Interesting link. Anyone using trend for safety should take a look at the Japan and Germany Trend.Rowan Oak wrote: ↑Wed Jun 26, 2019 5:54 pmInteresting from Wes Gray today (Alpha Architect)https://alphaarchitect.com/2019/06/26/t ... n-no-gain/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.
Welcome to the realities of equity trend-following. An open secret that is simple, but not easy.
- The behavioral challenges associated with trend-following are so severe that it is recommended that many investors should avoid trend-following strategies.
- 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.