My trend following strategy and experience

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abc132
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Re: My trend following strategy and experience

Post by abc132 » Wed Jun 26, 2019 11:54 pm

Rowan Oak wrote:
Wed Jun 26, 2019 5:54 pm
Interesting from Wes Gray today (Alpha Architect)
Trend Following: The Epitome of No Pain, No Gain

What we find in this analysis is the following:
  • Trend-following “works” in the sense that one has historically been able to capture a vast majority of the upside in a stock market, while simultaneously minimizing the threat of monster drawdowns.
  • Trend-following is fraught with behavioral challenges. The strategy can deviate wildly from buy-and-hold benchmarks and so-called whipsaws are commonplace.
  • The behavioral challenges associated with trend-following are so severe that it is recommended that many investors should avoid trend-following strategies.
Welcome to the realities of equity trend-following. An open secret that is simple, but not easy.
https://alphaarchitect.com/2019/06/26/t ... n-no-gain/
Interesting link. Anyone using trend for safety should take a look at the Japan and Germany Trend.

- Trend can do better or worse (Japan example) in a severe downturn
- Trend has worse behavioral issues than buy and hold

Appropriate for safety during the big one?
Appropriate for someone worried about poor decision making?

My answer is a pretty big no. You might have a better chance of avoiding the big one, but you might do even worse when your strategy fails.


Appropriate for someone willing to take risk for potentially better performance?

My answer is possibly, depending on the implementation and depending on the alternatives (leveraged portfolios, private equity, etc).

I would prefer rational decisions made based on current information to trend following or absolutism. Bogle has shown us the ability to make subtle adjustments over the years, while staying the course. That seems wise to me.

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Thu Jun 27, 2019 12:08 am

Forester wrote:
Tue Jun 25, 2019 11:01 pm
abc132 wrote:
Tue Jun 25, 2019 4:44 pm
Forester wrote:
Tue Jun 25, 2019 2:19 pm
My take from all the debate on Twitter and the blogs; use TF alongside stocks & bonds, don't lean too heavily on it. Use different lookback periods, don't use one implementation which looked good in the past.
Given this, are you are against Wills implementation?
Corey Hoffstein speaks of specification risk & strategy risk. Specification risk - some lookback periods made money in 2018. Strategy risk - ALL lookback periods lost money in 2015.

Gary Antonacci disagreed somewhat and said that one should instead diversify with other assets such as bonds, since the 12mo lookback always has the best odds of success.

Jesse Livermore has some reservations about the overfitting issue of using trend filters which performed well in the past (to be fair, he said we have limited historical data for -all- investing approaches, Bogleheads would agree). And he is concerned that V-shaped market drops will be less prevalent in the future, so even "intelligent trend following" using a filter would get whipsawed and buy back at a higher price.

Therefore, if the objective of trend following is protection rather than outperformance I would also own bonds. I would own B&H stock indexes. I would use at least two lookback periods/methods, for example 12mo time series & 10mo moving average. At the end of the day we know that boring old stock & bond funds, rebalanced will work. In the long run I think that TF will work, I hope it works, but I can't have the same confidence or allocate such too much to it. There is an element of performance chasing.

Filtered or "smart" trend following has whipsaw risk and failure risk - it just doesn't get triggered if all indicators agree. The topic author uses a 7mo lookback presumably because that tests best. Otherwise it's an odd number to use because in the research the lookbacks are usually 200 days, 10 month or 12 month.
To be sure, I've never claimed that my particular system is flawless, nor that it will even achieve my objectives. As I noted in the OP, I'm willing to be the guinea pig in my experiment. So far, I'm not at all dissatisfied with the results. I've already recovered half of the 'whipsawed losses' from earlier in the year.

I've never recommended my strategy to anyone, nor would I. I've merely said all along that I believe this to be a good strategy for me.

The strategy that you can stick with the best is likely to be the best for you (and by 'you', I mean 'anyone').
“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

rbaldini
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Re: My trend following strategy and experience

Post by rbaldini » Thu Jun 27, 2019 12:34 am

I can’t help but suspect some overfitting to past data based on the collection of rules you have proposed. But I’m sure you’re aware of that risk. I applaud your courage and transparency.

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Thu Jun 27, 2019 7:24 am

willthrill81 wrote:
Thu Jun 27, 2019 12:08 am
To be sure, I've never claimed that my particular system is flawless, nor that it will even achieve my objectives. As I noted in the OP, I'm willing to be the guinea pig in my experiment. So far, I'm not at all dissatisfied with the results. I've already recovered half of the 'whipsawed losses' from earlier in the year.

I've never recommended my strategy to anyone, nor would I. I've merely said all along that I believe this to be a good strategy for me.

The strategy that you can stick with the best is likely to be the best for you (and by 'you', I mean 'anyone').
In the OP, you said that trend following "works". Unless I am mistaken, that seems to imply more than a mere subjective fondness for it on your part. So, what did you claim in the OP?

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Re: My trend following strategy and experience

Post by LittleD » Thu Jun 27, 2019 7:43 am

tadamsmar wrote:
Thu Jun 27, 2019 7:24 am
In the OP, you said that trend following "works". Unless I am mistaken, that seems to imply more than a mere subjective fondness for it on your part. So, what did you claim in the OP?

I will let him address what he meant to say in the OP but, what I can say is that TF has worked in the past by looking at the past. Will TF work in the future...who knows. Everyone knows that TF seems to work best in long running trending markets. TF does not work well in ranging markets at all. TF will have significant whipsaws in ranging markets. Buy & Hold is a nice strategy for investing subject to the investor being able to hold the course by having enough bonds to mitigate the bear markets and crashes who visit from time to time. Bear markets and crashes tend to happen quickly on the downside and usually last for months to years which allows the TF system to work. Short term market hiccups like happened late last year do not allow time for TF to work very well. The reason he uses UER is to attempt to identify significant possibilities of a long running bear market trend and avoid the major decline. I use the LEI to help my TF system work instead of UER because it has interest rates, unemployment, industrial production, housing and etc. combined in to give a composite picture of the U.S. economy. Will any TF approach work in the future? Will B&H work in the future? If we enter a decade or more of significant economic troubles, probably not well.

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Thu Jun 27, 2019 9:13 am

LittleD wrote:
Thu Jun 27, 2019 7:43 am
tadamsmar wrote:
Thu Jun 27, 2019 7:24 am
In the OP, you said that trend following "works". Unless I am mistaken, that seems to imply more than a mere subjective fondness for it on your part. So, what did you claim in the OP?

I will let him address what he meant to say in the OP but, what I can say is that TF has worked in the past by looking at the past. Will TF work in the future...who knows. Everyone knows that TF seems to work best in long running trending markets. TF does not work well in ranging markets at all. TF will have significant whipsaws in ranging markets. Buy & Hold is a nice strategy for investing subject to the investor being able to hold the course by having enough bonds to mitigate the bear markets and crashes who visit from time to time. Bear markets and crashes tend to happen quickly on the downside and usually last for months to years which allows the TF system to work. Short term market hiccups like happened late last year do not allow time for TF to work very well. The reason he uses UER is to attempt to identify significant possibilities of a long running bear market trend and avoid the major decline. I use the LEI to help my TF system work instead of UER because it has interest rates, unemployment, industrial production, housing and etc. combined in to give a composite picture of the U.S. economy. Will any TF approach work in the future? Will B&H work in the future? If we enter a decade or more of significant economic troubles, probably not well.
So, do you recommend it? He does not recommend it to anyone.

I have no problem recommending my investment approach. I recommended it to my MIL and put her in it. I recommended it to my daughter and her husband's business manager also recommended it.

How many investors would use an approach that no one seems to recommend?

Seems that most posters on this thread at least agree that it should not be recommended to anyone.

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Re: My trend following strategy and experience

Post by BlueEars » Thu Jun 27, 2019 9:27 am

tadamsmar wrote:
Thu Jun 27, 2019 9:13 am
...
How many investors would use an approach that no one seems to recommend?

Seems that most posters on this thread at least agree that it should not be recommended to anyone.
I use an approach that I would not recommend to anyone. I think there is strength in having an approach that is not very common. Why would you think that an investment approach must be recommendable?

But really most investment approaches have some aspects in common. Like finding the right AA for yourself and investing in a diversified set of asset classes. My approach has a very strong element of buy-hold but not 100% so.

We should note again the title of this thread "My trend following strategy and experience". It is not titled "How to beat buy-hold" or "What I recommend to B&H people".

I would not be adverse to recommending that investors use a non-recommendable strategy. And not necessarily this thread's approach. :happy

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Re: My trend following strategy and experience

Post by LittleD » Thu Jun 27, 2019 9:35 am

tadamsmar wrote:
Thu Jun 27, 2019 9:13 am
LittleD wrote:
Thu Jun 27, 2019 7:43 am

So, do you recommend it? He does not recommend it to anyone.

I have no problem recommending my investment approach. I recommended it to my MIL and put her in it. I recommended it to my daughter and her husband's business manager also recommended it.

How many investors would use an approach that no one seems to recommend?

Seems that most posters on this thread at least agree that it should not be recommended to anyone.

I have no idea of anyone else's situation so how can I recommend a TF strategy to anyone else. Does it work for me? It has for over 20 years. I was able to avoid the 2000 and 2008 bear markets for sure. Will I be successful in the future? who knows. Just like B&H investors, I have been able to stay the course on my TF rules and I trust them for me. I have been in the markets since the spring of 2009 and have not had a single sell signal since then so I'm just like B&H for the last decade. Everyone has to decide if they want to at least try it for a portion of their portfolio. I do agree that almost all Bogleheads agree that it should not be recommended to anyone, so I won't.

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Re: My trend following strategy and experience

Post by tadamsmar » Thu Jun 27, 2019 10:29 am

BlueEars wrote:
Thu Jun 27, 2019 9:27 am
Why would you think that an investment approach must be recommendable?
I never said that. There are many investment approaches that should not be recommended.

I recommend avoiding those.

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Re: My trend following strategy and experience

Post by willthrill81 » Thu Jun 27, 2019 10:58 am

tadamsmar wrote:
Thu Jun 27, 2019 7:24 am
willthrill81 wrote:
Thu Jun 27, 2019 12:08 am
To be sure, I've never claimed that my particular system is flawless, nor that it will even achieve my objectives. As I noted in the OP, I'm willing to be the guinea pig in my experiment. So far, I'm not at all dissatisfied with the results. I've already recovered half of the 'whipsawed losses' from earlier in the year.

I've never recommended my strategy to anyone, nor would I. I've merely said all along that I believe this to be a good strategy for me.

The strategy that you can stick with the best is likely to be the best for you (and by 'you', I mean 'anyone').
In the OP, you said that trend following "works". Unless I am mistaken, that seems to imply more than a mere subjective fondness for it on your part. So, what did you claim in the OP?
Why don't you read the OP?

Here's what I actually said.
I know that my portfolio is a sort of guinea pig, and I know that the long-term results of my strategy may be poor.
“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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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Thu Jun 27, 2019 11:15 am

willthrill81 wrote:
Thu Jun 27, 2019 10:58 am
tadamsmar wrote:
Thu Jun 27, 2019 7:24 am
willthrill81 wrote:
Thu Jun 27, 2019 12:08 am
To be sure, I've never claimed that my particular system is flawless, nor that it will even achieve my objectives. As I noted in the OP, I'm willing to be the guinea pig in my experiment. So far, I'm not at all dissatisfied with the results. I've already recovered half of the 'whipsawed losses' from earlier in the year.

I've never recommended my strategy to anyone, nor would I. I've merely said all along that I believe this to be a good strategy for me.

The strategy that you can stick with the best is likely to be the best for you (and by 'you', I mean 'anyone').
In the OP, you said that trend following "works". Unless I am mistaken, that seems to imply more than a mere subjective fondness for it on your part. So, what did you claim in the OP?
Why don't you read the OP?

Here's what I actually said.
I know that my portfolio is a sort of guinea pig, and I know that the long-term results of my strategy may be poor.
I am referring to what you said in the OP:
willthrill81 wrote:He also provides an excellent overview to why trend following works


Do you actually believe that a guinea pig is needed? You seem more knowledgeable than that. You talk like you have never heard of paper trading.

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Re: My trend following strategy and experience

Post by willthrill81 » Thu Jun 27, 2019 11:24 am

tadamsmar wrote:
Thu Jun 27, 2019 11:15 am
willthrill81 wrote:
Thu Jun 27, 2019 10:58 am
tadamsmar wrote:
Thu Jun 27, 2019 7:24 am
willthrill81 wrote:
Thu Jun 27, 2019 12:08 am
To be sure, I've never claimed that my particular system is flawless, nor that it will even achieve my objectives. As I noted in the OP, I'm willing to be the guinea pig in my experiment. So far, I'm not at all dissatisfied with the results. I've already recovered half of the 'whipsawed losses' from earlier in the year.

I've never recommended my strategy to anyone, nor would I. I've merely said all along that I believe this to be a good strategy for me.

The strategy that you can stick with the best is likely to be the best for you (and by 'you', I mean 'anyone').
In the OP, you said that trend following "works". Unless I am mistaken, that seems to imply more than a mere subjective fondness for it on your part. So, what did you claim in the OP?
Why don't you read the OP?

Here's what I actually said.
I know that my portfolio is a sort of guinea pig, and I know that the long-term results of my strategy may be poor.
I am referring to what you said in the OP:
willthrill81 wrote:He also provides an excellent overview to why trend following works


Do you actually believe that a guinea pig is needed? You seem more knowledgeable than that. You talk like you have never heard of paper trading.
"Works" does not necessarily mean "beats BAH" or anything specific. One of the definitions of the term is "operation or function," and that was the meaning I was using in that context.

I do not believe that a guinea pig is strictly necessary as I believe the data on TF to be very robust, else I would not have committed to it as a strategy. Academia has really warmed up to TF, and so have experts like Larry Swedroe. BHs eschew it because they believe it conflicts with the BH philosophy, despite Bogle himself not always adhering to that philosophy.

You and one other person in this thread seem to have taken it upon yourself to warn others about TF. I'm not really sure why though since this thread is littered with such comments from others, and this thread is merely "my trend following strategy and experience" and nothing more. Not once have I recommended this strategy, and I've repeatedly pointed out that whipsaws are inevitable and that the results over the short-term or long-term compared to BAH may be poor. Besides abandoning the thread, I don't see what you want me to do here.
Last edited by willthrill81 on Thu Jun 27, 2019 11:27 am, edited 1 time in total.
“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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Rowan Oak
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Re: My trend following strategy and experience

Post by Rowan Oak » Thu Jun 27, 2019 11:25 am

The author of that post "He also provides an excellent overview to why trend following works" referenced in the OP was mentioned today in a post by Ben Carlson (A wealth of common sense): Will Trend-Following Continue to Disappoint?
pseudonymous blogger, Jesse Livermore (Philosophical Economics), wrote a piece a few years ago that provided a comprehensive backtest of trend-following across a number of countries and markets.

This week he was on Patrick O’Shaughnessy’s Invest Like the Best podcast and they discussed this post and Livermore’s thoughts on trend going forward.

He said he’s agnostic about trend-following as a strategy but worried it could disappoint investors going forward. The theory he threw out there is that it’s possible we could see longer cycles that are absent of the boom-bust nature we’ve grown accustomed to, with lower inflation, and the Fed being able to step in more often to soften the blow when markets do fall.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: My trend following strategy and experience

Post by willthrill81 » Thu Jun 27, 2019 11:30 am

Rowan Oak wrote:
Thu Jun 27, 2019 11:25 am
The author of that post "He also provides an excellent overview to why trend following works" referenced in the OP was mentioned today in a post by Ben Carlson (A wealth of common sense): Will Trend-Following Continue to Disappoint?
pseudonymous blogger, Jesse Livermore (Philosophical Economics), wrote a piece a few years ago that provided a comprehensive backtest of trend-following across a number of countries and markets.

This week he was on Patrick O’Shaughnessy’s Invest Like the Best podcast and they discussed this post and Livermore’s thoughts on trend going forward.

He said he’s agnostic about trend-following as a strategy but worried it could disappoint investors going forward. The theory he threw out there is that it’s possible we could see longer cycles that are absent of the boom-bust nature we’ve grown accustomed to, with lower inflation, and the Fed being able to step in more often to soften the blow when markets do fall.
Carlson himself said almost the exact same thing as I have in this thread and been criticized over.
Trend-following works much in the same way as it’s something of an insurance strategy in that you pay premiums over time that cost you money (in the form of whipsaw trades where you sell out and buy back in at a higher level) to insure against catastrophe (missing a big chunk of a huge crash).

Is it possible we don’t have another giant crash for a few decades? Yes, it’s possible and a scenario I think investors should prepare themselves for. The 2007-2009 and 2000-2002 crashes may have been an aberration in that they occurred so close to one another.

But is it also possible we’ll have a massive crash over the next couple of decades that chops the stock market in half yet again? Of course it is!
emphasis added
“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 Rowan Oak » Thu Jun 27, 2019 11:42 am

willthrill81 wrote:
Thu Jun 27, 2019 12:08 am
BHs eschew it because they believe it conflicts with the BH philosophy, despite Bogle himself not always adhering to that philosophy.
Here's the video interview with Jack Bogle from 2014 talking about the decision he made in 2000 giving context for the above statement: https://youtu.be/k6ra5POdsYg

- He was around 70 yrs old at the time;
- his heart was failing;
- equity position 70-80%;
- bonds yielding around 7%;
- stocks yielding 1%;
- stock market closer to 40x earnings than to 30;

Quoted from the interview:

Jack Bogle: I think it's impossible in the next decade, and I look at things in decade lengths, that stocks will outperform bonds. So returns on stocks ought to be, you know, pretty close to nominal and the returns on bonds gonna be 7% a year. That's doubling your money in a decade. And then I looked at him and said, "You know, Don, sometimes I sit here and worry why I have any money in stocks whatsoever.

And I was in the process then, and I can't remember the exact timing, but obviously around that time, of reducing my own equity position from about what's normal of about 70-75%. I don't even remember, maybe 80% down to about 25-30%. And I did that.

...everybody said, "you knew what was going to happen", and I suppose you could argue that I did, but that was also, my heart was failing; my life was in danger. I wanted to make sure what kind of estate I had mostly my retirement plan here (Vanguard) was protected for my family so it was a personal financial decision greatly abetted by the fact that it made totally financial and economic sense. How many times in a lifetime does that come along.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: My trend following strategy and experience

Post by willthrill81 » Thu Jun 27, 2019 11:47 am

Rowan Oak wrote:
Thu Jun 27, 2019 11:42 am
willthrill81 wrote:
Thu Jun 27, 2019 12:08 am
BHs eschew it because they believe it conflicts with the BH philosophy, despite Bogle himself not always adhering to that philosophy.
Here's the video interview with Jack Bogle from 2014 talking about the decision he made in 2000 giving context for the above statement: https://youtu.be/k6ra5POdsYg

- He was around 70 yrs old at the time;
- his heart was failing;
- equity position 70-80%;
- bonds yielding around 7%;
- stocks yielding 1%;
- stock market closer to 40x earnings than to 30
;

Quoted from the interview:

Jack Bogle: I think it's impossible in the next decade, and I look at things in decade lengths, that stocks will outperform bonds. So returns on stocks ought to be, you know, pretty close to nominal and the returns on bonds gonna be 7% a year. That's doubling your money in a decade. And then I looked at him and said, "You know, Don, sometimes I sit here and worry why I have any money in stocks whatsoever.

And I was in the process then, and I can't remember the exact timing, but obviously around that time, of reducing my own equity position from about what's normal of about 70-75%. I don't even remember, maybe 80% down to about 25-30%. And I did that.

...everybody said, "you knew what was going to happen", and I suppose you could argue that I did, but that was also, my heart was failing; my life was in danger. I wanted to make sure what kind of estate I had mostly my retirement plan here (Vanguard) was protected for my family so it was a personal financial decision greatly abetted by the fact that it made totally financial and economic sense. How many times in a lifetime does that come along.
If a poster here was claiming that they wanted to reduce their equity position for the underlined factors, everyone here would justly say that they were market timing. I'm not condemning someone for doing so, but let's not pretend that Bogle was not market timing.
“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 » Thu Jun 27, 2019 12:20 pm

willthrill81 wrote:
Thu Jun 27, 2019 11:24 am
I do not believe that a guinea pig is strictly necessary as I believe the data on TF to be very robust, else I would not have committed to it as a strategy. Academia has really warmed up to TF, and so have experts like Larry Swedroe. BHs eschew it because they believe it conflicts with the BH philosophy, despite Bogle himself not always adhering to that philosophy.
You and one other person in this thread seem to have taken it upon yourself to warn others about TF. I'm not really sure why though since this thread is littered with such comments from others, and this thread is merely "my trend following strategy and experience" and nothing more. Not once have I recommended this strategy, and I've repeatedly pointed out that whipsaws are inevitable and that the results over the short-term or long-term compared to BAH may be poor. Besides abandoning the thread, I don't see what you want me to do here.
A guinea pig is strictly not necessary. This is not an experiment. You are investing and you are providing a log of your investing actions. You have claimed that it works. Nothing wrong with any of this, just own it.

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Re: My trend following strategy and experience

Post by BlueEars » Thu Jun 27, 2019 12:21 pm

willthrill81 wrote:
Thu Jun 27, 2019 11:30 am
Rowan Oak wrote:
Thu Jun 27, 2019 11:25 am
The author of that post "He also provides an excellent overview to why trend following works" referenced in the OP was mentioned today in a post by Ben Carlson (A wealth of common sense): Will Trend-Following Continue to Disappoint?
pseudonymous blogger, Jesse Livermore (Philosophical Economics), wrote a piece a few years ago that provided a comprehensive backtest of trend-following across a number of countries and markets.

This week he was on Patrick O’Shaughnessy’s Invest Like the Best podcast and they discussed this post and Livermore’s thoughts on trend going forward.

He said he’s agnostic about trend-following as a strategy but worried it could disappoint investors going forward. The theory he threw out there is that it’s possible we could see longer cycles that are absent of the boom-bust nature we’ve grown accustomed to, with lower inflation, and the Fed being able to step in more often to soften the blow when markets do fall.
Carlson himself said almost the exact same thing as I have in this thread and been criticized over.
Trend-following works much in the same way as it’s something of an insurance strategy in that you pay premiums over time that cost you money (in the form of whipsaw trades where you sell out and buy back in at a higher level) to insure against catastrophe (missing a big chunk of a huge crash).

Is it possible we don’t have another giant crash for a few decades? Yes, it’s possible and a scenario I think investors should prepare themselves for. The 2007-2009 and 2000-2002 crashes may have been an aberration in that they occurred so close to one another.

But is it also possible we’ll have a massive crash over the next couple of decades that chops the stock market in half yet again? Of course it is!
emphasis added
Regarding the red text, there can easily be a decade or more before the next major decline. Here are some examples taken from one of my TF spreadsheets which employs a 10 month SMA and the unemployment data. I just want to emphasize how long it may be between big (generally recessionary) market declines.

Sept 1957 to Dec 1969 (~12 years between the last big decline and start next big decline that takes one out of market)
Sept 1970 to Mar 1974 (~4 years)
Feb 1971 to Mar 2001 (~30 years)
May 2003 to Dec 2007 (~5 years)

In between those times there were a 2 whipsaws and 3 more modest out of market gains. So one must really follow this, possibly for decades, to see how it all works out. Few would have the patience especially with life events happening and possibly some intervening whipsaws.

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Re: My trend following strategy and experience

Post by tadamsmar » Thu Jun 27, 2019 1:03 pm

willthrill81 wrote:
Thu Jun 27, 2019 10:58 am
Here's what I actually said.
I know that my portfolio is a sort of guinea pig, and I know that the long-term results of my strategy may be poor.
It's not just that you know that the long-term results may be poor. In other posts, you give the impression that you don't have a long term investing plan.

It occurs to me that you are different from most of the folks posting here: (1) You think of yourself as a guinea pig and you think of your investing as an experiment and (2) You don't plan to stick with the strategy, you don't have a long-term strategy (or at least you have not laid it out).

It sounds like you are dabbling or something.

In my case, I have been using BH-style plan for 19+ years and I plan to stick with it.

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Re: My trend following strategy and experience

Post by willthrill81 » Thu Jun 27, 2019 1:08 pm

tadamsmar wrote:
Thu Jun 27, 2019 1:03 pm
willthrill81 wrote:
Thu Jun 27, 2019 10:58 am
Here's what I actually said.
I know that my portfolio is a sort of guinea pig, and I know that the long-term results of my strategy may be poor.
It's not just that you know that the long-term results may be poor. In other posts, you give the impression that you don't have a long term investing plan.

It occurs to me that you are different from most of the folks posting here: (1) You think of yourself as a guinea pig and you think of your investing as an experiment and (2) You don't plan to stick with the strategy, you don't have a long-term strategy (or at least you have not laid it out).

It sounds like you are dabbling or something.

In my case, I have been using BH-style plan for 19+ years and I plan to stick with it.
I don't argue with #1, but I do plan to stick with my strategy and have said so repeatedly, so I have no idea where you're getting #2 from.
“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 » Thu Jun 27, 2019 1:10 pm

BlueEars wrote:
Thu Jun 27, 2019 12:21 pm
willthrill81 wrote:
Thu Jun 27, 2019 11:30 am
Rowan Oak wrote:
Thu Jun 27, 2019 11:25 am
The author of that post "He also provides an excellent overview to why trend following works" referenced in the OP was mentioned today in a post by Ben Carlson (A wealth of common sense): Will Trend-Following Continue to Disappoint?
pseudonymous blogger, Jesse Livermore (Philosophical Economics), wrote a piece a few years ago that provided a comprehensive backtest of trend-following across a number of countries and markets.

This week he was on Patrick O’Shaughnessy’s Invest Like the Best podcast and they discussed this post and Livermore’s thoughts on trend going forward.

He said he’s agnostic about trend-following as a strategy but worried it could disappoint investors going forward. The theory he threw out there is that it’s possible we could see longer cycles that are absent of the boom-bust nature we’ve grown accustomed to, with lower inflation, and the Fed being able to step in more often to soften the blow when markets do fall.
Carlson himself said almost the exact same thing as I have in this thread and been criticized over.
Trend-following works much in the same way as it’s something of an insurance strategy in that you pay premiums over time that cost you money (in the form of whipsaw trades where you sell out and buy back in at a higher level) to insure against catastrophe (missing a big chunk of a huge crash).

Is it possible we don’t have another giant crash for a few decades? Yes, it’s possible and a scenario I think investors should prepare themselves for. The 2007-2009 and 2000-2002 crashes may have been an aberration in that they occurred so close to one another.

But is it also possible we’ll have a massive crash over the next couple of decades that chops the stock market in half yet again? Of course it is!
emphasis added
Regarding the red text, there can easily be a decade or more before the next major decline. Here are some examples taken from one of my TF spreadsheets which employs a 10 month SMA and the unemployment data. I just want to emphasize how long it may be between big (generally recessionary) market declines.

Sept 1957 to Dec 1969 (~12 years between the last big decline and start next big decline that takes one out of market)
Sept 1970 to Mar 1974 (~4 years)
Feb 1971 to Mar 2001 (~30 years)
May 2003 to Dec 2007 (~5 years)

In between those times there were a 2 whipsaws and 3 more modest out of market gains. So one must really follow this, possibly for decades, to see how it all works out. Few would have the patience especially with life events happening and possibly some intervening whipsaws.
Indeed. Similarly, a buy-and-hold investor starting in the early 1980s never really saw bigger than about a 25% decline in stocks for nearly 20 years, but then they saw two such declines in under a decade (i.e. 2000-2009). The BAH investor who started around 2000 had a rough start. Value investors have seen the value premium be negative for well over a decade, and the small premium has been negative for 30 years before.
“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 Forester » Thu Jun 27, 2019 1:12 pm

BlueEars wrote:
Thu Jun 27, 2019 12:21 pm
willthrill81 wrote:
Thu Jun 27, 2019 11:30 am
Rowan Oak wrote:
Thu Jun 27, 2019 11:25 am
The author of that post "He also provides an excellent overview to why trend following works" referenced in the OP was mentioned today in a post by Ben Carlson (A wealth of common sense): Will Trend-Following Continue to Disappoint?
pseudonymous blogger, Jesse Livermore (Philosophical Economics), wrote a piece a few years ago that provided a comprehensive backtest of trend-following across a number of countries and markets.

This week he was on Patrick O’Shaughnessy’s Invest Like the Best podcast and they discussed this post and Livermore’s thoughts on trend going forward.

He said he’s agnostic about trend-following as a strategy but worried it could disappoint investors going forward. The theory he threw out there is that it’s possible we could see longer cycles that are absent of the boom-bust nature we’ve grown accustomed to, with lower inflation, and the Fed being able to step in more often to soften the blow when markets do fall.
Carlson himself said almost the exact same thing as I have in this thread and been criticized over.
Trend-following works much in the same way as it’s something of an insurance strategy in that you pay premiums over time that cost you money (in the form of whipsaw trades where you sell out and buy back in at a higher level) to insure against catastrophe (missing a big chunk of a huge crash).

Is it possible we don’t have another giant crash for a few decades? Yes, it’s possible and a scenario I think investors should prepare themselves for. The 2007-2009 and 2000-2002 crashes may have been an aberration in that they occurred so close to one another.

But is it also possible we’ll have a massive crash over the next couple of decades that chops the stock market in half yet again? Of course it is!
emphasis added
Regarding the red text, there can easily be a decade or more before the next major decline. Here are some examples taken from one of my TF spreadsheets which employs a 10 month SMA and the unemployment data. I just want to emphasize how long it may be between big (generally recessionary) market declines.

Sept 1957 to Dec 1969 (~12 years between the last big decline and start next big decline that takes one out of market)
Sept 1970 to Mar 1974 (~4 years)
Feb 1971 to Mar 2001 (~30 years)
May 2003 to Dec 2007 (~5 years)

In between those times there were a 2 whipsaws and 3 more modest out of market gains. So one must really follow this, possibly for decades, to see how it all works out. Few would have the patience especially with life events happening and possibly some intervening whipsaws.
As I understand willthrill is also switching between US and ex-US stocks. This aspect of TF did hold up in the 2010s, staying in US stocks (imprecisely).

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Re: My trend following strategy and experience

Post by abc132 » Thu Jun 27, 2019 1:50 pm

willthrill81 wrote:
Thu Jun 27, 2019 1:10 pm
The BAH investor who started around 2000 had a rough start. Value investors have seen the value premium be negative for well over a decade, and the small premium has been negative for 30 years before.
Those that bought and held through 2000 and 2008 have done very well.

They should have roughly twice their contributions.

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Re: My trend following strategy and experience

Post by willthrill81 » Thu Jun 27, 2019 1:50 pm

Forester wrote:
Thu Jun 27, 2019 1:12 pm
BlueEars wrote:
Thu Jun 27, 2019 12:21 pm
willthrill81 wrote:
Thu Jun 27, 2019 11:30 am
Rowan Oak wrote:
Thu Jun 27, 2019 11:25 am
The author of that post "He also provides an excellent overview to why trend following works" referenced in the OP was mentioned today in a post by Ben Carlson (A wealth of common sense): Will Trend-Following Continue to Disappoint?
pseudonymous blogger, Jesse Livermore (Philosophical Economics), wrote a piece a few years ago that provided a comprehensive backtest of trend-following across a number of countries and markets.

This week he was on Patrick O’Shaughnessy’s Invest Like the Best podcast and they discussed this post and Livermore’s thoughts on trend going forward.

He said he’s agnostic about trend-following as a strategy but worried it could disappoint investors going forward. The theory he threw out there is that it’s possible we could see longer cycles that are absent of the boom-bust nature we’ve grown accustomed to, with lower inflation, and the Fed being able to step in more often to soften the blow when markets do fall.
Carlson himself said almost the exact same thing as I have in this thread and been criticized over.
Trend-following works much in the same way as it’s something of an insurance strategy in that you pay premiums over time that cost you money (in the form of whipsaw trades where you sell out and buy back in at a higher level) to insure against catastrophe (missing a big chunk of a huge crash).

Is it possible we don’t have another giant crash for a few decades? Yes, it’s possible and a scenario I think investors should prepare themselves for. The 2007-2009 and 2000-2002 crashes may have been an aberration in that they occurred so close to one another.

But is it also possible we’ll have a massive crash over the next couple of decades that chops the stock market in half yet again? Of course it is!
emphasis added
Regarding the red text, there can easily be a decade or more before the next major decline. Here are some examples taken from one of my TF spreadsheets which employs a 10 month SMA and the unemployment data. I just want to emphasize how long it may be between big (generally recessionary) market declines.

Sept 1957 to Dec 1969 (~12 years between the last big decline and start next big decline that takes one out of market)
Sept 1970 to Mar 1974 (~4 years)
Feb 1971 to Mar 2001 (~30 years)
May 2003 to Dec 2007 (~5 years)

In between those times there were a 2 whipsaws and 3 more modest out of market gains. So one must really follow this, possibly for decades, to see how it all works out. Few would have the patience especially with life events happening and possibly some intervening whipsaws.
As I understand willthrill is also switching between US and ex-US stocks. This aspect of TF did hold up in the 2010s, staying in US stocks (imprecisely).
Correct. Currently, I'm about 50% in EM.
“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 abc132 » Thu Jun 27, 2019 2:04 pm

My beef with the original strategy is that it is inappropriate to the investing goals and risk tolerance laid out in the original post.

- chasing performance
- false sense of safety
- original post hints of some sort of guarantee that trend will prevent a big decline, and no mention in many pages that it can do worse in a big decline
- trend is inappropriate for someone that can't make decisions

Buy and hold would be a much better strategy than trend for someone that can't make decisions. Willthrills can do whatever he wants, but nobody should read his strategy and think it provides guaranteed safety during the big one. Someone risk averse should not use this strategy as implemented. It lacks diversification. It uses market timing. It doesn't provide the safety of bonds.

We have heard that we can't judge the method by it's performance within a 10 year period, and yet Will thrills recently mentioned some recovery from his whipsaw as meaningful. Which one is it? Do short term results matter or not?

The talk about the whipsaw was used to demonstrate the method can take all of a decline and miss out on some of the returns - that it can do worse in a downturn. That is something that is directly contradictory to the statements in the OP that the method will provide safety during a big downturn. Trend doesn't have to provide safety, and it can do worse in a downturn.
Last edited by abc132 on Thu Jun 27, 2019 2:05 pm, edited 1 time in total.

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Re: My trend following strategy and experience

Post by Barsoom » Thu Jun 27, 2019 2:04 pm

abc132 wrote:
Thu Jun 27, 2019 1:50 pm
willthrill81 wrote:
Thu Jun 27, 2019 1:10 pm
The BAH investor who started around 2000 had a rough start. Value investors have seen the value premium be negative for well over a decade, and the small premium has been negative for 30 years before.
Those that bought and held through 2000 and 2008 have done very well.

They should have roughly twice their contributions.
Question: In your opinion, what about impacts to those retirees in the decumulation phase?

If someone is in a "hold and sell" mode, would avoiding the big drop be preferable to the risk of buying back in at a higher price?

In the former, would retirees drastically cut their lifestyle to fit a 50% drop in wealth or continue to spend in the expectation of the market growing back in a year or three?

In the latter, would retirees prefer to sustain their balances but perhaps lose 10% in a buyback at a higher price?

Would whipsaws slowly eat away at a retiree's accumulated wealth, or would only acting on the accumulation of long and short term signals to protect against the big drop (as long as it's not sudden) be the way to go?

-B

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Re: My trend following strategy and experience

Post by abc132 » Thu Jun 27, 2019 2:09 pm

Barsoom wrote:
Thu Jun 27, 2019 2:04 pm
abc132 wrote:
Thu Jun 27, 2019 1:50 pm
willthrill81 wrote:
Thu Jun 27, 2019 1:10 pm
The BAH investor who started around 2000 had a rough start. Value investors have seen the value premium be negative for well over a decade, and the small premium has been negative for 30 years before.
Those that bought and held through 2000 and 2008 have done very well.

They should have roughly twice their contributions.
Question: In your opinion, what about impacts to those retirees in the decumulation phase?

If someone is in a "hold and sell" mode, would avoiding the big drop be preferable to the risk of buying back in at a higher price?

In the former, would retirees drastically cut their lifestyle to fit a 50% drop in wealth or continue to spend in the expectation of the market growing back in a year or three?

In the latter, would retirees prefer to sustain their balances but perhaps lose 10% in a buyback at a higher price?

Would whipsaws slowly eat away at a retiree's accumulated wealth, or would only acting on the accumulation of long and short term signals to protect against the big drop (as long as it's not sudden) be the way to go?

-B
In my opinion, if you took a portfolio through the best bull market in history with a great bond run preceding, and are having problems during decumulation, there was something majorly wrong with your plan. The people panicking in 2008 seem to be doing quite well. Hopefully they learned about emergency funds and asset allocation.

Please look at the linked article by Rowan Oak, specifically at Japan before you tell us that trend prevents the big drop. It might, but it does not guarantee it. It can do worse than buy and hold during a big drop. You have proof in this article of that. The original plan, as implemented, is not a good substitute for a plan that is guaranteed to do better during a big drop, which is one including bonds.

Do you want a chance of doing better in the next big drop, or a guarantee? The answer should be obvious for the risk averse, and less obvious for one willing to take risk for a chance at performance.

Some people have offered much better trend following portfolios than the original post.

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Re: My trend following strategy and experience

Post by abc132 » Thu Jun 27, 2019 2:53 pm

Given that the original strategy was built on the ideas that
- it's okay to take worse performance if you can prevent the big one
- they would capitulate during a big market drop using buy and hold

Now that we know the strategy can experience all of the losses, and do even worse (this years whipsaw, Japan data for trend doing worse during the big one), does anyone really believe the idea that Willthrills won't capitulate if trend does worse in a big downturn, after specifically saying he would capitulate from B&H losses?

Someone has set a psychological trap where they have to believe trend can not do worse in a big downturn to justify the strategy.

This plan could fail miserably, and the writing is on the wall for how this could happen.

Risk averse beware of this strategy, as implemented.

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Re: My trend following strategy and experience

Post by pjana » Thu Jun 27, 2019 3:10 pm

I have enjoyed reading this discussion but have hidden in the background. You see, I too am a trend trader. I switched to a mechanical system after the 1987 crash. To those who lived through it, it wasn't just a mere blip on the radar. It was a very serious market crash! Of the few who foresaw this was Marty Zweig, a technical trader. I was hooked and have remain a trend trader since, avoiding most of the 1998, 2000-2001 and 2008 bear markets.
My system is similar to the OP but with different indicators. ( I was one of the first users of just about every trading software that exists today. I had the ability to backtest many indicators and markets). I now trade active etf's.

My reason for responding is to address "whipsaws", those small losses that occur prior to a major trend change. What I am suggesting comes from a unimpressive book (1998) "Trading as a Business" by Charlie Wright. It is suggested you use the technical signal as the alert (setup) but wait for price action to confirm (entry). As an example, a downside crossing of a moving average would be sell alert. I would then place a sell stop 2% below the low of the previous month's bar. A crossing above the moving average would be a buy alert. I would then place a buy stop 3% above the high price of the previous months bar. ( the 2%, 3% (does not apply to bonds) rule is for monthly bars only. By placing these type of market orders at the end of each month, you avoid emotional trading. You let the market decide.

This small addition to the trading rules eliminates a majority of whipsaws and greatly improves the percentage of profitable trades. However, it lowers total profits as you are basically giving back 5% per trade. But trading monthly bars you are trading full market cycles lasting years with the potential of large profits. To me, that 2% or 3% gives me greater confidence in my signal.

My point, whipsaws are a small cost of doing business. They are annoying but many can be reduced but allowing price action to confirm technical signals.

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Re: My trend following strategy and experience

Post by BlueEars » Thu Jun 27, 2019 4:08 pm

willthrill81 wrote:
Thu Jun 27, 2019 1:50 pm
Forester wrote:
Thu Jun 27, 2019 1:12 pm
BlueEars wrote:
Thu Jun 27, 2019 12:21 pm
willthrill81 wrote:
Thu Jun 27, 2019 11:30 am
Rowan Oak wrote:
Thu Jun 27, 2019 11:25 am
The author of that post "He also provides an excellent overview to why trend following works" referenced in the OP was mentioned today in a post by Ben Carlson (A wealth of common sense): Will Trend-Following Continue to Disappoint?
Carlson himself said almost the exact same thing as I have in this thread and been criticized over.
Trend-following works much in the same way as it’s something of an insurance strategy in that you pay premiums over time that cost you money (in the form of whipsaw trades where you sell out and buy back in at a higher level) to insure against catastrophe (missing a big chunk of a huge crash).

Is it possible we don’t have another giant crash for a few decades? Yes, it’s possible and a scenario I think investors should prepare themselves for. The 2007-2009 and 2000-2002 crashes may have been an aberration in that they occurred so close to one another.

But is it also possible we’ll have a massive crash over the next couple of decades that chops the stock market in half yet again? Of course it is!
emphasis added
Regarding the red text, there can easily be a decade or more before the next major decline. Here are some examples taken from one of my TF spreadsheets which employs a 10 month SMA and the unemployment data. I just want to emphasize how long it may be between big (generally recessionary) market declines.

Sept 1957 to Dec 1969 (~12 years between the last big decline and start next big decline that takes one out of market)
Sept 1970 to Mar 1974 (~4 years)
Feb 1971 to Mar 2001 (~30 years)
May 2003 to Dec 2007 (~5 years)

In between those times there were a 2 whipsaws and 3 more modest out of market gains. So one must really follow this, possibly for decades, to see how it all works out. Few would have the patience especially with life events happening and possibly some intervening whipsaws.
As I understand willthrill is also switching between US and ex-US stocks. This aspect of TF did hold up in the 2010s, staying in US stocks (imprecisely).
Correct. Currently, I'm about 50% in EM.
I've also been using the US/Intl switch for the 40% part I allocate to international. Been doing this since 2009. Currently 100% US.

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Re: My trend following strategy and experience

Post by abc132 » Thu Jun 27, 2019 4:14 pm

willthrill81 wrote:
Thu Jun 27, 2019 11:24 am

You and one other person in this thread seem to have taken it upon yourself to warn others about TF. I'm not really sure why though since this thread is littered with such comments from others, and this thread is merely "my trend following strategy and experience" and nothing more. Not once have I recommended this strategy, and I've repeatedly pointed out that whipsaws are inevitable and that the results over the short-term or long-term compared to BAH may be poor. Besides abandoning the thread, I don't see what you want me to do here.
The answer is simple. You have titled this thread your trend following experience, but you are not actually posting your experience - your trades - in any meaningful way. We don't even know what your experience is. You were too busy to do so, even though you have spent much more time than what have been required to simply post your monthly trades so people can understand your experience. It takes you a few minutes a month to make your trades, but too much time to post them. Is that believable?

As a result, people have to try and sort through 100's of posts to figure out what you are doing, and look for clarifications. Many people are going to jump around, not read everything, or check out the most recent pages to look for information.

If you ever decide to actually document your experience, people would be able to look at your results and see what can happen with trend, and nobody would need to talk about whipsaws because your results would clearly show what they are and how/where they occur with your system. It would be directly evident in the OP that you experienced all of the market decline in 2018, and missed much of the recovery, without referring to pages 7,12, and 19.

Your claims in the OP are dubious - that trend must provide safety during a big downturn. It's part of your rationalization and justification of choosing the method. If you want to throw in the OP that trend may do worse than B&H in a big downturn, and post your monthly trades, this thread would truly be about your trend following experience.

I haven't objected to other people's trend following methods - so have you considered maybe the comments are specific to your choices?

Talking about your choices is in the scope of this thread, and much more so than those that want to share their own trend strategies and choices.

Please decide if this is a thread to discuss trend strategies, and whether only ideas supporting trend are allowed, or if this thread is actually going to be about your trend experience.

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Re: My trend following strategy and experience

Post by HomerJ » Thu Jun 27, 2019 6:56 pm

willthrill81 wrote:
Thu Jun 27, 2019 11:47 am
but let's not pretend that Bogle was not market timing.
Bogle was market-timing.

Bogle is not a Boglehead.

I will admit that freely.

(Although his heart condition and worrying about his wife almost gives him a pass... Almost).
The J stands for Jay

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Re: My trend following strategy and experience

Post by HomerJ » Thu Jun 27, 2019 7:02 pm

pjana wrote:
Thu Jun 27, 2019 3:10 pm
My point, whipsaws are a small cost of doing business. They are annoying but many can be reduced but allowing price action to confirm technical signals.
So far, stock market crashes are a small cost of doing business.

I understand that you guys are worried about the next crash NOT recovering. It's true it could happen.

But that's all you are protecting yourself from. And you can protect yourself from that with a large allocation to bonds/CDs as well.

You trend followers want to have your cake and eat it too...

You want the big returns AND avoid the big losses.

I'll just take the decent returns with a 50/50 portfolio, and I don't have to worry if my "system" is going work going forward.
The J stands for Jay

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Re: My trend following strategy and experience

Post by willthrill81 » Thu Jun 27, 2019 7:29 pm

HomerJ wrote:
Thu Jun 27, 2019 7:02 pm
You want the big returns AND avoid the big losses.
If I can achieve similar returns but avoid the big drawdowns (i.e. -50%) of buy-and-hold, I'll be content. Some claim this to be a pipe dream, but folks such as Paul Merriman have done it for decades.
“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 abc132 » Thu Jun 27, 2019 7:41 pm

willthrill81 wrote:
Thu Jun 27, 2019 7:29 pm
HomerJ wrote:
Thu Jun 27, 2019 7:02 pm
You want the big returns AND avoid the big losses.
If I can achieve similar returns but avoid the big drawdowns (i.e. -50%) of buy-and-hold, I'll be content. Some claim this to be a pipe dream, but folks such as Paul Merriman have done it for decades.
Who claimed this to be a pipe dream?

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Re: My trend following strategy and experience

Post by abc132 » Thu Jun 27, 2019 7:49 pm

willthrill81 wrote:
Thu Jun 27, 2019 7:29 pm
HomerJ wrote:
Thu Jun 27, 2019 7:02 pm
You want the big returns AND avoid the big losses.
If I can achieve similar returns but avoid the big drawdowns (i.e. -50%) of buy-and-hold, I'll be content. Some claim this to be a pipe dream, but folks such as Paul Merriman have done it for decades.
This guy?

https://paulmerriman.com/why-market-timing-doesnt-work/

Did you skip these?

"Third, don’t neglect proper asset allocation and diversification. My timed portfolio holds the same asset classes as my buy-and-hold portfolio. Don’t invest in gold or other commodity funds, and don’t put more than 10% of your portfolio into any single fund."

"Fourth, timing should not be your only defensive strategy. Your portfolio should include bond funds too. Together, these approaches can keep losses relatively manageable."


You've skipped the things that would actually make your portfolio defensive, because you are chasing performance.

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Re: My trend following strategy and experience

Post by LadyGeek » Thu Jun 27, 2019 8:32 pm

The discussion is getting contentious. As reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
Please stay on-topic and state your concerns in a civil, factual, manner. The OP's intent:
willthrill81 wrote:
Thu Jan 17, 2019 7:16 pm
...Most of those who have been around here long know that I'm a trend follower. Yes, this means that I time the market, but I use a carefully researched system to do so. It is entirely objective; there is no subjective element as to what I should do (i.e. no feelings or guesses). Yes, there were certainly aspects of subjectivity that went into the creation of this strategy, such as my decision to use a 7 month moving average for part of it (more on that below), but it is now an objective one.

There are several reasons why I opted to switch to trend following...

The primary reason I'm posting all of this is for the sake of those who have asked me to post when I moved out of stocks, as well as to serve as record of the experiment I'm doing.

...When my system calls for me to move back into stocks, I'll post that here.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: My trend following strategy and experience

Post by HomerJ » Thu Jun 27, 2019 9:02 pm

willthrill81 wrote:
Thu Jun 27, 2019 7:29 pm
HomerJ wrote:
Thu Jun 27, 2019 7:02 pm
You want the big returns AND avoid the big losses.
If I can achieve similar returns but avoid the big drawdowns (i.e. -50%) of buy-and-hold, I'll be content. Some claim this to be a pipe dream, but folks such as Paul Merriman have done it for decades.
He has 50% of his money doing what I do, and 50% doing what you do.

He doesn't know either which way will work...

Why are you going 100% in on this, when he won't?
The J stands for Jay

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Re: My trend following strategy and experience

Post by BlueEars » Thu Jun 27, 2019 9:16 pm

HomerJ wrote:
Thu Jun 27, 2019 9:02 pm
willthrill81 wrote:
Thu Jun 27, 2019 7:29 pm
HomerJ wrote:
Thu Jun 27, 2019 7:02 pm
You want the big returns AND avoid the big losses.
If I can achieve similar returns but avoid the big drawdowns (i.e. -50%) of buy-and-hold, I'll be content. Some claim this to be a pipe dream, but folks such as Paul Merriman have done it for decades.
He has 50% of his money doing what I do, and 50% doing what you do.

He doesn't know either which way will work...

Why are you going 100% in on this, when he won't?
Could be an age difference or personality difference or resources difference or all of the above.

Personally since I am retired with substantial assets (but maybe not as much as Merriman) I don’t want a big drawdown even with a 60/40 AA. I take the risk I want and accept the consequences. I don’t know Merriman’s situation or anyone else’s in detail so why use them as a model?

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305pelusa
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Re: My trend following strategy and experience

Post by 305pelusa » Thu Jun 27, 2019 9:29 pm

abc132 wrote:
Thu Jun 27, 2019 4:14 pm

The answer is simple. You have titled this thread your trend following experience, but you are not actually posting your experience - your trades - in any meaningful way. We don't even know what your experience is. You were too busy to do so, even though you have spent much more time than what have been required to simply post your monthly trades so people can understand your experience. It takes you a few minutes a month to make your trades, but too much time to post them. Is that believable?
?? OP doesn't owe anyone anything. If he doesn't feel like spending time typing in his trades, that's cool. And if he spends 100x more time just responding, that's also cool. And if that's inconsistent with the thread title he chose, then that's also perfectly fine.
abc132 wrote:
Thu Jun 27, 2019 4:14 pm
As a result, people have to try and sort through 100's of posts to figure out what you are doing, and look for clarifications. Many people are going to jump around, not read everything, or check out the most recent pages to look for information.
It's also not OP's responsibility to make a tidy thread that's easy to read. He made a thread describing what he does, opened it for questions and has kindly answered them in time. He's done a great job bringing this topic to light. You're seriously going to give him a hard time because people have to read through the thread or might misinterpret the information?
abc132 wrote:
Thu Jun 27, 2019 4:14 pm
It would be directly evident in the OP that you experienced all of the market decline in 2018, and missed much of the recovery, without referring to pages 7,12, and 19.
@OP: I literally don't comprehend why this keeps getting brought up as some kind of failure of the strategy. It is part of the strategy. Most of the time, OP will get whipsawed. But it's avoiding that huge, extended drawdown that matters.

Have there been any significant depressions that the strategy did not protect the OP from since implemented? No there haven't. So the strategy is fine so far, doing as intended.

Also, it's easy to throw shade on it once the event happened. It's called hindsight bias. But when December was happening, there was a nonzero possibility that could have been an extended downturn Bear market. And the OP would've avoided it. But as humans we forget that (survivorship bias) because we aren't wiring to handle probability well. Just because something didn't work well doesn't mean it wasn't the right thing to do; and just because something did work well doesn't mean it's the right thing to do either.
abc132 wrote:
Thu Jun 27, 2019 4:14 pm
Please decide if this is a thread to discuss trend strategies and whether only ideas supporting trend are allowed, or if this thread is actually going to be about your trend experience.
That's unfair to the OP. He has been very open about his strategy, cordial and responsive to questions and addressed criticism. Seriously, every response I've seen from him is decent and meaningful.

@OP: You have done a great job so far and know that at least one person has zero complaints about this thread. If anything, only praise from bringing it to light and letting us hear about it. Kudos.

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Thu Jun 27, 2019 9:43 pm

HomerJ wrote:
Thu Jun 27, 2019 9:02 pm
willthrill81 wrote:
Thu Jun 27, 2019 7:29 pm
HomerJ wrote:
Thu Jun 27, 2019 7:02 pm
You want the big returns AND avoid the big losses.
If I can achieve similar returns but avoid the big drawdowns (i.e. -50%) of buy-and-hold, I'll be content. Some claim this to be a pipe dream, but folks such as Paul Merriman have done it for decades.
He has 50% of his money doing what I do, and 50% doing what you do.

He doesn't know either which way will work...

Why are you going 100% in on this, when he won't?
Probably for the same reason that most here are 100% buy-and-hold.
“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

abc132
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Re: My trend following strategy and experience

Post by abc132 » Thu Jun 27, 2019 9:53 pm

305pelusa wrote:
Thu Jun 27, 2019 9:29 pm

?? OP doesn't owe anyone anything. If he doesn't feel like spending time typing in his trades, that's cool. And if he spends 100x more time just responding, that's also cool. And if that's inconsistent with the thread title he chose, then that's also perfectly fine.
If that's the case he shouldn't call out two people specifically for what they post about. He can't have it both ways.


305pelusa wrote:
Thu Jun 27, 2019 9:29 pm
@OP: I literally don't comprehend why this keeps getting brought up as some kind of failure of the strategy. It is part of the strategy. Most of the time, OP will get whipsawed. But it's avoiding that huge, extended drawdown that matters.
Because having bonds and diversification are what make this likely. These are missing from the strategy.

Listen to Paul Merriman.

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Re: My trend following strategy and experience

Post by HomerJ » Thu Jun 27, 2019 9:55 pm

willthrill81 wrote:
Thu Jun 27, 2019 9:43 pm
HomerJ wrote:
Thu Jun 27, 2019 9:02 pm
willthrill81 wrote:
Thu Jun 27, 2019 7:29 pm
HomerJ wrote:
Thu Jun 27, 2019 7:02 pm
You want the big returns AND avoid the big losses.
If I can achieve similar returns but avoid the big drawdowns (i.e. -50%) of buy-and-hold, I'll be content. Some claim this to be a pipe dream, but folks such as Paul Merriman have done it for decades.
He has 50% of his money doing what I do, and 50% doing what you do.

He doesn't know either which way will work...

Why are you going 100% in on this, when he won't?
Probably for the same reason that most here are 100% buy-and-hold.
Touche`. Sounds like Merriman is the smart one, not us :)
The J stands for Jay

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Thu Jun 27, 2019 10:33 pm

HomerJ wrote:
Thu Jun 27, 2019 9:55 pm
willthrill81 wrote:
Thu Jun 27, 2019 9:43 pm
HomerJ wrote:
Thu Jun 27, 2019 9:02 pm
willthrill81 wrote:
Thu Jun 27, 2019 7:29 pm
HomerJ wrote:
Thu Jun 27, 2019 7:02 pm
You want the big returns AND avoid the big losses.
If I can achieve similar returns but avoid the big drawdowns (i.e. -50%) of buy-and-hold, I'll be content. Some claim this to be a pipe dream, but folks such as Paul Merriman have done it for decades.
He has 50% of his money doing what I do, and 50% doing what you do.

He doesn't know either which way will work...

Why are you going 100% in on this, when he won't?
Probably for the same reason that most here are 100% buy-and-hold.
Touche`. Sounds like Merriman is the smart one, not us :)
Probably. :D
“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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Rowan Oak
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Re: My trend following strategy and experience

Post by Rowan Oak » Fri Jun 28, 2019 12:00 am

HomerJ wrote:
Thu Jun 27, 2019 9:55 pm
willthrill81 wrote:
Thu Jun 27, 2019 9:43 pm
HomerJ wrote:
Thu Jun 27, 2019 9:02 pm
willthrill81 wrote:
Thu Jun 27, 2019 7:29 pm
HomerJ wrote:
Thu Jun 27, 2019 7:02 pm
You want the big returns AND avoid the big losses.
If I can achieve similar returns but avoid the big drawdowns (i.e. -50%) of buy-and-hold, I'll be content. Some claim this to be a pipe dream, but folks such as Paul Merriman have done it for decades.
He has 50% of his money doing what I do, and 50% doing what you do.

He doesn't know either which way will work...

Why are you going 100% in on this, when he won't?
Probably for the same reason that most here are 100% buy-and-hold.
Touche`. Sounds like Merriman is the smart one, not us :)
What you said reminded me of something I heard Josh Brown (The Reformed Broker) and Barry Ritholtz (The Big Picture) (both of Ritholtz Wealth Management) say when talking about their "tactical portfolio" recently :

Barry Ritholtz: "It's rules driven. It's pretty basic quantitative strategy. The idea is if 20% of your holdings is in a portfolio that gets out of the way for the fat part of a 30% or 40% market collapse then you could leave your real money alone and not try and market time. Not that this market times, but it's basically a trend following system and the idea is if the market really has a wild hiccup your average 70% stock/30 bond portfolio with a 20% slug in the tactical (trend following system) it ends up looking like 50/50 and so if you can't withstand a 20% drawdown in your portfolio which is what a 50/50 portfolio should do in a 40% crash then you shouldn't be in equities."

So they aren't doing 50% buy-and-hold and 50% trend following, but rather a 20% trend, 80% buy-and-hold which they say is the equivalent of a 50/50 buy-and-hold if I'm understanding correctly.

Not sure why he says "Not that this market times, but it's basically a trend following system...".

Of course, they're probably going to take 1-2% AUM (assets under management) fee to implement this strategy for you, financial planning and probably plenty of behavioral coaching for clients in their tactical portfolio.

Barry talked about it here https://ritholtz.com/2018/08/trillions- ... t-passive/
Josh talked about it some here https://thereformedbroker.com/2019/06/26/how-we-roll/
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Forester
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Re: My trend following strategy and experience

Post by Forester » Fri Jun 28, 2019 4:59 am

Merriman must have made a ton of money in the 2000s, he had a great setup if he was doing the tilts & TF.
Rowan Oak wrote:
Fri Jun 28, 2019 12:00 am
Barry Ritholtz: "It's rules driven. It's pretty basic quantitative strategy. The idea is if 20% of your holdings is in a portfolio that gets out of the way for the fat part of a 30% or 40% market collapse then you could leave your real money alone and not try and market time. Not that this market times, but it's basically a trend following system and the idea is if the market really has a wild hiccup your average 70% stock/30 bond portfolio with a 20% slug in the tactical (trend following system) it ends up looking like 50/50 and so if you can't withstand a 20% drawdown in your portfolio which is what a 50/50 portfolio should do in a 40% crash then you shouldn't be in equities."
Agree 100%. Even better if one can get someone else to follow the system on your behalf, I wish there was a tactical ETF US-Foreign-Bonds so that a TF strategy could be treated like any other asset which is forgotten about until it needs to be rebalanced.

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Fri Jun 28, 2019 8:11 am

willthrill81 wrote:
Thu Jun 27, 2019 1:08 pm
tadamsmar wrote:
Thu Jun 27, 2019 1:03 pm
willthrill81 wrote:
Thu Jun 27, 2019 10:58 am
Here's what I actually said.
I know that my portfolio is a sort of guinea pig, and I know that the long-term results of my strategy may be poor.
It's not just that you know that the long-term results may be poor. In other posts, you give the impression that you don't have a long term investing plan.

It occurs to me that you are different from most of the folks posting here: (1) You think of yourself as a guinea pig and you think of your investing as an experiment and (2) You don't plan to stick with the strategy, you don't have a long-term strategy (or at least you have not laid it out).

It sounds like you are dabbling or something.

In my case, I have been using BH-style plan for 19+ years and I plan to stick with it.
I don't argue with #1, but I do plan to stick with my strategy and have said so repeatedly, so I have no idea where you're getting #2 from.
Here is a quote you are saying that you would perhaps do (for instance) a 20% allocation to safer assets instead of the 100% trend following:
willthrill81 wrote:Perhaps I'll do so when I get closer to retirement, but that's still ~17 years away.
viewtopic.php?f=10&t=270035&p=4557448&h ... d#p4557448

Not sure that this is the only place I got #2 from in this whole long thread.

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Fri Jun 28, 2019 8:48 am

willthrill81 wrote:
Thu Jun 27, 2019 11:24 am
...this thread is merely "my trend following strategy and experience" and nothing more.
I have the impression that the typical thread here is about the poster's strategy and experience investing the family nest egg. By "family nest egg" I mean pretty much the entire life savings of a husband and wife.

Some Bogleheads do post here about their "fun money" which they invest in a different manner not so boring. I have have seen references to 20% allocations to "fun money" so that could be a substantial sum.

I see indications that this thread is not about your "family nest egg investing strategy and experience".

You say "We save approximately 50% of our gross income..." which implies that you and your wife may have substantial taxable savings. You don't seem to be doing trend following with your taxable savings. This implies that your overall investing strategy is different from your tread following strategy.

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Re: My trend following strategy and experience

Post by willthrill81 » Fri Jun 28, 2019 9:32 am

tadamsmar wrote:
Fri Jun 28, 2019 8:11 am
willthrill81 wrote:
Thu Jun 27, 2019 1:08 pm
tadamsmar wrote:
Thu Jun 27, 2019 1:03 pm
willthrill81 wrote:
Thu Jun 27, 2019 10:58 am
Here's what I actually said.
I know that my portfolio is a sort of guinea pig, and I know that the long-term results of my strategy may be poor.
It's not just that you know that the long-term results may be poor. In other posts, you give the impression that you don't have a long term investing plan.

It occurs to me that you are different from most of the folks posting here: (1) You think of yourself as a guinea pig and you think of your investing as an experiment and (2) You don't plan to stick with the strategy, you don't have a long-term strategy (or at least you have not laid it out).

It sounds like you are dabbling or something.

In my case, I have been using BH-style plan for 19+ years and I plan to stick with it.
I don't argue with #1, but I do plan to stick with my strategy and have said so repeatedly, so I have no idea where you're getting #2 from.
Here is a quote you are saying that you would perhaps do (for instance) a 20% allocation to safer assets instead of the 100% trend following:
willthrill81 wrote:Perhaps I'll do so when I get closer to retirement, but that's still ~17 years away.
viewtopic.php?f=10&t=270035&p=4557448&h ... d#p4557448

Not sure that this is the only place I got #2 from in this whole long thread.
I was merely referring to de-risking by that point in time for much the same reason that we don't generally recommend retirees to be 100% stock.
tadamsmar wrote:
Fri Jun 28, 2019 8:48 am
willthrill81 wrote:
Thu Jun 27, 2019 11:24 am
...this thread is merely "my trend following strategy and experience" and nothing more.
I have the impression that the typical thread here is about the poster's strategy and experience investing the family nest egg. By "family nest egg" I mean pretty much the entire life savings of a husband and wife.

Some Bogleheads do post here about their "fun money" which they invest in a different manner not so boring. I have have seen references to 20% allocations to "fun money" so that could be a substantial sum.

I see indications that this thread is not about your "family nest egg investing strategy and experience".

You say "We save approximately 50% of our gross income..." which implies that you and your wife may have substantial taxable savings. You don't seem to be doing trend following with your taxable savings. This implies that your overall investing strategy is different from your tread following strategy.
We have no taxable accounts because we have over $76k of tax-advantaged space annually.
“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 » Fri Jun 28, 2019 10:49 am

willthrill81 wrote:
Fri Jun 28, 2019 9:32 am
I was merely referring to de-risking by that point in time for much the same reason that we don't generally recommend retirees to be 100% stock.
Interesting. It's true that we recommend de-risking into bonds. But you are appealing to a position that you rejected earlier. You took a stand against it for personal and objective reasons.

You said:
But I also know that it would be difficult for me to hang on to a significant portion of fixed income investments when things look good and stocks are on a tear. In other words, I do not believe that I am well suited to buy-and-hold.
and you said:
The answer to just balance that out with an adequate allocation to fixed income doesn't really satisfy me either though, because I know that bonds took a big hit in real dollars from 1977-1981, and stocks didn't balance things out too well then either; the 1940s were very rough on fixed income too.

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