My trend following strategy and experience

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 »

tadamsmar wrote: Sat Mar 02, 2019 10:20 pmDrawdowns tend to be harmless if you don't sell out.
Tell that to Japanese stock investors or year 2000 retirees.
“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: My trend following strategy and experience

Post by HomerJ »

tadamsmar wrote: Sat Mar 02, 2019 9:44 pm
willthrill81 wrote: Sat Mar 02, 2019 11:06 am It's akin to paying for an insurance policy: you keep paying the premiums as long as you want coverage, and you might never make a claim. But if you never do, that doesn't necessarily mean that carrying the insurance was a poor strategic move because you didn't know that you wouldn't need to make a claim.
You say you are paying premiums on an insurance policy, but you don't say here what you are insuring against. Based on the OP, you seem to be insuring against the risk that you will sell out after stocks drop precipitously (as they did, for instance, on October 19, 1987). It that what you are insuring against? Have you back-tested to determine if this insurer is reliable about paying all these claims that you will need to make? The typical trend-follower will need to make a number of claims over their approximately 60-year investment life.
This is a good question. Someone as aware as you are willthrill81 should be able to hold through a decline without panic selling.

So what exactly are you defending against?
willthrill81 wrote: Sat Mar 02, 2019 10:25 pm
tadamsmar wrote: Sat Mar 02, 2019 10:20 pmDrawdowns tend to be harmless if you don't sell out.
Tell that to Japanese stock investors or year 2000 retirees.
Ah you answered... So how is your method better than just 50/50 which also defends against a possible long-term loss?
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Re: My trend following strategy and experience

Post by tadamsmar »

willthrill81 wrote: Sat Mar 02, 2019 10:25 pm
tadamsmar wrote: Sat Mar 02, 2019 10:20 pmDrawdowns tend to be harmless if you don't sell out.
Tell that to Japanese stock investors or year 2000 retirees.
I think Boglehead investing is robust for year 2000 retirees. Do you have evidence to the contrary?

What does "Japanese stock investor" mean? Does it mean a citizen of Japan who invested globally? I would be one of those if I was Japanese.
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Re: My trend following strategy and experience

Post by tadamsmar »

Would your insurer have paid that claim back on October 19, 1987? I figure a trend-follower can expect approximately two of those in an investing lifetime.
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Re: My trend following strategy and experience

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HomerJ wrote: Sat Mar 02, 2019 10:31 pm
willthrill81 wrote: Sat Mar 02, 2019 10:25 pm
tadamsmar wrote: Sat Mar 02, 2019 10:20 pmDrawdowns tend to be harmless if you don't sell out.
Tell that to Japanese stock investors or year 2000 retirees.
Ah you answered... So how is your method better than just 50/50 which also defends against a possible long-term loss?
There's nothing special about 50/50. The 50% in stock can go nowhere for decades like Japanese stock has. And their bonds are paying essentially nothing.
“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: My trend following strategy and experience

Post by willthrill81 »

tadamsmar wrote: Sat Mar 02, 2019 10:35 pm
willthrill81 wrote: Sat Mar 02, 2019 10:25 pm
tadamsmar wrote: Sat Mar 02, 2019 10:20 pmDrawdowns tend to be harmless if you don't sell out.
Tell that to Japanese stock investors or year 2000 retirees.
I think Boglehead investing is robust for year 2000 retirees. Do you have evidence to the contrary?
Things did turn out alright for these retirees IF they didn't panic in 2008, and when you read the threads from back then, there were a lot of Bogleheads who were very antsy, and I have no doubt that many bailed out and simply didn't report that they did. And what if the recovery from 2008-2009 had taken a decade or more, as many thought that it would have? Retirees can't afford to wait forever for a market to recover.

I'm not saying that I believe that I would panic, nor that Great Depression Part 2.0 is coming, but I believe that both of those are possibilities, and the mere knowledge that I have some kind of downside protection would help me to stay the course with this very long-biased strategy.
tadamsmar wrote: Sat Mar 02, 2019 10:35 pmWhat does "Japanese stock investor" mean?
Investors whose AA was heavily tilted toward Japanese stocks.
“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: My trend following strategy and experience

Post by tadamsmar »

Panic selling is a danger for both trend-followers and Boglehead investors who can't stick with the program.

Would your method have protected a panic-prone trend-follower on October 19, 1987? I figure a trend-follower can expect approximately two of those in an investing lifetime.

Is this method really better for panic-prone investors? Does it really provide the insurance for drawdowns that these investors need?

Trend following might be a basis for a sound retirement plan. Bogleheads know that a sound retirement plan need not insure that that downdraws never happen.

However, there seems to be irrefutable evidence that trend following does not insure that downdraws never happen. So, thread following is not the right plan for someone who is in danger of abandoning the plan during downdraws.

Conservative Boglehead-based retirement plan that limits downdraws based on the historical worst case would be a good fit for the panic-prone investor. Or a very conservative plan that involves owning little or no stock.
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Re: My trend following strategy and experience

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willthrill81 wrote: Sat Mar 02, 2019 10:51 pm
tadamsmar wrote: Sat Mar 02, 2019 10:35 pmWhat does "Japanese stock investor" mean?
Investors whose AA was heavily tilted toward Japanese stocks.
Not sure that is an argument against Boglehead investing since it seems to involve a lack of diversification.

Would trend-following work for someone who insisted on being heavily tilted toward Japanese stocks?
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Re: My trend following strategy and experience

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Japan capitalism and USA capitalism are very different. Also in this age the companies are mire global than ever. If you are well diversified with a three fund portfolio, you will do well, like operating a fan in the room, without understanding the electricals behind the fan mechanism.
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Re: My trend following strategy and experience

Post by BlueEars »

First, I think it is important to keep an open mind on this stuff. If investing is seen as a religion, there is no point in discussing different methods.

If we take the Oct 19 1987 panic sell event, Will's method would default to a buy-hold approach as unemployment was not going up then or even a year afterwards.

I think Will's method is good for picking out sustained periods of decline brought about by business cycle events. It won't trigger in a sudden investor panic nor in a sudden geopolitical event.

For a geopolitical event we can look at the 1998 when on the heals of the late 1997 Asian Financial crisis there was a Russian debt default in August 1998, see: https://en.wikipedia.org/wiki/1998_Russ ... ial_crisis . In July 1998 the previous 7 months return was 16% for the SP500. Then in August it went down -12%. It turns out the unemployment rate briefly ticked up in Sept 1998 (unemployment rate - 12 month average = .04) and then went back to declining in Oct 1998. Would that have triggered Will's sell in Oct 1998? Not sure as I don't his 7 MMA + unemployment method modeled in a spreadsheet. It it triggered a sell, there would be a nasty whipsaw. So as an aside, I'd avoid very hair triggered numbers and require a more solid move into that unemployment territory.

Business cycle events that bring about a rise in unemployment and equity declines are where Will's trend following approach would probably work well. These include recessionary periods like 1969, 1973-74, 1982, 2001-2002, 2008-2009.

One could imagine sustained periods where no method of investing in equities would work. Some I have thought of are (1) after an economic collapse where volatility is more then we have seen in post WW2 investing (like 1933) and recovery takes decades, (2) a sudden panic sell is followed by a Depression caused by other world events and which keeps stocks down for decades. That is probably where bonds would do better but then could we get terrible inflation as a result of bad political moves which could be very bad for bonds? Nightmare scenarios for any investor. :?
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Re: My trend following strategy and experience

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BlueEars wrote: Sun Mar 03, 2019 10:44 am First, I think it is important to keep an open mind on this stuff. If investing is seen as a religion, there is no point in discussing different methods.

If we take the Oct 19 1987 panic sell event, Will's method would default to a buy-hold approach as unemployment was not going up then or even a year afterwards.

I think Will's method is good for picking out sustained periods of decline brought about by business cycle events. It won't trigger in a sudden investor panic nor in a sudden geopolitical event.

For a geopolitical event we can look at the 1998 when on the heals of the late 1997 Asian Financial crisis there was a Russian debt default in August 1998, see: https://en.wikipedia.org/wiki/1998_Russ ... ial_crisis . In July 1998 the previous 7 months return was 16% for the SP500. Then in August it went down -12%. It turns out the unemployment rate briefly ticked up in Sept 1998 (unemployment rate - 12 month average = .04) and then went back to declining in Oct 1998. Would that have triggered Will's sell in Oct 1998? Not sure as I don't his 7 MMA + unemployment method modeled in a spreadsheet. It it triggered a sell, there would be a nasty whipsaw. So as an aside, I'd avoid very hair triggered numbers and require a more solid move into that unemployment territory.

Business cycle events that bring about a rise in unemployment and equity declines are where Will's trend following approach would probably work well. These include recessionary periods like 1969, 1973-74, 1982, 2001-2002, 2008-2009.

One could imagine sustained periods where no method of investing in equities would work. Some I have thought of are (1) after an economic collapse where volatility is more then we have seen in post WW2 investing (like 1933) and recovery takes decades, (2) a sudden panic sell is followed by a Depression caused by other world events and which keeps stocks down for decades. That is probably where bonds would do better but then could we get terrible inflation as a result of bad political moves which could be very bad for bonds? Nightmare scenarios for any investor. :?
Just rerun 1968 to 1980. Or 1929 to 1939.

Holding equities in those periods just hurt. Lots of volatility on the way but they were just bad periods for equity investing.

The UK stock market's over 80 per cent real drop 1973 to 1975 was an impressive demonstration of how bad things can get.
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Re: My trend following strategy and experience

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Valuethinker wrote: Sun Mar 03, 2019 11:30 amThe UK stock market's over 80 per cent real drop 1973 to 1975 was an impressive demonstration of how bad things can get.
I'm not at all convinced that I could hold on to equities through an 88% drawdown (I believe that was the max drawdown in the Great Depression). Frankly, I'm really not sure how many here could. Seeing your equities get cut in half (i.e. 2008) is one thing. Seeing them cut by 88% is a different matter entirely.
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Re: My trend following strategy and experience

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willthrill81 wrote: Sun Mar 03, 2019 11:33 am
Valuethinker wrote: Sun Mar 03, 2019 11:30 amThe UK stock market's over 80 per cent real drop 1973 to 1975 was an impressive demonstration of how bad things can get.
I'm not at all convinced that I could hold on to equities through an 88% drawdown (I believe that was the max drawdown in the Great Depression). Frankly, I'm really not sure how many here could. Seeing your equities get cut in half (i.e. 2008) is one thing. Seeing them cut by 88% is a different matter entirely.
I agree. If one creates a chart and overlays the 2008-2009 decline on the 1929-1930's decline, they followed similar paths for some months. But we had a much shorter period before the market turned up in March 2009 whereas in the 1930's it continued down, and down, and down for around 15 more months. A slow drip disaster.

The 1973-1974 SP500 returns were pretty terrible too for buy-hold. Bonds weren't a panacea in the 1970's. It would be interesting to see those UK monthly returns overlayed on our SP500 ones. I imagine the UK had special economic and political issues that were not present in the US. How would the 7MMA + unemployment trend following have worked for the UK?
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Re: My trend following strategy and experience

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BlueEars wrote: Sun Mar 03, 2019 11:48 amThe 1973-1974 SP500 returns were pretty terrible too for buy-hold. Bonds weren't a panacea in the 1970's. It would be interesting to see those UK monthly returns overlayed on our SP500 ones. I imagine the UK had special economic and political issues that were not present in the US. How would the 7MMA + unemployment trend following have worked for the UK?
I don't know specifically, but the Philosophical Economist addressed the broader issue of using this strategy with regard to foreign equities.
If we use U.S. economic data as a filter to time foreign securities, the performance turns out to be excellent. But if we use economic data from the foreign countries themselves, then the strategy ends up underperforming a simple unfiltered trend-following strategy. Among other things, this tells us something that we could probably have already deduced from observation: the health of our economy and our equity markets is more relevant to the performance of foreign equity markets than the health of their own economies. This is especially true with respect to large downward moves–the well-known global “crises” that drag all markets down in unison, and that make trend-following a historically profitable strategy.
emphasis in original
https://www.philosophicaleconomics.com/2016/02/uetrend/
“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: My trend following strategy and experience

Post by marcopolo »

BlueEars wrote: Sun Mar 03, 2019 11:48 am
willthrill81 wrote: Sun Mar 03, 2019 11:33 am
Valuethinker wrote: Sun Mar 03, 2019 11:30 amThe UK stock market's over 80 per cent real drop 1973 to 1975 was an impressive demonstration of how bad things can get.
I'm not at all convinced that I could hold on to equities through an 88% drawdown (I believe that was the max drawdown in the Great Depression). Frankly, I'm really not sure how many here could. Seeing your equities get cut in half (i.e. 2008) is one thing. Seeing them cut by 88% is a different matter entirely.
I agree. If one creates a chart and overlays the 2008-2009 decline on the 1929-1930's decline, they followed similar paths for some months. But we had a much shorter period before the market turned up in March 2009 whereas in the 1930's it continued down, and down, and down for around 15 more months. A slow drip disaster.

The 1973-1974 SP500 returns were pretty terrible too for buy-hold. Bonds weren't a panacea in the 1970's. It would be interesting to see those UK monthly returns overlayed on our SP500 ones. I imagine the UK had special economic and political issues that were not present in the US. How would the 7MMA + unemployment trend following have worked for the UK?
I was not in the market in the 70s, but i wonder if the investor psychology is different when the real losses are more dominated by inflation.
Is it harder to stay invested when your nominal investment drop 80% over a few years with no inflation, or when your nominal investment drops 20%, but there is 60% inflation over that same time frame?
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Re: My trend following strategy and experience

Post by BlueEars »

marcopolo wrote: Sun Mar 03, 2019 12:02 pm
BlueEars wrote: Sun Mar 03, 2019 11:48 am
willthrill81 wrote: Sun Mar 03, 2019 11:33 am
Valuethinker wrote: Sun Mar 03, 2019 11:30 amThe UK stock market's over 80 per cent real drop 1973 to 1975 was an impressive demonstration of how bad things can get.
I'm not at all convinced that I could hold on to equities through an 88% drawdown (I believe that was the max drawdown in the Great Depression). Frankly, I'm really not sure how many here could. Seeing your equities get cut in half (i.e. 2008) is one thing. Seeing them cut by 88% is a different matter entirely.
I agree. If one creates a chart and overlays the 2008-2009 decline on the 1929-1930's decline, they followed similar paths for some months. But we had a much shorter period before the market turned up in March 2009 whereas in the 1930's it continued down, and down, and down for around 15 more months. A slow drip disaster.

The 1973-1974 SP500 returns were pretty terrible too for buy-hold. Bonds weren't a panacea in the 1970's. It would be interesting to see those UK monthly returns overlayed on our SP500 ones. I imagine the UK had special economic and political issues that were not present in the US. How would the 7MMA + unemployment trend following have worked for the UK?
I was not in the market in the 70s, but i wonder if the investor psychology is different when the real losses are more dominated by inflation.
Is it harder to stay invested when your nominal investment drop 80% over a few years with no inflation, or when your nominal investment drops 20%, but there is 60% inflation over that same time frame?
I checked an inflation calculator and the 1970's inflation totaled 113% i.e. you would need $2.13 in 1980 to purchase what $1 purchased in 1970. I was around in the 1970's and I don't think inflation fooled any educated people. The answer back then was real estate which could be leveraged and take advantage of inflation. We bought our house in 1974 and that helped with the overall net worth (happened to live in Silicon Valley too). If you run VPW you will see that the stock/bond mix wasn't really favorable to either asset in the 1970's.
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Re: My trend following strategy and experience

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willthrill81 wrote: Sun Mar 03, 2019 11:33 am
Valuethinker wrote: Sun Mar 03, 2019 11:30 amThe UK stock market's over 80 per cent real drop 1973 to 1975 was an impressive demonstration of how bad things can get.
I'm not at all convinced that I could hold on to equities through an 88% drawdown (I believe that was the max drawdown in the Great Depression). Frankly, I'm really not sure how many here could. Seeing your equities get cut in half (i.e. 2008) is one thing. Seeing them cut by 88% is a different matter entirely.
Which is why 50/50 works. You only lose 44% in the scenario above. Which is less than the 100% stocks person experienced in 2008. You are a 100% stocks person who wants to get out before the big drop. But a 50/50 person can handle the big drop. Only 25% in the last great financial crisis. Only 44% even in the Great Depression.

Look, I mentioned earlier in the thread that you must have some regret about selling low in January, and now buying high in March, and you pointed out I must have some regret about being 50% in bonds for the past 7 years or so.

Touche` :)

BUT... And this is just me... I like 50/50 because I never regret my total choice. Sure 50% in bonds, looking back, only did okay... But I had 50% in stocks that did great, so I still feel good.

And when the market was crashing last fall, I felt pretty good about my 50% in bonds, even though my 50% in stocks was doing poorly.

You, on the other hand, are going all in with your bets. You either feel 100% right, or 100% wrong. Now, I know you're smart enough to understand your system in it's entirety and you are looking at the big picture. So you know your system is designed to see whipsaws now and then, and missed gains now and then. So I know you have no regrets.

But it just seems like a much harder system to me. You didn't miss any of the downside from this last correction, and you missed most of the upside. There's nothing to feel good about.

At this time.

Again, I get it. Big picture.

But, at this moment in time, there's nothing to feel good about your system. That's harder to stick to, for most people.

With my 50/50, I'm never 100% wrong. I'm never 100% right either. But so far, I feel pretty good all the time, because either stocks are going up, and I'm getting some of that, or stocks are going down, and my bonds are there making me feel smart and protected.
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Re: My trend following strategy and experience

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HomerJ wrote: Sun Mar 03, 2019 12:18 pm
willthrill81 wrote: Sun Mar 03, 2019 11:33 am
Valuethinker wrote: Sun Mar 03, 2019 11:30 amThe UK stock market's over 80 per cent real drop 1973 to 1975 was an impressive demonstration of how bad things can get.
I'm not at all convinced that I could hold on to equities through an 88% drawdown (I believe that was the max drawdown in the Great Depression). Frankly, I'm really not sure how many here could. Seeing your equities get cut in half (i.e. 2008) is one thing. Seeing them cut by 88% is a different matter entirely.
Which is why 50/50 works. You only lose 44% in the scenario above. Which is less than the 100% stocks person experienced in 2008. You are a 100% stocks person who wants to get out before the big drop. But a 50/50 person can handle the big drop. Only 25% in the last great financial crisis. Only 44% even in the Great Depression.
"Only 44%." Funny guy. :wink: Of course, it's worth mentioning that many, probably most, folks with a 50/50 AA hold it because they're expecting that it wouldn't drop by more than about half that (i.e. -25%). I suspect that a 44% drop would spook many of them. Plus, there's no guarantee that bonds would hold up well in Great Depression Part Deux.
HomerJ wrote: Sun Mar 03, 2019 12:18 pmLook, I mentioned earlier in the thread that you must have some regret about selling low in January, and now buying high in March, and you pointed out I must have some regret about being 50% in bonds for the past 7 years or so.

Touche` :)

BUT... And this is just me... I like 50/50 because I never regret my total choice. Sure 50% in bonds, looking back, only did okay... But I had 50% in stocks that did great, so I still feel good.

And when the market was crashing last fall, I felt pretty good about my 50% in bonds, even though my 50% in stocks was doing poorly.

You, on the other hand, are going all in with your bets. You either feel 100% right, or 100% wrong. Now, I know you're smart enough to understand your system in it's entirety and you are looking at the big picture. So you know your system is designed to see whipsaws now and then, and missed gains now and then. So I know you have no regrets.

But it just seems like a much harder system to me. You didn't miss any of the downside from this last correction, and you missed most of the upside. There's nothing to feel good about.

At this time.

Again, I get it. Big picture.

But, at this moment in time, there's nothing to feel good about your system. That's harder to stick to, for most people.

With my 50/50, I'm never 100% wrong. I'm never 100% right either. But so far, I feel pretty good all the time, because either stocks are going up, and I'm getting some of that, or stocks are going down, and my bonds are there making me feel smart and protected.
In some ways, it undoubtedly is a harder system. But in other ways, it is a system that I'm more at ease with (i.e. knowing that I have some level of downside protection, avoid the U.S./international, growth/value, etc. questions).

With regard to the stock/bond issue, I'm comfortable being 100% right most of the time (remember that my strategy is very long-biased) and 100% wrong some of the time. You're comfortable being 50% right and 50% wrong all the time. Many roads to Dublin. :beer
“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: My trend following strategy and experience

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willthrill81 wrote: Sun Mar 03, 2019 12:25 pm
HomerJ wrote: Sun Mar 03, 2019 12:18 pm
willthrill81 wrote: Sun Mar 03, 2019 11:33 am
Valuethinker wrote: Sun Mar 03, 2019 11:30 amThe UK stock market's over 80 per cent real drop 1973 to 1975 was an impressive demonstration of how bad things can get.
I'm not at all convinced that I could hold on to equities through an 88% drawdown (I believe that was the max drawdown in the Great Depression). Frankly, I'm really not sure how many here could. Seeing your equities get cut in half (i.e. 2008) is one thing. Seeing them cut by 88% is a different matter entirely.
Which is why 50/50 works. You only lose 44% in the scenario above. Which is less than the 100% stocks person experienced in 2008. You are a 100% stocks person who wants to get out before the big drop. But a 50/50 person can handle the big drop. Only 25% in the last great financial crisis. Only 44% even in the Great Depression.
"Only 44%." Funny guy. :wink: Of course, it's worth mentioning that many, probably most, folks with a 50/50 AA hold it because they're expecting that it wouldn't drop by more than about half that (i.e. -25%). I suspect that a 44% drop would spook many of them. Plus, there's no guarantee that bonds would hold up well in Great Depression Part Deux.
HomerJ wrote: Sun Mar 03, 2019 12:18 pmLook, I mentioned earlier in the thread that you must have some regret about selling low in January, and now buying high in March, and you pointed out I must have some regret about being 50% in bonds for the past 7 years or so.

Touche` :)

BUT... And this is just me... I like 50/50 because I never regret my total choice. Sure 50% in bonds, looking back, only did okay... But I had 50% in stocks that did great, so I still feel good.

And when the market was crashing last fall, I felt pretty good about my 50% in bonds, even though my 50% in stocks was doing poorly.

You, on the other hand, are going all in with your bets. You either feel 100% right, or 100% wrong. Now, I know you're smart enough to understand your system in it's entirety and you are looking at the big picture. So you know your system is designed to see whipsaws now and then, and missed gains now and then. So I know you have no regrets.

But it just seems like a much harder system to me. You didn't miss any of the downside from this last correction, and you missed most of the upside. There's nothing to feel good about.

At this time.

Again, I get it. Big picture.

But, at this moment in time, there's nothing to feel good about your system. That's harder to stick to, for most people.

With my 50/50, I'm never 100% wrong. I'm never 100% right either. But so far, I feel pretty good all the time, because either stocks are going up, and I'm getting some of that, or stocks are going down, and my bonds are there making me feel smart and protected.
In some ways, it undoubtedly is a harder system. But in other ways, it is a system that I'm more at ease with (i.e. knowing that I have some level of downside protection, avoid the U.S./international, growth/value, etc. questions).

With regard to the stock/bond issue, I'm comfortable being 100% right most of the time (remember that my strategy is very long-biased) and 100% wrong some of the time. You're comfortable being 50% right and 50% wrong all the time. Many roads to Dublin. :beer
+1
These 2 comments are surprisingly refreshing to see here! The key is that there are many roads, and recognizing that, rather than becoming dogmatic. What works for one may not for another! Lately it seems like lots of threads have been very dogmatic, and reading this exchange between HomerJ and WillThrill81 is good to see! Thanks for restoring some of my faith in Bogleheads...
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Re: My trend following strategy and experience

Post by tadamsmar »

willthrill81 wrote: Sun Mar 03, 2019 11:33 am
Valuethinker wrote: Sun Mar 03, 2019 11:30 amThe UK stock market's over 80 per cent real drop 1973 to 1975 was an impressive demonstration of how bad things can get.
I'm not at all convinced that I could hold on to equities through an 88% drawdown (I believe that was the max drawdown in the Great Depression). Frankly, I'm really not sure how many here could. Seeing your equities get cut in half (i.e. 2008) is one thing. Seeing them cut by 88% is a different matter entirely.
This got me to thinking about the 1929 thing.

The typical view is that a Boglehead who retired in September of 1929 who was planning for a 4% SWR would be toast (or at least doing some belt-tightening.)

But, let's look at it. That Boglehead would be saving and planning for more than a decade. His robust plan would assume not more than average growth in the decade before 1929, a robust plan would assume below average growth. But the market grew 5-fold in the 9 years before his projected retirement date. It doubled in the 2.5 years before his retirement date. By his retirement date, his bond holdings of this rebalancer alone would be enough for him to sustain a 4% SWR! He hit the jackpot and the crash would not cause his plan to fail, it would be outrageously successful. (But he would still be fretting about the worst case long-term care cost no doubt :wink: )

Now he might have decided to retire early, that might have been a mistake. But if he had consulted other Bogleheads on this forum, they would probably tell him that he needed extra savings to safely retire in the midst of a bull market because the future growth outlook was bad.
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Re: My trend following strategy and experience

Post by BlueEars »

In 1929 there were no index funds, who heard of rebalancing? People invested in individual stocks and used lots of leverage. That’s what I understand anyway. Actually my grandfather didn’t have the discretionary money to invest in anything.
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Re: My trend following strategy and experience

Post by tadamsmar »

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Last edited by tadamsmar on Sun Mar 03, 2019 4:18 pm, edited 1 time in total.
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Re: My trend following strategy and experience

Post by tadamsmar »

BlueEars wrote: Sun Mar 03, 2019 2:51 pm In 1929 there were no index funds, who heard of rebalancing? People invested in individual stocks and used lots of leverage. That’s what I understand anyway. Actually my grandfather didn’t have the discretionary money to invest in anything.
Just responding to someone else’s hypothetical. There was no law that required leverage. Diversification was possible. One could have rebalanced then and paid tax on the gains. History indicates that some were taking gains in the 1920s to reduce their exposure to the market.

The Efficient Market Hypothesis was 29 years old in 1929 and was living in obscurity in France. It was the brainchild of the guy in the picture on my posts.
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Re: My trend following strategy and experience

Post by tadamsmar »

BlueEars wrote: Sun Mar 03, 2019 2:51 pm In 1929 there were no index funds, who heard of rebalancing? People invested in individual stocks and used lots of leverage. That’s what I understand anyway. Actually my grandfather didn’t have the discretionary money to invest in anything.
Dig this:

http://discuss.morningstar.com/NewSocia ... 16453.aspx

The Wellington fund was founded in 1928, a balanced fund. If people used lots of leverage in 1929 then what species invested in Wellington?

I guess they had to rebalance Wellington. I guess you had to pay cap gains taxes (which equaled income taxes) on that.
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Re: My trend following strategy and experience

Post by Valuethinker »

BlueEars wrote: Sun Mar 03, 2019 2:51 pm In 1929 there were no index funds, who heard of rebalancing? People invested in individual stocks and used lots of leverage. That’s what I understand anyway. Actually my grandfather didn’t have the discretionary money to invest in anything.
In the sense that brokers provided margin with few controls, yes.

I don't know how many investors actually used margin, and what the restrictions on it were. Certainly post 1929 US legislators and newly created regulators imposed strict controls on margin.

There were leveraged investment trusts - closed end funds holding utility stocks. The idea was that you had a portfolio of utility cos, say paying 6% dividend. 50% leveraged you could pay say 10% to investors post interest. Leveraged utility trust were very popular.

This collapsed like a house of Cards. Goldman Sachs had been a heavy promoter of one, and nearly went bankrupt - changed the culture of the firm and the attitude towards risk taking. Samuel Insull, the great creator of the electricity grid in America, went on the run after being charged with securities fraud.
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Re: My trend following strategy and experience

Post by sleepysurf »

tadamsmar wrote: Sun Mar 03, 2019 4:12 pm...The Efficient Market Hypothesis was 29 years old in 1929 and was living in obscurity in France. It was the brainchild of the guy in the picture on my posts.
For those curious, like I was, about tadamsmar's reference... https://en.wikipedia.org/wiki/Louis_Bachelier
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Re: My trend following strategy and experience

Post by finite_difference »

willthrill81 wrote: Fri Mar 01, 2019 6:39 pm
BlueEars wrote: Fri Mar 01, 2019 6:14 pm
diy60 wrote: Fri Mar 01, 2019 6:04 pm
BlueEars wrote: Fri Mar 01, 2019 5:15 pm Will, I noticed that at the end of trading today (March 1st) the unemployment number for February is still not yet reported. I do not know how late in the month the BLS reports for the previous month. Do you?
I asked WT this question and he indicated 1st Friday of the month, but I found this instead "The Employment Situation for February is scheduled to be released on Friday, March 8, 2019, at 8:30 a.m. (EST).", so I wondering why WT pulled the trigger.
Thanks for the info. Will uses the unemployment data just in the market sell condition not for the buy back.
Not quite. Recall that my strategy calls for me to be in stocks unless both the UER is above its 12 MMA and stocks are below their 7 MMA. Since the latter condition is no longer satisfied, I move back into stocks, regardless of what the UER is.
A simpler way to express this strategy:

100% Stocks if:
Unemployment rate <= 12 mma,
Or
Stocks >= 7 mma.

Otherwise 100% Cash.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
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Re: My trend following strategy and experience

Post by thx1138 »

finite_difference wrote: Wed Mar 06, 2019 10:44 pm
willthrill81 wrote: Fri Mar 01, 2019 6:39 pm
BlueEars wrote: Fri Mar 01, 2019 6:14 pm
diy60 wrote: Fri Mar 01, 2019 6:04 pm
BlueEars wrote: Fri Mar 01, 2019 5:15 pm Will, I noticed that at the end of trading today (March 1st) the unemployment number for February is still not yet reported. I do not know how late in the month the BLS reports for the previous month. Do you?
I asked WT this question and he indicated 1st Friday of the month, but I found this instead "The Employment Situation for February is scheduled to be released on Friday, March 8, 2019, at 8:30 a.m. (EST).", so I wondering why WT pulled the trigger.
Thanks for the info. Will uses the unemployment data just in the market sell condition not for the buy back.
Not quite. Recall that my strategy calls for me to be in stocks unless both the UER is above its 12 MMA and stocks are below their 7 MMA. Since the latter condition is no longer satisfied, I move back into stocks, regardless of what the UER is.
A simpler way to express this strategy:

100% Stocks if:
Unemployment rate <= 12 mma,
Or
Stocks >= 7 mma.

Otherwise 100% Cash.
Not sure that is really simpler, it is just De Morgan's equivalence of the original strategy expressed just as simply:

100% Cash if:
Unemployment rate > 12mma,
And
Stocks < 7 mma

Otherwise 100% Stocks
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Re: My trend following strategy and experience

Post by finite_difference »

thx1138 wrote: Thu Mar 07, 2019 7:01 am
finite_difference wrote: Wed Mar 06, 2019 10:44 pm
willthrill81 wrote: Fri Mar 01, 2019 6:39 pm
Not quite. Recall that my strategy calls for me to be in stocks unless both the UER is above its 12 MMA and stocks are below their 7 MMA. Since the latter condition is no longer satisfied, I move back into stocks, regardless of what the UER is.
A simpler way to express this strategy:

100% Stocks if:
Unemployment rate <= 12 mma,
Or
Stocks >= 7 mma.

Otherwise 100% Cash.
Not sure that is really simpler, it is just De Morgan's equivalence of the original strategy expressed just as simply:

100% Cash if:
Unemployment rate > 12mma,
And
Stocks < 7 mma

Otherwise 100% Stocks
I agree that the two forms are equivalent.

Perhaps it’s a personal preference but I find the form using “or” to be simpler.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
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Re: My trend following strategy and experience

Post by tadamsmar »

finite_difference wrote: Wed Mar 06, 2019 10:44 pm A simpler way to express this strategy:

100% Stocks if:
Unemployment rate <= 12 mma,
Or
Stocks >= 7 mma.

Otherwise 100% Cash.
Not sure if this strategy is really that simple. Is your simple expression of the strategy consistent with the following aspect of the strategy?:
willthrill81 wrote: Sat Feb 23, 2019 2:14 pm I will only move out of stocks into fixed income if (1) the UER is above its 12 MMA and (2) the bond funds I have access to have had higher relative strength over the prior 7 months than any stock index available to me in a given account. When I'm in equities, I move 100% into the equity fund with the highest relative strength over the prior 7 months.
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Re: My trend following strategy and experience

Post by thx1138 »

tadamsmar wrote: Thu Mar 07, 2019 8:31 am
finite_difference wrote: Wed Mar 06, 2019 10:44 pm A simpler way to express this strategy:

100% Stocks if:
Unemployment rate <= 12 mma,
Or
Stocks >= 7 mma.

Otherwise 100% Cash.
Not sure if this strategy is really that simple. Is your simple expression of the strategy consistent with the following aspect of the strategy?:
willthrill81 wrote: Sat Feb 23, 2019 2:14 pm I will only move out of stocks into fixed income if (1) the UER is above its 12 MMA and (2) the bond funds I have access to have had higher relative strength over the prior 7 months than any stock index available to me in a given account. When I'm in equities, I move 100% into the equity fund with the highest relative strength over the prior 7 months.
The more generic strategy as outlined on PE is represented accurately in the simple outline.

willthrill81 has a somewhat more complicated to express implementation based on where his various accounts live and what funds are available within them. I don't think anyone should have any interest in willthrill81's particular fund implementations because they are essentially impossible for anyone else to implement. They can however implement, evaluate, track and backtest his particular switching algorithm which is expressed simply and compactly above.
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Re: My trend following strategy and experience

Post by FBN2014 »

Does anyone have a strategy they use for any variable annuities you may own?
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Re: My trend following strategy and experience

Post by MisterMister »

tadamsmar wrote: Sun Feb 17, 2019 2:39 pm
willthrill81 wrote: Sun Feb 17, 2019 12:39 pm
tadamsmar wrote: Sun Feb 17, 2019 12:34 pm One advantage of the Boglehead approach is that it's just a range finding experiment. You just adjust your allocation, you don't have to give up being a Boglehead. But if one's experiment with trend-following is failing the test of one's own psychology is there a parameter you can tweak?
There are some parameters that could certainly be adjusted. For instance, a shorter timing period than 7 months could be used, which would result in more frequent trades but presumably react to trend changes more frequently.

A strategy practiced by some like Paul Merriman is to only implement trend following with a portion of one's portfolio, in his case, 50%. He uses a Boglehead style approach with the other 50%. I think that this is a good middle ground, and it's not unforeseeable that I might want to switch to something like this down the road.
Here's Swedroe seeming to advocate a moderate allocation to a trend-following fund (he seems to think the high ER is justified):

https://www.etf.com/sections/index-inve ... nopaging=1
The good news is one of the two funds listed is up by almost 2% today. But they have some making up to do. Over what time horizon are these funds hoped to be profitable??

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Re: My trend following strategy and experience

Post by revhappy »

Looks like market is whipsawing again on OP.
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Re: My trend following strategy and experience

Post by willthrill81 »

revhappy wrote: Fri Mar 08, 2019 12:07 am Looks like market is whipsawing again on OP.
I'm back in stocks, so I can't get whipsawed right now. A whipsaw is where you buy back into the market at a higher price than which you sold.
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Re: My trend following strategy and experience

Post by revhappy »

willthrill81 wrote: Fri Mar 08, 2019 12:12 am
revhappy wrote: Fri Mar 08, 2019 12:07 am Looks like market is whipsawing again on OP.
I'm back in stocks, so I can't get whipsawed right now. A whipsaw is where you buy back into the market at a higher price than which you sold.
But the market is tanking now. Since you are trend follower, if the market continues to fall, are you not going to sell, as the trend changed to down?
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Re: My trend following strategy and experience

Post by fennewaldaj »

HomerJ wrote: Sun Mar 03, 2019 12:18 pm
Which is why 50/50 works. You only lose 44% in the scenario above. Which is less than the 100% stocks person experienced in 2008. You are a 100% stocks person who wants to get out before the big drop. But a 50/50 person can handle the big drop. Only 25% in the last great financial crisis. Only 44% even in the Great Depression.
I think the difficulty of holding through an 88% decline is they don't just come out of nowhere. The scenario that leads to it likely leads one to question the future of capitalism (as I am sure many where in the 30s)
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Re: My trend following strategy and experience

Post by dcabler »

Lots of parameters that can be modified:
- Jim Otar's Hurricane Warning is the crossover of a 12 month SMA with a 5 month SMA, for example. http://crws.cunamutual.com/~/media/DF15 ... CCBEC.ashx (Slide 49)
- One could also add hysteresis. Meaning the trigger point to get "out" might be lower than the trigger point to get back "in" and vice-versa.
- These guys use 4 signals for the UER, but buried in there is also a short and long moving average, but they use an exponential moving average. https://imarketsignals.com/unemployment ... ecessions/

Most of the enhancements are attempts to avoid/reduce whipsaws via a form of filtering. The price paid for that is increased delay in time before a signal is recognized. However, one can easily create a beautiful system with no whipsaws when backtested with no idea whatsoever how it might perform in the future. :D
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Re: My trend following strategy and experience

Post by sixtyforty »

In all the strategies I've designed and tested on the markets, I found that the more parameters you use, the worse the strategy will perform in the future. Consider that 'buy and hold' uses NO parameters and it's probably one of the reasons it works so well.
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Re: My trend following strategy and experience

Post by tadamsmar »

UER signal went to buy today.

One issue right now is that UER is pegged out low, and it may bounce off the peg month to month. It's currently more a measure of job-seeker psychology than employment.
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Re: My trend following strategy and experience

Post by willthrill81 »

revhappy wrote: Fri Mar 08, 2019 1:52 am
willthrill81 wrote: Fri Mar 08, 2019 12:12 am
revhappy wrote: Fri Mar 08, 2019 12:07 am Looks like market is whipsawing again on OP.
I'm back in stocks, so I can't get whipsawed right now. A whipsaw is where you buy back into the market at a higher price than which you sold.
But the market is tanking now. Since you are trend follower, if the market continues to fall, are you not going to sell, as the trend changed to down?
Price is one of two indicators that must be 'on' for me to move out of stocks. The OP has details.
“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: My trend following strategy and experience

Post by thx1138 »

revhappy wrote: Fri Mar 08, 2019 1:52 am
willthrill81 wrote: Fri Mar 08, 2019 12:12 am
revhappy wrote: Fri Mar 08, 2019 12:07 am Looks like market is whipsawing again on OP.
I'm back in stocks, so I can't get whipsawed right now. A whipsaw is where you buy back into the market at a higher price than which you sold.
But the market is tanking now. Since you are trend follower, if the market continues to fall, are you not going to sell, as the trend changed to down?
Please read the thread. Like the very first post in the thread. UER is below its average so no he isn't going to sell this entire month regardless of what the stock market does.
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Re: My trend following strategy and experience

Post by thx1138 »

tadamsmar wrote: Fri Mar 08, 2019 9:12 am UER signal went to buy today.

One issue right now is that UER is pegged out low, and it may bounce off the peg month to month. It's currently more a measure of job-seeker psychology than employment.
Indeed. And along with the various discussions of which UER to use, which average, which rounding and so forth the temptation in such situations is to add yet another "gate" to the strategy to avoid whipsaws when things are "obviously" OK. But every additional "gate" that filters out a whipsaw could make the strategy insensitive to the drawdowns it is suppose to avoid.

So I think you pick a metric and stick with it while holding your nose.
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Re: My trend following strategy and experience

Post by willthrill81 »

thx1138 wrote: Fri Mar 08, 2019 10:23 amSo I think you pick a metric and stick with it while holding your nose.
Indeed.

I find it interesting how to see how many people are quick to dismiss this and other trend following strategies due to short-term whipsaws and/or losses, but they have no problem with buy-and-hold deep drawdowns of -50% or more, with no guarantee that such losses will be recovered soon (or at all in some cases).
“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: My trend following strategy and experience

Post by BlueEars »

willthrill81 wrote: Fri Mar 08, 2019 10:25 am
thx1138 wrote: Fri Mar 08, 2019 10:23 amSo I think you pick a metric and stick with it while holding your nose.
Indeed.

I find it interesting how to see how many people are quick to dismiss this and other trend following strategies due to short-term whipsaws and/or losses, but they have no problem with buy-and-hold deep drawdowns of -50% or more, with no guarantee that such losses will be recovered soon (or at all in some cases).
Confucius: "Better a diamond with a flaw than a pebble without."

I think neither buy-hold nor trend following qualifies as "pebbles". The pebble would be more like having no systematic approach at all.
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Re: My trend following strategy and experience

Post by sergeant »

willthrill81 wrote: Fri Mar 08, 2019 10:25 am
thx1138 wrote: Fri Mar 08, 2019 10:23 amSo I think you pick a metric and stick with it while holding your nose.
Indeed.

I find it interesting how to see how many people are quick to dismiss this and other trend following strategies due to short-term whipsaws and/or losses, but they have no problem with buy-and-hold deep drawdowns of -50% or more, with no guarantee that such losses will be recovered soon (or at all in some cases).
It is easy to dismiss your trend following right now because it hasn't gone real well for you since you started. I'm sure that if you were up over buy and hold there would be many adopting your strategy and applauding your brilliance. I think this plan is fine for you.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
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Re: My trend following strategy and experience

Post by revhappy »

willthrill81 wrote: Fri Mar 08, 2019 10:25 am
thx1138 wrote: Fri Mar 08, 2019 10:23 amSo I think you pick a metric and stick with it while holding your nose.
Indeed.

I find it interesting how to see how many people are quick to dismiss this and other trend following strategies due to short-term whipsaws and/or losses, but they have no problem with buy-and-hold deep drawdowns of -50% or more, with no guarantee that such losses will be recovered soon (or at all in some cases).
I don't believe the buy and hold either. I believe in staying in cash and wait for that -50% drawdown. Interestingly, the huge consensus right now in the markets is that staying out of the market is bad, cash is a drag etc. When almost every one agrees with something, then it won't happen.
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Re: My trend following strategy and experience

Post by Forester »

I'm struggling to "get a tune" out of Dual Momentum, vs simply applying trend to the S&P 500. If one was concerned about mean reversion and US under-performance, it would be simpler to just use a Global etf.

I know it's a 20-year backtest and not a 40-year as in the Antonacci book, but still.

1998-2019

USA with 12mo trend. 8.92% cagr, 23 trades.
https://www.portfoliovisualizer.com/tes ... odWeight=0

USA vs ex-USA with 12mo trend. 8.62% cagr, 41 trades.
https://www.portfoliovisualizer.com/tes ... odWeight=0

Global stocks with 12mo trend. 8.21% cagr*, 29 trades.
https://www.portfoliovisualizer.com/tes ... odWeight=0
* higher expense ratio of 0.48%.
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Re: My trend following strategy and experience

Post by Forester »

USA vs ex-USA. 12mo stocks vs bonds momentum, but now 10 month relative strength lookback. 9.65% cagr.

https://www.portfoliovisualizer.com/tes ... odWeight=0
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Re: My trend following strategy and experience

Post by willthrill81 »

Forester wrote: Tue Mar 12, 2019 8:40 am USA vs ex-USA. 12mo stocks vs bonds momentum, but now 10 month relative strength lookback. 9.65% cagr.

https://www.portfoliovisualizer.com/tes ... odWeight=0
I believe that such a strategy is perfectly plausible as long as you can stick with it.
“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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