Equity style rotation

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Equity Style
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Post by Equity Style » Fri Sep 25, 2009 8:41 pm

Gosh Drip I am amazed you spent so much time on your post. I am impressed. Moreover, you arguments are sound and logical. However, some of your facts are wrong.

The newsletter will probably never happen. I don't have time to check out the legal stuff involved nor how to register it with Hurlbert so it can be tracked. Some of my patients who have had a newsletter more than 20 years suggested it. It was never my intent to do anything but share when I posted since the beginning. Moreover, if it does come to fruition, Drip you will receive a lifetime free subscription! I will never mention the "newsletter" again. I apologize for bringing it up.

Nobody is paying me. That is ridiculous. If you knew me you would not make such a statement. Such behavior would be unethical and wrong. I don't espouse any newsletter and only used them as examples of how others have done well with similar systems. Besides, I have more money than I ever dreamed, why would I degrade myself in such a manner?

Since you guys won't believe me anyway, I will start posting more details. Have you read the posts from Journal articles I posted before? If not, I will repost them.

Drip, you are obviously a person of high integrity. I salute you!

ES

Equity Style
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Post by Equity Style » Fri Sep 25, 2009 8:49 pm

http://www.sulis-enterprises.com/images ... _curve.jpg

This is a link to the well established cycles of bipolar disorder.

More to come!

Equity Style
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Post by Equity Style » Fri Sep 25, 2009 9:09 pm

Ok Drip

Take the Vanguard 500 fund and plot it since its inception. If you superimpose a 100 day or 200 day average you will see a similar wave form as to that of the maniac depressive.

In both scenarios there are outside factors that effect the movement of the curve. For example, investments to to have an upward slope over any period of time. There is also a great deal of pure randomness.

However, the curves can be utilized to find what is going up, and jump on near the beginning, then jump off when a downward trend is noted.

The system doesn't work except at 3 months and longer. Less than that and the randomness doesn't not allow for patterns.

Remember, no one can predict what will happen in the future. The system does not predict, it only jumps on and off.

Look at OAREX. I purchased it in 1999 and kept it until 2007. Then I bought it again this year at a price much lower then I sold in 2007. If you graph it out you will see a pretty good example of the wave formation.

More to come.......

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DRiP Guy
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Post by DRiP Guy » Sat Sep 26, 2009 8:55 am

Equity Style wrote:Look at OAREX. I purchased it in 1999 and kept it until 2007. Then I bought it again this year at a price much lower then I sold in 2007. If you graph it out you will see a pretty good example of the wave formation.

More to come.......
Image
1. This is the last time I do your homework for you. Here is a chart of the S&P 500 vs Small cap fund you cited, including the 200 day moving average.

2. I don't see any wave comparable to a sine-like manic cycle, and I SURE did not see you associate a manic cycle to a market cycle, either. Yes, I see the momentum line crossing, and yes, someone could have used it as a buy/sell signal. Is that what you did?

3. Please just STATE YOUR THRESHOLDS, BUY/SELL ORDERS, QNTYS, SYMBOLS, and AMOUNTS IN ADVANCE, and I'll be happy to watch how you do going forward. Please don't forget to properly annotate trading costs, expenses, and new investment capital.

4. For example, you say you bought back in, right? At what level? On what date? Based on what 'signal'; i.e. is your baseline the SP500 for all choices in all eight sectors, or something else? Did you use the 200 day MA line? You bought in, so you will sell the moment the 200 day indicator is violated?

Look, I don't begrudge ANYONE the right to invest anyway they see fit, and to share their thoughts on what they are doing and why, but let's be sure to be clear here -- you are coming on to the HOME of buy and hold investing, and touting that you have a system that will outperform, and at lower risk, is that right? If so, then I think the request in #3 above, AND analysis BY YOU to illustrate such out-performance relative to standard buy-n-hold portfolios is the standard to be met.

Just coming on here after the fact and claiming some winning trade you made was 7% above the market return just does not cut the mustard.

Finally, you have totally FAILED to make your case that there is an association between manic cycles and the stock market return. You did not provide the requested data; merely a non-time scaled independent SCHEMATIC of wave behavior in a manic depressive, not DATA associated with such cycles and the stock market*. Facts and specifics, and testable hypothesis, and not 'hand waving tales of past glory,' please. Thanks.


*( the fact that there are, further, no links by you to a database of current manic-cycle information that the average investor could exploit to generate market buy and sell decisions based on those manic cycles, is a moot point)
Image

Equity Style
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Post by Equity Style » Sat Sep 26, 2009 7:46 pm

Drip,

The wave curve is very evident at the end of the curve. See where it starts to go down, bottoms and then starts moving up.

Although the theory is complex, the day to day system is usually simple.

I bought Oarex when it was performing the best over 6 months of the 20 some odd assets I follow. It actually dropped below the other funds in its class over a 3 month period and I switched to another Small-Mid Cap International fund. This March (I'll get the exact date if you would like) I purchased it back. True I missed some of the early upward movements, but I bought in at a much lower price than what I sold.

The Bipolar curve is an average. There is a significant variation. If you plot the overall market, say from 1929, you will see a variety of wave forms. If you average them out, then you see the same curve.

Going forward, make a spreadsheet of all the asset classes I have listed before. Then just pick the top 8 (less risk) or top 6 and invest in those. Check it every week or so (usually once a month does pretty good) and make changes as necessary.

As I have stated before, I have NO TRANSACTION COSTS in my investment accounts. However, if I had to pay for this service it would cost 1% per year. Using Scott Trade they only charge $ 17 if you keep a fund less than 3 months. Most positions are best to keep that long, so there is no transaction fees. In a taxable account, there is increase in taxes when the positions are volatile. This might be a deal breaker if Capital gains is pushed above 30%.

Instead of you having to do the work (you have already done your part) I will post all the positions and their last 3 month returns. I'll post them as often as you like.

Drip you are a good person who is doing a great job with their due diligence. I hope you catch on, cause you deserve it!!!!

ES

Equity Style
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Post by Equity Style » Sat Sep 26, 2009 10:10 pm

Drip,

Here are the etf's I follow. Sometimes there is no ETF and I have to use a Fund to follow instead.

Part 1 is to find the best areas. Part 2 is to look up the best mutual fund available in that category. It doesn't matter what the cost of the fund is (though I refuse to pay more than 1.8% as that is robbery.) Returns are always better than the index, more than enough to make up for the expense. (One does have to check for drift. Many funds just load up with what is doing well even if it is outside their style. This leads to over concentration in certain areas and increases risk.)

My system does not work with individual stocks. A mutual fund or etf with many stocks decreases the volatility down to where the system will work. I have also tried using shorts and other options, and also reverse funds. The increased volatility results in too wild of gyrations- the risk is overcomes the benefits.

I have already posted my positions, but will do so again if you would like.

Also, Drip if you think I shouldn't post anymore, then I will quit. I was just discussing my system with someone who uses it for part of his portfolio. Even though he uses it and has back tested it back since the 1990's, he still doesn't believe me. If someone has had superior returns over the past 5 or 6 years and they still don't understand, the paradigm shift appears to be too great to overcome.

Once again, anyone who uses a passive strategy with appropriate asset allocation as espoused by Mr. Bogle WILL CREAM THE MARKETS OVER PERIODS OF 10 YEARS OR MORE. All you have to do is re balance every 6-18 months and change allocation based on your investment horizon. It is simple, straightforward, and with better returns (actually probably less risk.) Using Mr. Bogles theories, the common man can beat any of Wall Street's finiest! Don't doubt for a minute that I do not believe in the Bogleheads way. I just found a way to improve results slightly.

Once again Drip, thank you for your good and excellent criticism!


* iShares iBoxx $ High Yi...
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HYG
12.42

* iShares MSCI EAFE Gr...
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EFG
15.37

* iShares MSCI EAFE Val...
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EFV

* iShares MSCI Emergin...
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EEM
18.47

* iShares Russell Microc...
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IWC
20.02

* iShares S&P Latin Ame...
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ILF
19.51

* iShares Silver Trust
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SLV
13.98

* Ivy Global Natural Res...
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IGNAX
14.31

* Payden Emerging Mar...
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PYEMX
13.13

Powershares (small-mid cap value etf

PDN
19.33

* PowerShares Gldn Dra...
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PGJ
9.53

* SPDR Gold Shares
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GLD
5.08

* T. Rowe Price Internati...
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PRIDX
19.47

* Vanguard Convertible ...
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VCVSX
13.75

* Vanguard Growth ETF
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VUG
12.17

* Vanguard Intermediat...
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BIV
5.69

* Vanguard Long-Term ...
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BLV
8.97

* Vanguard Mid-Cap Gro...
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VOT
15.77

* Vanguard Mid-Cap Val...
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VOE
23.17

* Vanguard REIT Index ...
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VNQ
33.51

* Vanguard Short-Term ...
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BSV
1.83

* Vanguard Small Cap G...
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VBK
18.87

* Vanguard Small Cap V...
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VBR
23.36

* Vanguard Value ETF
Edit QuoteNews

VTV
15.50

Note: I use Silver or Gold, never both at the same time.
I also watch International REITS, but will only use one at a time.

es

DP
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Post by DP » Sun Sep 27, 2009 12:23 am

Hi,
I haven't been following this thread lately but noticed the reference to Bipolar, which unfortunately I have some experience with as a close relative suffers from it, and I have to say WHAT ARE YOU TALKING ABOUT?!

The chart you reference has nothing to do with BiPolar, rather it is described as an "entrepreneurial rollercoaster". I can tell you that what they are describing is very, very different from the many variations of the BiPolar disorder. Here is the full link from this business coaching(!) website:
http://sulis-enterprises.com/the-transition-curve/

Here is the text that accompanies that chart on the website, I'm not sure how to paste the graphic here, but it appeared within the text below.

The Transition Curve
By admin • June 30th, 2009
An Emotional Rollercoaster

We’ve all had that feeling, flying high with a great business idea and then coming down to earth with a painful bump when things don’t go exactly the way we planned them. So why do we get up, dust ourselves off and start all over again? Friends and family think we are crazy, but the emotional intricacies of being an entrepreneur are complex. Many ultra-successful entrepreneurs are even clinically diagnosed as manic-depressive or bi-polar, like Francis Ford Coppola or Ted Turner.

But instead of treating or trying to cure the “entrepreneurs’ disease” (manic depression), why not capitalise on it? Canadian entrepreneur Cameron Herold identified five cyclical stages on the entrepreneurial rollercoaster, and highlighted key actions you can take at each stage of the curve to leverage your feelings and energy, whether negative or positive, to help you ride the storm.

Transition Curve

This clever model – The Transition Curve – explains the journey quite simply.

It begins with one“uninformed optimism”, both a great place and a dangerous place to be for your business. You are excited, ambitious, full of adrenalin and prone to taking risks when you don’t really know what lies ahead.

one“Informed pessimism” follows soon after, just after the rollercoaster tips over the topmost curve. At this stage you have more information but find yourself somewhere between scared and excited. You might just want to get off the rollercoaster at this point. Quickly.

The third stage is the one“crisis of meaning”, where it feels as if all the odds are stacked against you, everything is going horribly wrong, and you are plunging down the curve heading well off track.

At this point there are two options; one“crash and burn” or one“informed optimism”. While it’s not pleasant to dwell on what happens if you slide off the curve, it happens, and this is where you have to decide to learn from failure and do it all over again, or walk away and find sanity elsewhere.

“Informed optimism” brings with it excitement and positive energy again. It’s a bit like the point where “the little engine that could” turned the corner and realised “he did”. Confidence begins to grow, momentum starts to build and you realise you have a lot more insight and experiential learning to draw from.

The timescale of this transition curve will depend on the individual entrepreneur, but there are some key actions you can take that may smooth the ride:
...
Don
Last edited by DP on Sun Sep 27, 2009 10:27 pm, edited 1 time in total.

Equity Style
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Post by Equity Style » Sun Sep 27, 2009 5:41 pm

DP

We use the same curve in medicine for bipolar disorder, domestic violence, and other illness curves. (I am an MD)

What you are referring to is not related. However, this type of curve can also be used. You will find the same variability as with BiPolar disorder. (Note this is only classical cyclic Bipolar disorder, there are forms of Bipolar disorder that do not behave like this at all.)

Imagine a cave man whose neighbor figures out a better way to kill Buffalo. The cave man can kill his neighbor, adapt what he is doing, or find a new and better way.

As the market rises the "cave man" brain pushes the "thinking brain" to go out and buy. There is actually no choice nor consciousness of the decision. It is a primitive, survival response. Later as the market starts to tank, the thinking brain remains calm, but the primitive brain is afraid of falls from heights. It kicks in and makes the investor sell. The result is buy high and sell low.

Since man cannot accept that this is a primitive response that cannot be overridden, a million ways of investing have been invented to beat the market. The only one that does so consistently is passive index investing with appropriate asset allocation.

My system is based on these uncontrollable responses. Thay can't be predicted in advance, but once they start they will follow the pattern. The "cave man" brain effect is what makes experience in investing no advantage in beating the market. Add the "Cave Man" effect to the randomness of the market makes it appear that everything is essentially random, when in fact it is not.

es

DP
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Post by DP » Sun Sep 27, 2009 10:26 pm

Hi,
What you are referring to is not related.
You brought it up with:
This is a link to the well established cycles of bipolar disorder.


If you are an MD, then you should know that Bipolar often follows anything but standard predictable cycles, or at least you should know enough not to discuss medical conditions outside of your area of expertise.

I'll now go back to ignoring this thread as I have been for some time, but I had to comment on your oversimplification of a very complex disorder suffered by countless people and their families, as well as the ridiculous statement that this chart on a business coaching website, associated to an article about something else entirely, somehow supports your claim that this chart depicts the "well established cycles of bipolar disorder."

Don

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DRiP Guy
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Post by DRiP Guy » Mon Sep 28, 2009 8:18 am

DP wrote:I'll now go back to ignoring this thread...
Image

Equity Style
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Post by Equity Style » Tue Sep 29, 2009 3:30 pm

Poor DP obviously didn't read my post.

Drip,

I told you if you thought I should stop posting that I would. Is this what you meant.

Would you like a link to my website when I get it up? Or the bi-weekly free newsletter? I know you don't want to read the book.

Once again, Drip you have presented good criticism. If you want, I have my last 5 years returns on Morningstar. It details all my trades since 2005. Of course it is under Equity Style.

I await your response.....

Equity style

Equity Style
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Post by Equity Style » Tue Sep 29, 2009 3:33 pm

DP

. (Note this is only classical cyclic Bipolar disorder, there are forms of Bipolar disorder that do not behave like this at all.)

See, you didn't even read the post.

At least the Drip man actually reads before he comments.

Equity Style
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Post by Equity Style » Sat Oct 10, 2009 5:19 pm

In case someone is out there,

No changes for Mid-Month October. Up 33% YTD 44% past year.

es

Indexer88
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Post by Indexer88 » Sat Oct 10, 2009 8:16 pm

This "equity style" investing is merely momentum investing in different sectors and will probably end in less than TSM earnings. Don't bother with this thread. Nothing here. Go on your way now.

Equity Style
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Post by Equity Style » Mon Oct 12, 2009 6:19 pm

Indexer 88

Another one who doesn't read before stating an opinion.

As I have previously stated, the system does not work with sectors and I do not use them.

What form of index investing has averaged greater than a 17 % annual return over the past 10 years? Please let me know so I can follow them!

I applaud Drip. At least he tried to understand.

es

Equity Style
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Post by Equity Style » Tue Oct 20, 2009 12:57 pm

In case there is someone out there,

I sold the Federated Small Cap Values and bought the IVY Global Natural Resources fund (IGNAX)

Still way ahead of any type of index investment plan, last 3 months, YTD, last 5 years, and last 10 years.

Tried to help everyone and no one believes me. Go Figure.

es

Indexer88
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Post by Indexer88 » Wed Oct 21, 2009 6:46 pm

Sorry, there's no one in here but us indexers....

Equity Style
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Post by Equity Style » Thu Oct 22, 2009 12:01 pm

Indexer 88

Guess you haven't read much of the thread. You can use index funds or index ETF's with my strategy. Returns average out to be 3% less than using managed funds.

Using Index funds is much easier and requires less trading. Still, a model portfolio of indexes over the past 3 months, YTD, 1 year, 3 year, 5 year, 10 year, and even 15 years results in substantially improved returns over simple buy and hold.

This site isn't just for indexers. Several who use the "Slice and Dice" rotation plan have posted here.

Mr. Indexer 88. What proof do you need? I will obtain the information you might request.

ES

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bolivia
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Post by bolivia » Thu Oct 22, 2009 12:51 pm

Tried to help everyone and no one believes me. Go Figure.
I understand. I think the earth is square with radiused corners.

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woof755
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Post by woof755 » Thu Oct 22, 2009 6:29 pm

bolivia wrote:
Tried to help everyone and no one believes me. Go Figure.
I understand. I think the earth is square with radiused corners.
Yes, but do you have proof?
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

Indexer88
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Post by Indexer88 » Fri Oct 23, 2009 4:30 pm

Don't read this thread. All you need to know:

TSM.

(For your equity allocation, that is, and divide US/World.)

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Dan Moroboshi
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Post by Dan Moroboshi » Fri Oct 23, 2009 4:53 pm

woof755 wrote:
bolivia wrote:
Tried to help everyone and no one believes me. Go Figure.
I understand. I think the earth is square with radiused corners.
Yes, but do you have proof?
I gotcher proof right here:

http://www.timecube.com/

Image

"You can't handle the truth!"

Equity Style
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Post by Equity Style » Sat Oct 24, 2009 7:30 am

Indexer 88

I re-checked TSM and the past 10 years returns are equivalent to T-Bill. My strategy is up more than 17% annual return. I don't understand how you come up with the data that TSM is better?

Do you refer to Global TSM or Domestic TSM?

A tsm strategy is very, very simple. It also outperforms 70% of funds in less than 10 years and 90% beyond 10 years. Certainly, you can insure best performance compared to the overall market. Pretty good deal.

Have you heard of "Slice and Dice." It even does better than TSM and is a true indexing strategy.

es

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woof755
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Post by woof755 » Sat Oct 24, 2009 7:39 am

Dan Moroboshi wrote:
woof755 wrote:
bolivia wrote:
Tried to help everyone and no one believes me. Go Figure.
I understand. I think the earth is square with radiused corners.
Yes, but do you have proof?
I gotcher proof right here:

http://www.timecube.com/

Image

"You can't handle the truth!"

I'm shocked. You have found something on the internet goofier than this thread.

Waaaaayyyyyyyyyyyyyyyyyyyy goofier. Shoosh.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

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Post by jimdigriztn » Mon Oct 26, 2009 1:59 pm

Equity Style wrote: Guess you haven't read much of the thread. You can use index funds or index ETF's with my strategy. Returns average out to be 3% less than using managed funds.
ES,
I haven't been following your trades, but this statement quoted above gives you more credibility with me. I've found with my own momentum-based simulations that using active funds for this approach works better. For some reason, index funds do not seem to maintain momentum as well, even if over the long run they tend to outperform active funds.

This thread has not won any converts to your exact approach, I'm guessing, but it has spurred me on to do some testing with historical data and to develop a somewhat similar approach that has been very profitable so far. For that I'm appreciative.

Best of luck to you.

Jim

Equity Style
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Post by Equity Style » Thu Dec 30, 2010 5:52 pm

Sorry I haven't posted in so long. I have been very ill and now only have a short time to live.
)
My returns for 2009 were 35% and for 2010 will be 18%. The strategy works and has for the past 15 years. I have developed a software program that the estate administer is to use for my son. (He cant get his relatively sizable fortune until he is 40)

The current styles that are the leaders are:

Small Cap Growth
Mid Cap Growth
Silver
Energing Markets Small Cap
Natural Resources
Small-Mid Cap International value

I was in the process of starting a newsletter, but it took too much time. I have shared my book with some friends who constantly tell me how it helped them avoid losses in 2008, with great earnings in 2009 and 2010. I have an arrangement to sell my book to an investment letter.

I will have some time to respond before, what now is for me an inevitability.

Equity Style

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Post by White Coat Investor » Fri Dec 31, 2010 3:07 am

Equity Style wrote:Sorry I haven't posted in so long. I have been very ill and now only have a short time to live.
)
My returns for 2009 were 35% and for 2010 will be 18%.
Sorry to hear about your worsening condition.

I guess taking sufficient risk that you're making 18% is okay since it sounds like you're investing for your son. If you were investing for yourself, that would obviously be pretty foolhardy.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Noobvestor
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Post by Noobvestor » Fri Dec 31, 2010 3:34 am

Sorry as well for your health issues - wish you the best.

This revived post got me interested in how things had played out since it started.
Equity Style wrote: If you don't believe me, look at the data at FUNDX. They use a similar system with much higher expenses but have beaten the S and P over 20 years and 10 years respectively.
http://quote.morningstar.com/fund/chart ... %2C0%22%7D

It would appear that this fund has not held its edge against either its benchmark or the S&P 500. Anyway, again, best wishes.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

Equity Style
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Post by Equity Style » Sat Jan 01, 2011 12:07 am

I didn't make any changes in that portfolio in over a year. It does show what happens if one doesn't switch out of falling classes.

I will go in an update my transactions if it is not time consuming.

Thanks for your kind remarks.

Equity Style

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Post by Equity Style » Sat Jan 01, 2011 12:10 am

OOPS

I thought the link was to my morningstar portfolio not Fundx. Those folks have big time problems for many reasons. Their time line is too long, they dont shift in between months, and are far to limited in their classes.

sorry for any confusion.

Equity Style

AndroAsc
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Post by AndroAsc » Sat Jan 01, 2011 3:40 am

Seriously... why is this thread on the Boglehead forums?

Chasing yesterday's winners? The threadstarter claimed to have outperform the S&P 500 for several years now... so what? Is it an appropriate benchmark? Lots of misguided studies always use the wrong benchmark to show the illusion of outperformance.

Unless you can provide data that shows that you can consistently do it for 30-40 years, this is utter bull. And if you have, go publish your own paper and see if it passes peer review. Btw, citing that one paper in the first page doesn't count for much, unless the threadstarter can provide ample literature references for this topic. Not to mention, his strategy started from just domestic large-growth, large-value, small-growth and small-value, and it has somehow morphed and included gold, commodities and china stocks in the last few pages? And now analyzing curves and waves on this current page... shall we add astrology to the mix too?!

Can some of the mods kindly lock this thread up? It's nothing but chasing the latest hot asset class... I'm even more appalled that this thread has more than 10 pages of post!!

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Post by SP-diceman » Sat Jan 01, 2011 9:10 am

AndroAsc wrote:Seriously... why is this thread on the Boglehead forums?

Chasing yesterday's winners? The threadstarter claimed to have outperform the S&P 500 for several years now... so what? Is it an appropriate benchmark? Lots of misguided studies always use the wrong benchmark to show the illusion of outperformance.

Unless you can provide data that shows that you can consistently do it for 30-40 years, this is utter bull. And if you have, go publish your own paper and see if it passes peer review. Btw, citing that one paper in the first page doesn't count for much, unless the threadstarter can provide ample literature references for this topic. Not to mention, his strategy started from just domestic large-growth, large-value, small-growth and small-value, and it has somehow morphed and included gold, commodities and china stocks in the last few pages? And now analyzing curves and waves on this current page... shall we add astrology to the mix too?!

Can some of the mods kindly lock this thread up? It's nothing but chasing the latest hot asset class... I'm even more appalled that this thread has more than 10 pages of post!!

Fahrenheit 451

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Post by dnaumov » Sat Jan 01, 2011 10:32 am

AndroAsc wrote:Seriously... why is this thread on the Boglehead forums?

Chasing yesterday's winners? The threadstarter claimed to have outperform the S&P 500 for several years now... so what? Is it an appropriate benchmark? Lots of misguided studies always use the wrong benchmark to show the illusion of outperformance.

Unless you can provide data that shows that you can consistently do it for 30-40 years, this is utter bull. And if you have, go publish your own paper and see if it passes peer review. Btw, citing that one paper in the first page doesn't count for much, unless the threadstarter can provide ample literature references for this topic. Not to mention, his strategy started from just domestic large-growth, large-value, small-growth and small-value, and it has somehow morphed and included gold, commodities and china stocks in the last few pages? And now analyzing curves and waves on this current page... shall we add astrology to the mix too?!

Can some of the mods kindly lock this thread up? It's nothing but chasing the latest hot asset class... I'm even more appalled that this thread has more than 10 pages of post!!
AFAIK, there is nothing in the rules of this discussion board that forbids starting threads about "dissenting views" on the Boglehead approach. I agree better proof is needed in this particular case, but if you insist on 30+ years of public data, you are essentially limiting the amount of people who could post such threads to Buffett, Templeton and maybe 3-4 others. I am also not saying that only 5 people have ever outperformed for 30+ years, there are at least several more, but a lot of the outperformers tend to shun publicity and their data is not freely available to everyone.

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Post by Equity Style » Sun Jan 02, 2011 12:05 am

Hello Newbies,

I have data on my strategy back to 1995. Fifteen years is a formidable time period. I have calculated data back to 1985 with the same excellent result. However, the equity classes were not as well established any further back. So, there is a 25 year history.

Some of the Ivy League endowments use a similar system and there is some substantial data in the book, "The Ivy Way."

If you look back through this thread there is data citations from Professor French and other scholars.

If you place Equity Rotation Strategy in a browser, there are many investment groups who use a similar strategy.

If you read my earlier posts most people will understand. Some cannot grasp the different paradigm and it is there loss.

Also, I have produced data on this thread and no matter what I did, including posting my investment statements, most would not believe. However, many persons were intellectually open and have profited substantially.

If I had followed a passive investment strategy over the past 10 years, where would I be now? I would not have been able to keep up with inflation. Instead, I have done very well. Enough to retire early with my sons future education paid for. Plus, I was able to provide free and reduced cost medical care to hundreds of my patients.

Study this thread and/or read the book, "The Ivy Way." Or, just put in "slice and dice" which is the simplest version of the strategy I have encountered.

Equity Style

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Post by Alex Frakt » Sun Jan 02, 2011 12:16 am

AndroAsc wrote:Seriously... why is this thread on the Boglehead forums?
...

Can some of the mods kindly lock this thread up? It's nothing but chasing the latest hot asset class... I'm even more appalled that this thread has more than 10 pages of post!!
This thread violates none of the forum policies. Specifically, there is no requirement that posts follow any particular investing philosophy. If you don't agree with a post, well, that's what the reply button is for. But please keep in mind what our policies do require:
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. Respect your debating opponents. Debates are about issues, not people. If you disagree with an idea, go ahead and marshal all your forces against it. But do not confuse ideas with the person posting them; at all times we must conduct ourselves in a respectful manner to other posters. Attacks on individuals, insults, name calling, trolling, baiting or other attempts to sow dissension are not acceptable.

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Post by Equity Style » Sun Jan 02, 2011 12:18 am

In regards to the increased complexity of my system in the last posts is that the system that had been under discussion was an "intermediate" version. Some of the posters wanted to know about the more complicated form.

To start with 2011, the following assets have been chosen

1) Small Cap Growth
2) Mid-cap Growth
3) Emerging Markets Small Cap
4) Silver (Precious Metals)
5) Natural Resources
6) International Small-Mid Cap Value

As long as I can I will post any changes.

Equity Style

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Post by AndroAsc » Sun Jan 02, 2011 1:53 am

Honestly, there are no conceptual similarities between your "chasing-the-latest-hot-fund" strategy and slice-and-dice.

In slice-and-dice, investors are more meticulous in their asset allocation, and often do small-value tilting, but they do not dramatically alter the asset allocation with time and definitely do not "rotate" amongst various asset class.

No offense, but this strategy has obviously no methodology, as is evident from your prior posts with the DRIP guy. I have yet to see any formulae, equations or numbers. "Wave analysis" does not count, I consider that to be closer to astrology then to a real reproducible methodology.

Contrast your method to Value Averaging, which has a defined methodology and fixed and clearly understandable implementation. While data on VA is limited to about 10-15 years (much like yours), at least I am far more convinced that VA works, simply because there is no hand-waving involved. Also, VA has a plausible explanation for the outperformance grounded in existing theories in investment, does yours have any?

Your 15 years of data may be formidable, but what kind of returns (after expenses) are you claiming? Have we seen a chart of your 15 year performance vs common buy-and-hold asset allocations that Bogleheads use on this forum? How much outperformance does this "musical-chair" method provide? Please provide more detailed analysis instead of S&P-500ing for everything.

Back to methodology, can anyone reproduce your claim/results from scratch? I doubt so, given how subjective it appears to be. Also, is the 15 years of data for one period only (that would be my guess)... if so then you are effectively cherry picking data (like how the media loves to pick 2000-2010 and conclude that stocks is dead). Have you done at least a 10-yr rolling period analysis (preferably 20-year rolling period)?

Finally assuming that the method works, where is the outperformance coming from? How does it reconcile with current theories in investment such as the efficient market hypothesis and modern portfolio theory? Ideally, there should be literature references to back up your claim and preferably more than just one paper.

If you want the majority of the people on this board to take you seriously, you have to answer all of these questions satisfactorily.

If memory serves correctly, there was some guy managing an active fund (was it Magellan) and he too outperformed his benchmark for 20 years. I can't remember his name, but even he had the humility to admit that index investing was the way to go, and he was partially lucky during his tenure as fund manager.

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Post by Avo » Sun Jan 02, 2011 2:14 am

I'm not going to defend ES, who has never been even remotely clear on how his system works (though of course I wish only the best for ES and hope his health improves). But, that said, momentum is definitely a known factor. Look up the "Carhart four-factor model", which adds momentum to the Fama-French three-factor model. Modern academic work on active strategies typically benchmarks to Carhart rather than Fama-French.

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Post by AndroAsc » Sun Jan 02, 2011 2:47 am

I briefly skimmed through the original journal published on equity-style timing in Journal of Asset Management (2007) as what you cited in the first page.

Several things to note:

1) The paper only uses styles of Large vs Small and Growth vs Value. Nothing was mentioned about international stocks (admittedly a reasonable extension) and definitely nothing on commodities (arguably not a reasonable extension). Thus, your implementation already deviates from the original paper study (just look at your picks for 2011). Also, the original paper does not incorporate new asset type over the years, which is what you have done.

2) The study was done using two 15-year period only, in my opinion the data is somewhat decent, but it is not a rolling time-period analysis. It also uses historical data only, and I would like to see some Monte Carlo simulations. I suspect that the time period could be cherry picked to support their results.

3) The study used a rigorous methodology based on the multinomial logit model constructing using 10-20 macroeconomic indicators to calculate a probability value for each style and the highest probability value will be the one that the investor will rotate with for each time period. I do not see any evidence of such rigor in your posts! There is definitely no wave curves in this paper. Honestly, the execution of the paper's methodology is beyond my expertise and it is probably to complicated for a typical investor to implement!

4) The study concludes for the period of 1984 to 2000, the paper's equity rotation method yielded $2900 vs buy-and-hold of equal weighted styles $869. Unfortunately, you are not practicing the methodology in the paper. The paper cites two additional momentum strategies (which is arguably closer to what you are implementing) which yields $938 and $1239 respectively. Note that these returns are BEFORE expenses, and one of the momentum strategy is clearly givng the same returns as buy-and-hold (statistically speaking). I can concede that the paper's original equity rotation method may yield statistically significant outperformance FOR THAT ONE DATA SET, but it remains to be seen if it is generalizable for all time period. In defense of the authors, they did apply the same methodology to another 15-year period and obtained similar results, but I still would highlight that a proper study should sample as many rolling periods as possible.

5) The study attempts to calculate the returns after expenses based on a series of assumption. The paper's equity rotation method yielded $1990 after expenses. Unfortunately, they did not calculate the returns after expenses for the two momentum strategies which is closer to what you are practicing. In all likelihood, the after expenses returns of both momentum strategy is likely to be at best equal if not lower than buy and hold.

6) Lastly, the paper did not do a study of "what if the prediction is inaccurate?" e.g. How would returns be affected if you rotated wrongly 10% of the time? 20% of the time? How much room for error is there in the strategy till net returns are equal to buy-and-hold? Admittedly, this part is probably beyond the scope of the paper, but it is always good to know the downside along with the upside when considering a new strategy.



IN CONCLUSION

The original paper does present some interesting findings that equity rotation implemented with a rigorous methodology based on a multinomial logit model constructed using 10-20 macroeconomic variables does show some promise is statistically improving returns vs buy-and-hold. However, I am not entirely convinced because the study was limited to two selected (and possibly cherry picked) 15-year window. Unfortunately, from browsing through this thread, the poster Equity Style is NOT practicing the methodology in the paper, but something more akin to the "momentum strategy" that the paper also simulated in their studies. In the paper, there was 2 variants to the momentum strategy - one variant produced the same returns before expenses and the other variant arguably will have at best the same returns after expenses. Bear in mind that all the findings from the paper was limited to two 15-year period and as much there may be some bias.

The best conclusion I can draw is that the poster Equity Style "equity-rotation-momentum" pseudo-methodology will after expenses *in my opinion* produce the same if not lower returns compared to traditional buy-and-hold, provided comparisons are well-grounded. So for e.g. if Equity Style is using international funds and commodities, the benchmark buy-and-hold must also include these assets.

Going back to the real methodology as presented in the paper, it does warrant further study. The immediate future work would be to implement the method for more than two 15-year period, and even IF it is shown to work, it is too complicated for the average joe investor to implement!!!
Last edited by AndroAsc on Sun Jan 02, 2011 3:18 am, edited 3 times in total.

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Post by letsgobobby » Sun Jan 02, 2011 3:03 am

Equity Style wrote:In regards to the increased complexity of my system in the last posts is that the system that had been under discussion was an "intermediate" version. Some of the posters wanted to know about the more complicated form.

To start with 2011, the following assets have been chosen

1) Small Cap Growth
2) Mid-cap Growth
3) Emerging Markets Small Cap
4) Silver (Precious Metals)
5) Natural Resources
6) International Small-Mid Cap Value

As long as I can I will post any changes.

Equity Style
This system sounds like a phenomenal system until it doesn't. Then it will crash and burn. I have only read the first and last pages but if the system hasn't changed in over a year, specifically when will you react to adverse market events in all of the above (highly risky and highly correlated) asset classes? By the way, I came very close to your 2010 performance with markedly less risk (I am 45% fixed income) and outperformed your 2009 performance with less risk as well (I am sure). Others here will have done the same or much better. Your system is highly risky and in opposition to the Boglehead philosophy...

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Post by AndroAsc » Sun Jan 02, 2011 3:15 am

Avo wrote:I'm not going to defend ES, who has never been even remotely clear on how his system works (though of course I wish only the best for ES and hope his health improves). But, that said, momentum is definitely a known factor. Look up the "Carhart four-factor model", which adds momentum to the Fama-French three-factor model. Modern academic work on active strategies typically benchmarks to Carhart rather than Fama-French.
A quick google does indicate that the "momentum" factor is not as solidly grounded in investment/financial theory as Fama-French three-factor model. Maybe one day academics will figure out how investors can take advantage of this "momentum" factor, just like how many Bogleheads are doing SV-tilting today.

But in any case, ES's methodology is non-existent, and if there was a way to take advantage of the "momentum" factor, this is definitely not the way to go!

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Post by woof755 » Sun Jan 02, 2011 11:56 am

Strange things happen on the internet, surrounded by strangers.

I find myself not convinced that the OP is or has ever been completely truthful. In case I'm wrong, I won't elaborate for fear of being insensitive.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

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Post by Equity Style » Mon Jan 03, 2011 1:05 am

I am very impressed with the responses! Time and consideration went into the posts.

Some points,

1) My investments have been within a pension fund that allowed self-direction with absolutely no fees except for the past several weeks. The overall costs have been essentially zero. Now I am using Scottrade. Many of the mutual funds cost nothing to purchase or sell. Some cost $ 17 per trade. This cost is of little significance when I am trading relatively large amounts of money. Hence, cost of transactions are so small (less than 0.1%) that such is not a factor.

2) There are other means to calculate risk. One is simply measuring the variability of the portfolio. Another is to measure the area under the curve. If these factors are utilized, then my portfolio is actually less risky. This is completely counter-intuitive. I had a mathematician compare my strategies compared to several portfolios from Bogle, Merriman and others and found them to be of substantially less risk.

3) Combining risky investments can lead to less risk. My present asset positions does have some fairly corrolated assets,i.e. Small Cap Growth, Mid-cap Growth. However the other assets are not well corrolated. For example, there is not really much correlation between Natural Resources or Silver to the other positions. Emerging Market small cap and International small-mid caps are actually not much correlated, although they appear to be so. Moreover, when I pick the particular mutual fund or ETF (rare) I check for the degree of correlation and am careful to avoid overlap (Morningstar is helpful with this.)

4) The study referred to was a basic preliminary study with lots of holes. It was given only as an example.

My investment system is based on Neuropsychological theory. Humans just do not have control over some of their decisions. Although it is not easy to accept, our pre-wired brain predisposes us to make poor investment decisions. One of Bogle's brilliant is to design a system where the investor does not have opportunity to make bad decisions. Unfortunately, returns have been very poor over the last 10 years, although much better in the future.

I have been an owner of Oarex multiple times through the years. I buy it as it goes up and sell it when it goes down or falls behind other asset classes. If you plot out a graph for Oarex you will see highs and some really bad years (2008). I have moved in and out only during its positive years. If you plot a graph of the fund only when I was in it you will notice substantial less variability with substantial gains. I have earned more and by measurements of volatility and variability have assumed much less risk. Bogle says this cannot be done, but it can be done and I am not the only one who has done so.

Finally, to understand and utilize the system one must understand the paradigm shift from Mr. Bogles ideas. Some of his ideas are just not correct, although most are. Slice and Dice may be better for most people than my system. It is much easier in its simplest form and the results speak for themselves. It also does not require a paradigm shift to understand it.

Equity Style

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Post by DRiP Guy » Mon Jan 03, 2011 9:20 am

Equity Style wrote: [snips]
There are other means to calculate risk. One is simply measuring the variability of the portfolio. Another is to measure the area under the curve. If these factors are utilized, then my portfolio is actually less risky.

My investment system is based on Neuropsychological theory.

I have been an owner of Oarex multiple times through the years.

I have moved in and out only during its positive years. If you plot a graph of the fund only when I was in it you will notice substantial less variability with substantial gains. I have earned more and by measurements of volatility and variability have assumed much less risk. Bogle says this cannot be done, but it can be done and I am not the only one who has done so.

Equity Style
ES:

1. I am terribly sorry to hear you feel you are nearing your last days.

2. Unfortunately, even with the deference and respect and gentleness that talking to someone in such a state commands, I'm afraid I can still make no sense whatsoever out of most of what you are claiming. "The area under the curve" is a phrase used to typically refer to the integration of all inputs to a series of results, without respect to small variations of individual amount, or to the shape of the distribution which produced the output. Most commonly in *my* personal experience, it has used to point out that for automotive power plant evaluation, coming up sooner on the HP curve can be as important as peak horsepower in achieving a given output over the range of acceleration. The principals of integrating 'area under the curve' for a holistic evaluation are of course not limited to that application, but IN NO INSTANCE can I conceive of it being used as a figure of merit for portfolio risk! In fact, if I spend MOST of my investing career with a relatively quickly appearing balance, but one that could be anticipated to always rapidly crumble near the end, then that was by definition, a risky investment, but one where the 'area under the curve' of that portfolio might be exceptional. No, that is the wrong measure of either risk, or of value. In investing, the only thing that counts is what you get to keep, as measured by terminal value, and NOT how formidable your account statements might have been on average during accumulation, but prior to your ability to take withdrawals.

3. Likewise, I will only point out briefly (because to do otherwise would be redundant) that your 'stick and move' approach to Oarex, or to anything, might well have served you well, and might even be based on sound and reproducible principals and rules. But, to the best of my ability to discern, you have STILL signally failed to provide any guidance into how one would precisely replicate your prior performance, or apparent singular ability.

4. If I could be so bold, I would gently advise that if you are actually near your last days, and you do have a portfolio that is anything of substance to pass along, that you might consider whether a better use of that time and those resources, might not be to place the funds into a low cost global index, and then spend time enjoying family and friends and life, rather than trying to convince this group dedicated to the discussion of Bogle-like approaches, to abandon it all on the basis of (IMHO) such weak and nebulously described notions.

Best wishes to you!

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Post by pka » Mon Jan 03, 2011 12:24 pm

Equity Styles:

I'm very sorry to read about your health problems and wish you all the best.

Unlike most others on this thread, I have been convinced by what you and some of your few supporters have written. I think your approach probably can take profitable advantage of short-term momentum in markets, with better long-term performance and lower volatility than the traditional Bogleheads approach, provided that one is able to switch between mutual funds with negligible transaction costs.

This thread has encouraged me to learn more about momentum strategies for investing. I found a web site called CXO Advisory which has a lot of evidence that momentum stragegies can be effective.

My apologies if this web site has already been mentioned on this thread - it is too long for me to check it all again quickly.

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Post by Equity Style » Mon Jan 03, 2011 2:57 pm

Drip,

I am so sorry that you have not understood my system well enough to see how it works. You are obviously a highly intelligent, kind individual. I so wish I could have presented the system in such a way that was relevant to you.

I went into medicine because my purpose in life is to help people. About the only thing I can do is use Dragon Speech to write. That is why I started to write on this Board again; to maybe help someone else through the mends at my disposable.

Your idea of a Global asset allocation for my son's trust is excellent. I actually have placed such a strategy as a default in case the plan administrator is unable to beat a standard global index. It is 50 % internationals in the equity allocation and 30% fixed income also split equally between foreign and domestic. There is a small value tilt. All funds will be index funds or etf's. I also included 4 % precious metals and a 4 % position in Global Reits.

Ok, I gave a talk to some colleagues about 18 months ago. I will place the caveat points in a post. Let me know if it helps.

I am taking your advice and will stop posting. I'll have a friend post changes for awhile thereaafter.

Equity Style

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Post by jhd » Mon Jan 03, 2011 3:12 pm

Equity Style -

I have no idea if your method will beat a diversified buy-and-hold portfolio over the next 30 years. A momentum premium makes sense to me, for behavioral reasons; but I don't know if your system effectively captures that premium.

But: thanks for being a contrary voice here, and putting up with the occasional personal attack. You've always been entirely polite. It's too bad that some people can't stand dissenting opinions.

For what it's worth, I also think you'd have an easier time convincing people of your system if (1) you didn't recommend active funds, and (2) you explained your system as Tactical Asset Allocation that can be implemented passively, more or less. Whether or not a momentum premium exists, I know that fees and active decision making (emotion!) are a drag on returns.

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Post by AndroAsc » Mon Jan 03, 2011 9:09 pm

Equity Style wrote:1) My investments have been within a pension fund that allowed self-direction with absolutely no fees except for the past several weeks. The overall costs have been essentially zero. Now I am using Scottrade. Many of the mutual funds cost nothing to purchase or sell. Some cost $ 17 per trade. This cost is of little significance when I am trading relatively large amounts of money. Hence, cost of transactions are so small (less than 0.1%) that such is not a factor.
Your situation may be unique, although I will concede there is alot of low commission brokers out there... but low commissions can add up if traded frequently. You are also forgetting about the bid-ask spread whenever you buy and sell. This is a hidden cost that many active traders tend to forget about. Also because of ongoing commissions, it only makes sense if you have a reasonably sized portfolio to reduce the expenses as a percentage of portfolio.
Equity Style wrote:2) There are other means to calculate risk. One is simply measuring the variability of the portfolio. Another is to measure the area under the curve. If these factors are utilized, then my portfolio is actually less risky. This is completely counter-intuitive. I had a mathematician compare my strategies compared to several portfolios from Bogle, Merriman and others and found them to be of substantially less risk.
I have no idea what you are talking about. Wouldn't variability be defined as the standard deviation of returns or if you are "following" a graph it's going to be how often the gradient changes (1st or 2nd differential)? What on earth does this have to do with the area under curve (integration)? And just because your mathematician friend says so, doesn't make it correct.
Equity Style wrote:3) Combining risky investments can lead to less risk. My present asset positions does have some fairly corrolated assets,i.e. Small Cap Growth, Mid-cap Growth. However the other assets are not well corrolated. For example, there is not really much correlation between Natural Resources or Silver to the other positions. Emerging Market small cap and International small-mid caps are actually not much correlated, although they appear to be so. Moreover, when I pick the particular mutual fund or ETF (rare) I check for the degree of correlation and am careful to avoid overlap (Morningstar is helpful with this.)
Yes, expanding beyond domestic US stocks does aid in diversification, but this can be implemented using the normal Boglehead's strategy... it does not need to follow your method. Also the original's paper model was constructed using socio-economic parameters that supposedly have some influence on US stocks (e.g. inflation rate). Admittedly, I do not understand the details of the maths, but it does look like a fitted empirically-determined model. Meaning that if you change your system (add international stocks or commodities), the model is not applicable. At best it needs to reconstructed and retest. At worst, it won't work. Not to mention, what socio-economic parameters are you going to use to model international stocks and commodities?
Equity Style wrote:4) The study referred to was a basic preliminary study with lots of holes. It was given only as an example.

My investment system is based on Neuropsychological theory. Humans just do not have control over some of their decisions. Although it is not easy to accept, our pre-wired brain predisposes us to make poor investment decisions. One of Bogle's brilliant is to design a system where the investor does not have opportunity to make bad decisions. Unfortunately, returns have been very poor over the last 10 years, although much better in the future.
I disagree. The paper you cited is at best only remotely related to what you have talked about here. The only similarities is the switching between various asset class to take advantage of some momentum factor (according to some other poster on the board). However, your execution is entirely different, so your methodology is not grounded in any form of literature in economic/investment theory at all. You are practicing pseudo-science.

Now I will concede that the paper you cited does warrant further investigation, to see if this "momentum premium" can be captured in a reproducible and methodical manner, much like how we do SV-tilting to capture higher returns from small and value stocks. However, I am not convinced that we have arrived at this stage yet.

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Post by pka » Tue Jan 04, 2011 5:46 pm

AndroAsc wrote:Seriously... why is this thread on the Boglehead forums?

Chasing yesterday's winners? The threadstarter claimed to have outperform the S&P 500 for several years now... so what? Is it an appropriate benchmark? Lots of misguided studies always use the wrong benchmark to show the illusion of outperformance.

Unless you can provide data that shows that you can consistently do it for 30-40 years, this is utter bull. And if you have, go publish your own paper and see if it passes peer review. Btw, citing that one paper in the first page doesn't count for much, unless the threadstarter can provide ample literature references for this topic. Not to mention, his strategy started from just domestic large-growth, large-value, small-growth and small-value, and it has somehow morphed and included gold, commodities and china stocks in the last few pages? And now analyzing curves and waves on this current page... shall we add astrology to the mix too?!
I think the following paper by Mebane Faber, 2010, entitled "Relative Strength Strategies for Investing":

http://papers.ssrn.com/sol3/papers.cfm? ... id=1585517&

provides some relevant data.

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Post by pka » Thu Jan 06, 2011 9:57 am

There may be another potentially useful technique which can be added to an equity style or asset class rotation strategy using momentum, which is to switch into cash (or into some other risk-free asset such as short-term government bonds whenever the prior performance of all the candidate funds was negative over the relevant period, e.g. 3, 6 or 12 months.) This technique seems to protect the portfolio to some extent against large drawdowns during major bear markets, and is advocated by Jay Kaeppel on these web pages:

http://www.insidefutures.com/article/89 ... here?.html

http://www.optionetics.com/market/artic ... -80-trades

I think it is a similar technique, in a way, to using a moving average indicator for market timing, as was advocated by Mebane Faber in these papers:

http://papers.ssrn.com/sol3/papers.cfm? ... r.com/faq/

http://papers.ssrn.com/sol3/papers.cfm? ... r.com/faq/

However, I think the drawack of using moving averages for market timing, when using individual funds and asset classes, is that it is time-consuming for a private investor to do the necessary calculations on past performance data.

The following article on the CXO Advisory web site:

http://www.cxoadvisory.com/big....rs-decade/

reports that, over the period 2000-2009, a simple strategy, which it calls '6-1 Momentum', of each month holding the S&P 500 Index whenever its prior 6-month return was positive and going into cash whenever it was negative, gave very similar performance to a 10-month SMA strategy (of each month holding the S&P index whenever the monthly cose is above its 10-month SMA and going into cash otherwise).

This evidence suggests to me that Jay Kaeppel's technique, of using a momentum rotation strategy that goes into cash whenever prior performance over the relevant period was negative, might be a useful and easy-to-implement way to enhance the performance of one's portfolio during bull markets whilst limiting the downside during major bear markets. However, I am aware that this is not orthodox Bogleheads advice!

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