ben Carlson CPA, author of A Wealth of Common Sense: "Not only is market timing hard, but you incur fees, taxes and market impact costs, as well."

CDA/Wiesenberger: "Market timing is an ineffective strategy for mutual fund investors."

Andrew Clarke, financial adviser: "A successful investor has a good knowledge base, a well-defined investment plan, and nerves of steel to stick with it."

Jonathan Clements, Wall Street Journal columnist: "Take my word for it. Buy-and-hold is still your best long-run strategy."

Consumer Reports: "Dalbar research has found that both stock and bond investors tend to overreact to events, moving money in and out of mutual funds with breathtakingly bad timing."

Dalbar research (2015) "Mutual fund investors who hold on to their investments have been more successful than those who try to time the market."

Dick Davis, publisher of Dick Davis Digest: "No one can time the market on a consistent basis."

Pat Dorsey, former Morningstar Director of Fund Analysis: "Market-timing is bunk."

David Dreman, author of Contrarian Investment Strategies: "The performance of 185 tactical asset allocation mutual funds was compared with buy-and-hold strategies and equity mutual funds over the years 1985-97. Over this period the S&P 500 Index increased 734%, average equity funds increased 598%, and tactical asset allocation funds increased 384%."

Charles Ellis, author of The Loser's Game: "Market timing is a wicked idea. Don't try it-ever."

Javier Estrada Research: "The odds against successful market timing are just staggering."

Paul Farrell, CBS MarketWatch: "Forget market timing in any form."

Rick Ferri, adviser and co-author of seven books including The Bogleheads' Guide to Retirement Planning: "The best practice for investors is to design a long-term globally diversified asset allocation plan based on present and future financial needs. Then follow that plan religiously, through all markets good and bad."

Forbes: "Benjamin Graham spent much of his career trying to devise a good formula for when to get into--and out of--the stock market. All formulas, he concluded, failed."

Fortune: "Let's say it clearly: No one knows where the market is going-experts or novices, soothsayers or astrologers. That's the simple truth."

Norman Fosback, author, researcher: "Don't sell out of fear or buy out of greed. Just keep making investments, and let the market take its course over the long-term."

John Kenneth Galbraith, economist: "The only function of economic forecasting is to make astrology look respectful."

Elaine Garzarelli, Wall Street's best known strategist until fired by Lehman Brothers: "I've learned that market timing can ruin you."

Good & Hermansen, authors of Index Your Way to Investment Success: "Staying on course may be just as difficult in bull markets as in bear markets."

Carol Gould, author & New York Times columnist: "For most investors the odds favor a buy-and-hold strategy."

Graham/Campbell Study: "From June 1980 through December 1992, 94.5% of 237 market timing investment newsletters had gone of business."

Benjamin Graham, famed investor: "If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market."

Louis S. Harvey, President of Dalbar Research: “When investors think short-term and try to time the market, they haven’t done very well. They have been leaving a lot of money on the table.”

Mark Hebner, financial author: "Efficient markets have no trends, so any speculation using trading systems or active investment strategies, such as stock, time, manager, or style selection, will only detract from future market returns."

Chuck Hill, Director of Research at FirstCall/Thomson Financial: "At the peak of the bull market in March of 2000 only 0.7% of all recommendations on stocks issued by Wall Street brokerages and investment banks were to sell."

Morgan Housel, Wall Street Journal and Motley Fool columnist: "The odds that you will achieve long-term success by actively trading or timing the market round to zero."

Mark Hulbert, Editor of the Hulbert Financial Digest (1-18-2001): "Among the 160 or so newsletters the HFD monitors, the market timing recommendations of only 10 have beaten the stock market over the last decade on a risk-adjusted basis."

Daniel Kahneman, Nobel Laureate: "After receiving the Nobel Prize, Daniel Kahneman, was asked by a CNBC anchorman what investment tips he had for viewers. His answer: "Buy and hold.""

Michael Leboeuf, author of The Millionaire in You : "Timing the market is for losers. Time IN the market will get you to the winner's circle, and you'll sleep better at night."

Arthur Levitt, former SEC Chairman: "No one is smart enough to time the market's ups and downs."

Jessie Livermore, famous investor: "It never was my thinking that made the big money for me. It always was my sitting."

Peter Lynch, famed mutual fund manager: "Nobody can predict interest rates, the future direction of the economy or the stock market."

Burton Malkiel, author of the classic Random Walk Down Wall Street: "Buying-and-holding a broad-based market index fund is still the only game in town."

John Markese, PhD, President, American Association of Independent Investors: "Nobody, but nobody, has consistently guessed the direction of the bond or stock market over any meaningful length of time."

Paul Merriman, author of Investing for a lifetime: "I don’t think more than perhaps one in 100 investors will be successful using timing."

Morningstar Course 106: "We're not keen on market-timing. It just doesn't work."

Motley Fools: "We've yet to find anyone who can accurately and consistently predict the market's short-term moves."

Nick Murray, author of eleven financial books: "Timing the market is a fool's game, whereas time in the market is your greatest natural advantage."

"Odean and Barber tested over 66,400 investors between 1991 and 1997. Their findings: "The most active traders earned 7% less annually than buy-and-hold investors."

Gerald Perritt, financial author: "Forget trying to time the market and do something productive instead."

Don Phillips, Managing Director of Morningstar: "I can't point to any mutual fund anywhere in the world that's produced a superior long-term record using market timing as its main investment criteria."

Mike Piper, author of The Oblivious Investor: "When market-beating strategies become known they generally stop working."

Jane Bryant Quinn author and syndicated columnist: "The market timer's Hall of Fame is an empty room."

John Rekenthaler, Vice-President of Research for Morningstar: "Market-timers are circus clowns minus the funny suits. Even when they dodge the bear market, they inevitably miss the ensuing bull. Their track record is terrible."

Mary Roland, author of Best Practices for Financial Advisors: "Countless studies have proved that no one is able to time the market effectively."

Louis Rukeyser, famous (deceased) TV host: "In the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested."

Richard Russell, editor of Dow Theory Letters: "There are no geniuses on Wall Street, only geniuses for a while."

Paul Samuelson, Nobel Laureate: "The evidence is overwhelming that a thousand timer's who try to buy when stocks are low, and sell when they are high, is a damnably awful record."

Jim Schmidt, Editor: "For the 10 years that ended 12-31-2000, only one newsletter out of the 112 that Timers Digest follows managed to beat the S&P 500 Benchmark."

Bill Schultheis, adviser and author of The Coffeehouse Investor : "I have learned the hard way that market timing and trying to pick a fund that will out-perform the market are both losing strategies."

Charles Schwab: "I'm a strong advocate of buying and holding."

Fred Schwed Jr., author of 'Where are the Customers' Yachts?: "It turns out that I should have just bought them (securities), and thereafter I should have just sat on them like a fat, stupid peasant. A peasant however, who is rich beyond his limited dreams of avarice."

Chandan Sengupta author of The Only Proven Road to Investment Success: "Any investment method that relies on predicting the future is doomed to fail."

Jeremy Siegel, author of Stocks for the Long Run: "Winning with stocks requires only patience, not foresight."

W. Scott Simon, author of Index Funds: "Investors should look with a jaundiced eye at any market timing system being peddled by its guru-creator."

Paul Singer, hedge fund billionaire: “The important turning points in markets are never identified with precision in advance by ‘experts’ and policymakers."

James Stewart, Smart Money columnist": It's my belief that it's a waste of time to try to time any market decline, or try to pinpoint a market bottom."

Larry Swedroe, author and adviser: "Believing in the ability of market timers is the equivalent of believing astrologers can predict the future."

David Swensen, Manager of Yale Investments: "People should stop chasing performance and just put together a sensible portfolio regardless of the ups and downs of the market."

Andrew Tobias, author of The Only Investment Guide You Will Ever Need: "Don't waste money subscribing to investment letters or expensive services.

Tweddell & Pierce, financial authors: "Trust in time and forget market timing. Allow time to work its compounding magic for you. Let market timing inflict its miseries on someone else."

Eric Tyson, author of Mutual Funds for Dummies: "No one can predict the future."

Wall Street Journal Lifetime Guide to Money: "Few if any investors manage to be consistently successful in timing markets."

John Waggoner, USA Today financial columnist: "If you're considering doing your own market timing, the best advice is this: Don't."

Jason Zweig, author and Wall Street Journal columnist: "If you buy, and then hold a total-stock-market index fund, it is mathematically certain that you will outperform the vast majority of all other investors in the long run."
Best wishes
Taylor
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tadamsmar
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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by tadamsmar » Fri Sep 28, 2018 8:01 pm

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Last edited by tadamsmar on Fri Sep 28, 2018 8:06 pm, edited 1 time in total.

betablocker
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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by betablocker » Fri Sep 28, 2018 8:05 pm

Those who have been on the board for a while know that there are plenty of examples where trend following works and that cross sectional momentum (as opposed to trend) has been called the premier anomaly.

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by dratkinson » Sat Sep 29, 2018 10:06 am

Larry Swedroe (recommended author) wrote a book entitled "The Quest for Alpha", in which he lists the multiple long-term failings of active management to produce excess return (alpha) against the market. Hard to believe he intentionally omitted a method that is guaranteed to produce a long-term win.


The EMH (efficient market hypothesis) says that any method that does produce a win, will be adopted by so many that its advantage will be arbitraged away. Success breeds defeat.

So if you develop a new method that works today, it will stop working tomorrow as more people learn/adopt it. (Don't share your new method with anyone, if you want it to keep producing alpha.)

On the other hand, if you found a published method, then it's not new. You didn't buy a book did you? Can you get your money back? :)



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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by willthrill81 » Sat Sep 29, 2018 10:20 am

dratkinson wrote:
Sat Sep 29, 2018 10:06 am
Larry Swedroe (recommended author) wrote a book entitled "The Quest for Alpha", in which he lists the multiple long-term failings of active management to produce excess return (alpha) against the market. Hard to believe he intentionally omitted a method that is guaranteed to produce a long-term win.
Larry Swedroe has actually come around to trend following (i.e. momentum) as this article discusses.
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tadamsmar
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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by tadamsmar » Sat Sep 29, 2018 10:36 am

Dink2018 wrote:
Thu Sep 27, 2018 12:20 am
Why not simply buy an index (like S&P500) when the 12 month moving average is flat or going up, and sell when it is going down. I don't believe I can predict the future at all, but I know for sure I can tell which way a line is going on a graph over a period of time. The key distinction here is that I want to react based on what HAPPENED, not what someone else or myself THINKS might happen. The past is very easy to see and quite easy to quantify, the future not so much.
There is no such distinction, you are wanting to react based on what you think might happen. Specifically, you think the trend might continue. Also, if the future can be reliably predicted this way, then it is not hard to quantify, it's quite as easy to quantify as the trailing trend.

Also don't you think that lots of things might happen? You want to react to only one of the things that you think might happen.

I don't see that your logic makes sense.

There are people who seek to make money on trends, I am not sure that any money is left to make.

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by Waba » Sat Sep 29, 2018 12:48 pm

AlphaArchitects has covered strategies like this in-depth for some time, see e.g. https://alphaarchitect.com/2018/02/08/t ... -evidence/

I also find http://www.mojena.com/ interesting, it essentially tries to do what OP describes but their model has evolved over the years to be a bit more complicated. The fascinating thing is that during Q1 of 2018 their indicators switched to sell, the market on the other hand has gone up (the model is about 10% behind a 100% buy&hold portfolio). So now the question is whether the model is right and the market will eventually follow it down, or whether the model was wrong on this one and at what point it will capitulate and how much it will have lost compared to buy&hold at that point.

Whatever strategy you follow, I think a really important part is to have sufficient trust in it so that you are actually able to stick to it in difficult times. Every strategy will be challenged at times, you will get guaranteed bad results if you bail on it in the worst of times.

The nice thing about buy&hold is that it is so simple that there is little room for making wrong decissions.

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by Small Law Survivor » Sat Sep 29, 2018 2:03 pm

I think what the OP describes is momentum investing. The period used (here 12 months) is variable - often it is less than 12 months. This strategy is much-described and analyzed, and seems to have many adherents.



averagedude
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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by averagedude » Thu Nov 15, 2018 10:58 am

I believe that the overwhelming majority of individual investors that use trend following will have lower long term returns. Not to mention more headache, time, and worry. To me it makes no sense if you are a young investor and dont need to withdraw for decades. Although i dont recommend it, investors near retirement or in retirement it may make some sense, but i still think it is better for them to have an asset allocation that they have the capacity and tolerance to handle a large stock decline.

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by willthrill81 » Thu Nov 15, 2018 11:29 am

averagedude wrote:
Thu Nov 15, 2018 10:58 am
I believe that the overwhelming majority of individual investors that use trend following will have lower long term returns.
On what basis have you formed this belief?
“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: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by averagedude » Thu Nov 15, 2018 12:31 pm

willthrill81 wrote:
Thu Nov 15, 2018 11:29 am
averagedude wrote:
Thu Nov 15, 2018 10:58 am
I believe that the overwhelming majority of individual investors that use trend following will have lower long term returns.
On what basis have you formed this belief?
I guess i have formed this belief from reading academic studies and from reading opinions of people smarter than me, some who have won noble prizes. I do sometimes render things from what i read as fact when i shouldnt. Im talking about individual investors. A few can do it, but we both know how alot of individual investors emotions get the best of them. As a group, individual investors are way more likely to sell at market bottoms and buy at market tops than institutional investors. Even Paul Merriman has someone else manage his market timing portfolio because he thinks his emotions will get in the way. This is someone that has probably spent more than 40000 hours following the market. Most induvidual investors follow the market less than 15 minutes a day.

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by willthrill81 » Thu Nov 15, 2018 12:46 pm

averagedude wrote:
Thu Nov 15, 2018 12:31 pm
willthrill81 wrote:
Thu Nov 15, 2018 11:29 am
averagedude wrote:
Thu Nov 15, 2018 10:58 am
I believe that the overwhelming majority of individual investors that use trend following will have lower long term returns.
On what basis have you formed this belief?
I guess i have formed this belief from reading academic studies and from reading opinions of people smarter than me, some who have won noble prizes. I do sometimes render things from what i read as fact when i shouldnt. Im talking about individual investors. A few can do it, but we both know how alot of individual investors emotions get the best of them. As a group, individual investors are way more likely to sell at market bottoms and buy at market tops than institutional investors. Even Paul Merriman has someone else manage his market timing portfolio because he thinks his emotions will get in the way. This is someone that has probably spent more than 40000 hours following the market. Most induvidual investors follow the market less than 15 minutes a day.
There's a big distinction between the kind of market timing that many, perhaps most, individual investors practice and a rules-based, objective trend following system. Evidence is clear that over long-term periods of the past, even simple systems like the 200 day moving average would have yielded returns at least equal to that of buy-and-hold but with less downside volatility. Merriman has his son-in-law implement his trend following system because he just doesn't want to deal with it any more. I don't recall him ever saying that it was because he was afraid of his own emotions.

It's true that if you abandon your strategy mid-stream, there can be negative consequences. This is also true of buy-and-hold, where panic selling in a market downturn can really bite you in the aft end.

And while I'm a trend follower, I don't have to follow the markets often at all to implement it. It takes me fewer than two minutes once per month to determine whether any trades are needed and, if so, which.
“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: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by protagonist » Thu Nov 15, 2018 4:40 pm

Think about the amount of time and energy you will spend timing the market, and what more fun things you could be doing with your time.
Then ask yourself: "Do I really think I will make more money this way without assuming more risk? And if I do assume more risk, is it worth it to me?"

If you are convinced the answers to those questions are yes and yes, then go ahead. I'm not convinced so I would answer "probab;y not" and "no". I would rather make the rest of my life more interesting and fulfilling , even if my investing life is more boring. Plus if I did use this strategy, spent all that extra time and energy when I could have been doing something else fun or useful, and still underperformed after 10 or 20 years, I would feel like an idiot. I'd rather take my chances with index funds, reading other things daily rather than the WSJ, and let the chips fall as they may.

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by Valuethinker » Fri Nov 16, 2018 5:05 am

Small Law Survivor wrote:
Sat Sep 29, 2018 2:03 pm
I think what the OP describes is momentum investing. The period used (here 12 months) is variable - often it is less than 12 months. This strategy is much-described and analyzed, and seems to have many adherents.
It will work until it does not.

The contribution of the FAANGs + Microsoft to US market performance since 2013 is phenomenal and leads towards momentum oriented investing. This has been a tech, and in particular US business to consumer internet, led rally.

My guess is that the next bear market, when it comes, will feature the Momentum factor just blowing up. There's too many funds, and too many technical factors, that are supporting it right now.

Some issue whether the proliferation of ETFs makes it worse.

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by JustinR » Fri Nov 16, 2018 6:10 am

What part of "you can't time the market" do people not get?

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by rkhusky » Fri Nov 16, 2018 7:46 am

bertilak wrote:
Thu Sep 27, 2018 8:36 am
Driving a car by what you can see in the rear-view mirror is quite dangerous.
Great analogy!

Active investing is more game theory than physics. Simple formulas for predicting the future of stocks don't work when there are intelligent opponents that have orders of magnitude more computing power and faster communication channels than you do, as well as teams of PhD's in game theory and machine learning.

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Re: Why don't I read about this strategy more? [12-month moving average, momentum]

Post by LadyGeek » Fri Nov 16, 2018 9:27 am

I retitled the thread for clarity. Thanks to several members who reported the post to help, I combined them. :)
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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by onourway » Fri Nov 16, 2018 10:00 am

willthrill81 wrote:
Thu Nov 15, 2018 12:46 pm
There's a big distinction between the kind of market timing that many, perhaps most, individual investors practice and a rules-based, objective trend following system. Evidence is clear that over long-term periods of the past, even simple systems like the 200 day moving average would have yielded returns at least equal to that of buy-and-hold but with less downside volatility. Merriman has his son-in-law implement his trend following system because he just doesn't want to deal with it any more. I don't recall him ever saying that it was because he was afraid of his own emotions.

It's true that if you abandon your strategy mid-stream, there can be negative consequences. This is also true of buy-and-hold, where panic selling in a market downturn can really bite you in the aft end.

And while I'm a trend follower, I don't have to follow the markets often at all to implement it. It takes me fewer than two minutes once per month to determine whether any trades are needed and, if so, which.
Where are the funds that have utilized this method and been successful over the long term? Given that this method has been discussed for decades, if it were successful, we should be hearing lots about it. So where has this method been successful with real money not simply back-testing?

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by willthrill81 » Fri Nov 16, 2018 10:42 am

onourway wrote:
Fri Nov 16, 2018 10:00 am
willthrill81 wrote:
Thu Nov 15, 2018 12:46 pm
There's a big distinction between the kind of market timing that many, perhaps most, individual investors practice and a rules-based, objective trend following system. Evidence is clear that over long-term periods of the past, even simple systems like the 200 day moving average would have yielded returns at least equal to that of buy-and-hold but with less downside volatility. Merriman has his son-in-law implement his trend following system because he just doesn't want to deal with it any more. I don't recall him ever saying that it was because he was afraid of his own emotions.

It's true that if you abandon your strategy mid-stream, there can be negative consequences. This is also true of buy-and-hold, where panic selling in a market downturn can really bite you in the aft end.

And while I'm a trend follower, I don't have to follow the markets often at all to implement it. It takes me fewer than two minutes once per month to determine whether any trades are needed and, if so, which.
Where are the funds that have utilized this method and been successful over the long term? Given that this method has been discussed for decades, if it were successful, we should be hearing lots about it. So where has this method been successful with real money not simply back-testing?
Your question presupposes that for every good strategy, there must be a fun that has been "successful over the long-term." I would remind you that few mutual funds or ETFs have been around for anything that can be considered "long-term."

Paul Merriman, for one, has achieved market returns with lower than market risk since the early 1980s by trend following.

The 'problem' with trend following is that has gone through long periods of underperforming the market (e.g. most of the 1990s). It is difficult for most investors to stick with this strategy during such periods. OTOH, it is difficult for many investors to buy-and-hold through a 50% market decline as well.
“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: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by onourway » Fri Nov 16, 2018 4:35 pm

willthrill81 wrote:
Fri Nov 16, 2018 10:42 am
Your question presupposes that for every good strategy, there must be a fun that has been "successful over the long-term." I would remind you that few mutual funds or ETFs have been around for anything that can be considered "long-term."
Well, yeah, it’s hard to believe that such an easy to follow strategy that has been well known for decades doesn’t have a single successful fund that uses that model. If a manager could get market returns with significantly lower risk, they would become exceptionally wealthy running it. That nobody has done this would seriously give me pause about putting my own money on the line.

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Re: Why don't I read about this strategy more? [12-month moving average, momentum]

Post by steve roy » Fri Nov 16, 2018 4:56 pm

A Fidelity study pinpointed who among us are the most successful investors. ...
O'Shaughnessy: "Fidelity had done a study as to which accounts had done the best at Fidelity. And what they found was..."

Ritholtz: "They were dead."

O'Shaughnessy: "...No, that's close though! They were the accounts of people who forgot they had an account at Fidelity."
If this isn't an endorsement for "buy and hold", I'll eat my Target Date Fund.

https://www.businessinsider.com/forgetf ... est-2014-9

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by willthrill81 » Fri Nov 16, 2018 5:53 pm

onourway wrote:
Fri Nov 16, 2018 4:35 pm
willthrill81 wrote:
Fri Nov 16, 2018 10:42 am
Your question presupposes that for every good strategy, there must be a fun that has been "successful over the long-term." I would remind you that few mutual funds or ETFs have been around for anything that can be considered "long-term."
Well, yeah, it’s hard to believe that such an easy to follow strategy that has been well known for decades doesn’t have a single successful fund that uses that model. If a manager could get market returns with significantly lower risk, they would become exceptionally wealthy running it. That nobody has done this would seriously give me pause about putting my own money on the line.
Most of the serious analysis of the majority of trend following models has concluded that they are unlikely to generate higher returns than the market. The object of the strategy should not be to outperform the market but to at least some of the downside risk. A trend following strategy can underperform the market for a long time, a decade or more. It's very difficult for many investors to stick with what appears to be a losing strategy for that long, and, in turn, this makes it impractical for a fund. Most active investors, those potentially willing to invest in such a fund, are not willing to tolerate a decade of underperformance of the market.
“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: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by tadamsmar » Sun Nov 18, 2018 8:06 am

willthrill81 wrote:
Fri Nov 16, 2018 5:53 pm
It's very difficult for many investors to stick with what appears to be a losing strategy for that long, and, in turn, this makes it impractical for a fund. Most active investors, those potentially willing to invest in such a fund, are not willing to tolerate a decade of underperformance of the market.
Aren't individual funds typically owned by companies that have lots of funds? I think some companies probably adopt an orthogonal or negative correlation strategy to try to get some funds in the top ten. That will lead to some loser funds, but perhaps overall make more money for the company.

If a company has a few funds then it's probably not that hard to have one fund that outperforms the sp500 by using an orthogonal or negative correlation strategy and then, of course, implying the fund manager has some secret strategy to beat the market.

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Re: Why don't I read about this strategy more? [12-month moving average, momentum]

Post by anoop » Sat Dec 01, 2018 12:51 am

Just had a whipsaw if someone is following this portfolio.

Sold on the first trading day following 10/31 and buy back in following 11/30.
https://www.advisorperspectives.com/dsh ... end-update

Demonstrates how one loses some gain. I guess that is the price of insurance.

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Re: Why don't I read about this strategy more? [12-month moving average, momentum]

Post by willthrill81 » Sat Dec 01, 2018 1:16 am

anoop wrote:
Sat Dec 01, 2018 12:51 am
Just had a whipsaw if someone is following this portfolio.

Sold on the first trading day following 10/31 and buy back in following 11/30.
https://www.advisorperspectives.com/dsh ... end-update

Demonstrates how one loses some gain. I guess that is the price of insurance.
That's why I'm not a huge fan of a simple moving average strategy; they trade too often and experience too many whipsaws for my taste. They have certainly been effective, but I don't like that bug. That's why I employ a two-signal strategy; I only move out of stocks if both signals indicate for me to do so.
“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: Why don't I read about this strategy more? [12-month moving average, momentum]

Post by anoop » Sat Dec 01, 2018 2:13 am

willthrill81 wrote:
Sat Dec 01, 2018 1:16 am
That's why I'm not a huge fan of a simple moving average strategy; they trade too often and experience too many whipsaws for my taste. They have certainly been effective, but I don't like that bug. That's why I employ a two-signal strategy; I only move out of stocks if both signals indicate for me to do so.
What are the two signals you use?

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Re: Why don't I read about this strategy more? [12-month moving average, momentum]

Post by willthrill81 » Sat Dec 01, 2018 12:50 pm

anoop wrote:
Sat Dec 01, 2018 2:13 am
willthrill81 wrote:
Sat Dec 01, 2018 1:16 am
That's why I'm not a huge fan of a simple moving average strategy; they trade too often and experience too many whipsaws for my taste. They have certainly been effective, but I don't like that bug. That's why I employ a two-signal strategy; I only move out of stocks if both signals indicate for me to do so.
What are the two signals you use?
The 12 month unemployment rate and the 7 month moving average of equities.
“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: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by Valuethinker » Sat Dec 01, 2018 12:58 pm

tadamsmar wrote:
Sun Nov 18, 2018 8:06 am
willthrill81 wrote:
Fri Nov 16, 2018 5:53 pm
It's very difficult for many investors to stick with what appears to be a losing strategy for that long, and, in turn, this makes it impractical for a fund. Most active investors, those potentially willing to invest in such a fund, are not willing to tolerate a decade of underperformance of the market.
Aren't individual funds typically owned by companies that have lots of funds? I think some companies probably adopt an orthogonal or negative correlation strategy to try to get some funds in the top ten. That will lead to some loser funds, but perhaps overall make more money for the company.

If a company has a few funds then it's probably not that hard to have one fund that outperforms the sp500 by using an orthogonal or negative correlation strategy and then, of course, implying the fund manager has some secret strategy to beat the market.
You are astute.

In not so many words the marketing directors of asset management businesses insist that the firm offer a wide range of funds addressing different strategies.

The firm then promotes the funds that are doing well with financial advisers (UK is an adviser led market).

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by brentflog » Sat Dec 01, 2018 5:45 pm

dratkinson wrote:
Sat Sep 29, 2018 10:06 am
Larry Swedroe (recommended author) wrote a book entitled "The Quest for Alpha", in which he lists the multiple long-term failings of active management to produce excess return (alpha) against the market. Hard to believe he intentionally omitted a method that is guaranteed to produce a long-term win.


The EMH (efficient market hypothesis) says that any method that does produce a win, will be adopted by so many that its advantage will be arbitraged away. Success breeds defeat.

So if you develop a new method that works today, it will stop working tomorrow as more people learn/adopt it. (Don't share your new method with anyone, if you want it to keep producing alpha.)

On the other hand, if you found a published method, then it's not new. You didn't buy a book did you? Can you get your money back? :)



Welcome.
These trend following strategies referenced in this thread are more of asset allocation strategies.

Code: Select all

[code][code][code]All Asset allocation is active management.

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Re: Why don't I read about this strategy more? It seems reasonable and pretty straight forward.

Post by willthrill81 » Sat Dec 01, 2018 7:01 pm

dratkinson wrote:
Sat Sep 29, 2018 10:06 am
The EMH (efficient market hypothesis) says that any method that does produce a win, will be adopted by so many that its advantage will be arbitraged away.
Funny, I thought it said this:

"The efficient-market hypothesis (EMH) is a theory in financial economics that states that asset prices fully reflect all available information."
https://en.wikipedia.org/wiki/Efficient ... hypothesis

What you say might be an implication of the EMH, but that's not the same thing.
“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: Why don't I read about this strategy more? [12-month moving average, momentum]

Post by brentflog » Sat Dec 01, 2018 9:44 pm

willthrill81 wrote:
Sat Dec 01, 2018 12:50 pm
anoop wrote:
Sat Dec 01, 2018 2:13 am
willthrill81 wrote:
Sat Dec 01, 2018 1:16 am
That's why I'm not a huge fan of a simple moving average strategy; they trade too often and experience too many whipsaws for my taste. They have certainly been effective, but I don't like that bug. That's why I employ a two-signal strategy; I only move out of stocks if both signals indicate for me to do so.
What are the two signals you use?
The 12 month unemployment rate and the 7 month moving average of equities.
Are you measuring the trend of the unemployment rate like philosophical econimics suggest or doing something different?

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Re: Why don't I read about this strategy more? [12-month moving average, momentum]

Post by willthrill81 » Sat Dec 01, 2018 9:55 pm

brentflog wrote:
Sat Dec 01, 2018 9:44 pm
willthrill81 wrote:
Sat Dec 01, 2018 12:50 pm
anoop wrote:
Sat Dec 01, 2018 2:13 am
willthrill81 wrote:
Sat Dec 01, 2018 1:16 am
That's why I'm not a huge fan of a simple moving average strategy; they trade too often and experience too many whipsaws for my taste. They have certainly been effective, but I don't like that bug. That's why I employ a two-signal strategy; I only move out of stocks if both signals indicate for me to do so.
What are the two signals you use?
The 12 month unemployment rate and the 7 month moving average of equities.
Are you measuring the trend of the unemployment rate like philosophical econimics suggest or doing something different?
Yes to the former.
“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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