"Steelmanning" the case for owning individual stocks

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hdas
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Re: "Steelmanning" the case for owning individual stocks

Post by hdas » Mon Aug 26, 2019 6:34 pm

Week 24:

>> I took advantage of the volatility and added more funds to this strategy, this slice of my "alpha" portfolio is now bigger than US Large Stocks in my "beta" retirement portfolio.
>> Less portfolio rotation as of late, this is perhaps the effect of a tweak in my methodology, where my ranking variables are more sensitive to the short term, but on the other hand I require more "spread" between the exiting holding and the incoming one. Also the constrains on interest rate sensitive sectors.
>> Now I don't think is even fair to compare with SP500, I'm realizing the simplicity of outperforming the index. Now I'm focusing on outperforming MTUM + USMV mainly. I can report that the outperformance is +3.35% as of today's close.
>> One feature that I have not completely systematized is the sector restriction for Utilities and Real Estate (interest rate sensitive sectors). For now the heuristic is up to 20% of the portfolio in those two sectors combined and never more than 12% in one of them.
>> I'm actually very surprised at the volatility of this portfolio, max drawdown as of today (measured weekly) is only -1.7%.

Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: "Steelmanning" the case for owning individual stocks

Post by JustinR » Mon Aug 26, 2019 6:37 pm

Man, investors really can't just sit there and do nothing, can they?

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Re: "Steelmanning" the case for owning individual stocks

Post by hdas » Mon Aug 26, 2019 6:45 pm

JustinR wrote:
Mon Aug 26, 2019 6:37 pm
Man, investors really can't just sit there and do nothing, can they?
in the words of Aaron Brown:
If you can tolerate what life offers in low- and calculable-risk opportunities, you should take it. That is the defining strategy of the middle class, but it can be adopted by anyone, rich or poor. Choose a career in a low-risk field, and get plenty of good training. Be nice to everyone. Select sound investments; make conventional choices; pay your taxes; obey the law. Do a little better every year than the year before, and raise children who will do a little better than you. For many people, this is the American Dream. For others, it's the only sensible choice, the only kind of life that allows happiness without achieving it at the expense of someone else.

For some of us, conformity is the problem. We are sexual, political, or religious deviants, or uncategorizable eccentrics who just cannot fit into polite society. For others, born in war zones or under horrific governments, or abused as a result of caste or genetic aberration or other prejudice, the rewards of the limited safe choices on offer are too meager to merit consideration. Still others among us are just bored: Conventional comfort is too dull. But the most common reason for embracing risk among people I know is pure egotism. We believe we have some talent that must be nurtured and allowed to flower. We must write or act or research or explore or teach or create art or just be ourselves as an end in itself. This obsession puts us above the rules and justifies any risk or action. I've never met a successful poker player or trader who didn't believe he or she was better than everyone else. Some make it obvious, but for most it is a quiet article of unexamined faith. If you have it, it's impossible to settle for what everyone else gets, however comfortable that is in absolute terms.
Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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6 Months Review

Post by hdas » Mon Sep 16, 2019 2:49 pm

After six months, the experiment keeps churning along, however last week gave me a much better sense as of the risk of this implementations, namely the momentum reversal risk:

Image

Image

*** Momentum Spread = MTUM - VFVA
*** Vol Spread = SPLV - SPHB

Some takeaways:

>> The current working hypothesis is that this portfolio adjusts faster to changing conditions and we are about to find out if this is true as the risk factor tectonic plaques are shifting beneath the surface.
>> Better risk profile + better performance over SPY or even better over MTUM+USMV has to be considered a preliminary success.
>> Momentum reversal is a very real risk and it's really fast, 2-3 days can erase most of your outperformance.
>> An active area of research is to play contrarian at the extreme of the factor spreads (MOM_VAL, LV_HV).

Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Rotation

Post by hdas » Sat Oct 12, 2019 10:41 am

Some takeaways:

>> The salient feature of the recent weeks has been the rotation away form MOM and LOW VOL into Value and High Beta.
>> I have been thinking a lot about specification risk, so I decided to add another model to the ensemble. It targets same factors but it goes in a different way about capturing them.
>> One third model I’m tinkering with is relative sector momentum over low vol stocks.
>> A high rotation strategy (MOM) + A low rotation strategy (LOW VOL) should infer a medium rotation strategy???

Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: "Steelmanning" the case for owning individual stocks

Post by taojaxx » Sun Oct 13, 2019 1:19 pm

How about you buy DVOL, leave it at that and spend quality time with friends and family?
Just a thought 8-)

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Re: Rotation

Post by David Jay » Sun Oct 13, 2019 2:09 pm

hdas wrote:
Sat Oct 12, 2019 10:41 am
>> One third model I’m tinkering with...
Hmmm, ad-hoc model revisions...
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: "Steelmanning" the case for owning individual stocks

Post by retired@50 » Sun Oct 13, 2019 2:14 pm

hdas wrote:
Tue Jan 29, 2019 1:24 pm
onourway wrote:
Tue Jan 29, 2019 1:14 pm
I would take your point #1
1. A desirable fund with X,Y characteristics doesn't exist.
and say that you've created this 'problem' specifically so you can develop a strategy to 'solve' it.
This is a valid criticism, but allow me to defend my position:

1. As we get older and succeed in life we accumulate more assets, I think it's desirable to strive to have more uncorrelated sources of risk dictating the faith one's wealth.
2. I already have a BH diversified stock/bond portfolio.
3. I truly can't find a good and cheap fund that does this.

Cheers :greedy
If you're looking for "uncorrelated sources of risk", buy a 2 or 3 bedroom rental property and find a tenant. The return on the rental house has nothing to do with the stock market. If you can find a tenant who can hold down a job and make rent payments, you've won! Best of luck.

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Re: "Steelmanning" the case for owning individual stocks

Post by hdas » Sun Oct 13, 2019 2:22 pm

taojaxx wrote:
Sun Oct 13, 2019 1:19 pm
How about you buy DVOL, leave it at that and spend quality time with friends and family?
Just a thought 8-)
Sensible take, however, I would be giving up 3-5% CAGR, possibly more, in addition to sector concentration risk. Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: Rotation

Post by hdas » Sun Oct 13, 2019 2:25 pm

David Jay wrote:
Sun Oct 13, 2019 2:09 pm
hdas wrote:
Sat Oct 12, 2019 10:41 am
>> One third model I’m tinkering with...
Hmmm, ad-hoc model revisions...
I don’t know what you mean. But specification risk is real and any sensible active approach should try to minimize it. Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: Rotation

Post by David Jay » Sun Oct 13, 2019 2:38 pm

hdas wrote:
Sun Oct 13, 2019 2:25 pm
David Jay wrote:
Sun Oct 13, 2019 2:09 pm
hdas wrote:
Sat Oct 12, 2019 10:41 am
>> One third model I’m tinkering with...
Hmmm, ad-hoc model revisions...
I don’t know what you mean. But specification risk is real and any sensible active approach should try to minimize it. Cheers :greedy
I’ll keep checking in on your thread from time to time. I just see strong corollaries between your approach and some recent reading.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: "Steelmanning" the case for owning individual stocks

Post by taojaxx » Sun Oct 13, 2019 6:25 pm

"I would be giving up 3-5% CAGR, possibly more" On your 6 month review chart, your portfolio was up 10% or so. DVOL was up 11.08% over the same period. What am I missing?

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Re: "Steelmanning" the case for owning individual stocks

Post by hdas » Mon Oct 14, 2019 10:11 am

taojaxx wrote:
Sun Oct 13, 2019 6:25 pm
"I would be giving up 3-5% CAGR, possibly more" On your 6 month review chart, your portfolio was up 10% or so. DVOL was up 11.08% over the same period. What am I missing?
You are missing:
> The performance since last report
> The sector concentration risk of DVOL
> The obscure and untested rotation strategy used by DVOL.
> The information I gathered about different strategies "in sample"

Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: "Steelmanning" the case for owning individual stocks

Post by stlutz » Mon Oct 14, 2019 6:56 pm

Hi hdas,

Thanks for starting the thread--have enjoyed following it.

At this point, how would you describe your approach qualitatively? It seems like it's evolved quite a bit from the original approach of focusing most on low volatility and adding a momentum kicker. Managing risk was the #1 priority.

It seems like the strategy has shifted more to seeking the best return without taking too much volatility risk. Is that a correct perception?

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Re: "Steelmanning" the case for owning individual stocks

Post by Flyer24 » Mon Oct 14, 2019 11:09 pm

Topic has been moved to Investing - Theory, News, & General.

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A friendly query

Post by hdas » Tue Oct 15, 2019 9:58 am

stlutz wrote:
Mon Oct 14, 2019 6:56 pm
Hi hdas,

Thanks for starting the thread--have enjoyed following it.

At this point, how would you describe your approach qualitatively? It seems like it's evolved quite a bit from the original approach of focusing most on low volatility and adding a momentum kicker. Managing risk was the #1 priority.

It seems like the strategy has shifted more to seeking the best return without taking too much volatility risk. Is that a correct perception?
Hi stlutz,
I'm glad somebody else finds all this informative. Regarding your query:

1.) I would describe the approach as looking for exposure to market type or better returns with substantially less volatility and drawdown.
2.) I don't think it's the correct perception. From the very definitions of stock selection to the actual outcomes, less volatility and less drawdown are at the forefront. Perhaps what has changed is my expectations for better returns, I entered this venture with very modest expectations, and looking at the process and results has made me a bit more optimistic.

In general, what appears as over-optimization and tinkering relative to a more passive approach are attempts to solve puzzles that arise once you watch the proverbial sausage being made. Some of them:

>> How to make your portfolio sensitive enough to market dynamics without excessive churn
>> Can you minimize specification risk?
>> Can you minimize rebalancing luck?
>> How sensitive you want your portfolio to be to momentum crashes?
>> Is the portfolio too sensitive to term risk?
>> How to manage sector exposure without engaging in a 48h optimization routine.

Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: "Steelmanning" the case for owning individual stocks

Post by Forester » Tue Oct 15, 2019 3:45 pm

The advantage of using USMV versus buying your own stocks would be drawdown protection. You could run 6 momentum lookback periods on USMV and use vol targeting on something like MTUM. The ultimate 50-50 barbell.

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Re: "Steelmanning" the case for owning individual stocks

Post by hdas » Wed Oct 16, 2019 10:06 am

Forester wrote:
Tue Oct 15, 2019 3:45 pm
The advantage of using USMV versus buying your own stocks would be drawdown protection. You could run 6 momentum lookback periods on USMV and use vol targeting on something like MTUM. The ultimate 50-50 barbell.
In my beta retirement portfolio I have USMV + VUG. I'm not convinced about the MTUM ad hoc rebalancings and volatility filter. Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: "Steelmanning" the case for owning individual stocks

Post by Forester » Thu Oct 17, 2019 5:57 am

Do you have a way to backtest GFC performance of your 25 holdings? Possibly the drawdown would have been in the teens :?: considering that the MSCI index hold 200+ stocks.

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Re: "Steelmanning" the case for owning individual stocks

Post by hdas » Thu Oct 17, 2019 9:18 am

Forester wrote:
Thu Oct 17, 2019 5:57 am
Do you have a way to backtest GFC performance of your 25 holdings? Possibly the drawdown would have been in the teens :?: considering that the MSCI index hold 200+ stocks.
Yes (~17%). I have 80% confidence that I have a properly survivor adjusted dataset. It's not a trivial issue just to have the right data. The drawdown is relatively sensitive to the rebalancing frequency. Low vol does not require frequent rebalancing but momentum does. The number of stocks (200 vs 25) is less of a factor than you think, if you calibrate your holdings properly. Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: "Steelmanning" the case for owning individual stocks

Post by Forester » Wed Oct 23, 2019 10:41 am

Starting with the largest 1,000 US stocks. Removed 500 based on percentile rank of 6mo momentum & shareholder yield.

Remaining 500 sorted by percentile rank of 1 yr & 6mo relative volatility.

20 stocks, each US sector must be represented by one stock, however small that sector is relative to the broad index. "1 vol rank" = is in the least volatile 1% of all US stocks.

COMMS / Verizon Communications, Inc. / 10 vol rank
COMMS / AT&T, Inc. / 21 vol rank
CON DISCRET / McDonald's Corporation / 5 vol rank
CON DISCRET / YUM! Brands, Inc. / 7 vol rank
CON STAPLES / PepsiCo, Inc. / 6 vol rank
CON STAPLES / The Coca-Cola Company / 9 vol rank
ENERGY / Chevron Corporation / 22 vol rank
FINANCIALS / The Hanover Insurance Group, Inc. / 1 vol rank
FINANCIALS / TFS Financial Corporation / 5 vol rank
HEALTH / Medtronic plc / 9 vol rank
HEALTH / Baxter International Inc. / 15 vol rank
HEALTH / Stryker Corporation / 19 vol rank
INDUST / Republic Services, Inc. / 2 vol rank
INDUST / Waste Management, Inc. / 6 vol rank
IT / The Western Union Company / 13 vol rank
IT / Paychex, Inc. / 15 vol rank
IT / Accenture plc / 15 vol rank
MATERIAL / Air Products and Chemicals, Inc / 18 vol rank
REITS / Equity Residential / 1 vol rank
UTILITY / Eversource Energy / 1 vol rank

I will benchmark this list versus USMV then decide whether to proceed next year.

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Re: "Steelmanning" the case for owning individual stocks

Post by hdas » Wed Oct 23, 2019 10:53 am

Forester wrote:
Wed Oct 23, 2019 10:41 am
Starting with the largest 1,000 US stocks. Removed 500 based on percentile rank of 6mo momentum & shareholder yield.

Remaining 500 sorted by percentile rank of 1 yr & 6mo relative volatility.

20 stocks, each US sector must be represented by one stock, however small that sector is relative to the broad index. "1 vol rank" = is in the least volatile 1% of all US stocks.

COMMS / Verizon Communications, Inc. / 10 vol rank
COMMS / AT&T, Inc. / 21 vol rank
CON DISCRET / McDonald's Corporation / 5 vol rank
CON DISCRET / YUM! Brands, Inc. / 7 vol rank
CON STAPLES / PepsiCo, Inc. / 6 vol rank
CON STAPLES / The Coca-Cola Company / 9 vol rank
ENERGY / Chevron Corporation / 22 vol rank
FINANCIALS / The Hanover Insurance Group, Inc. / 1 vol rank
FINANCIALS / TFS Financial Corporation / 5 vol rank
HEALTH / Medtronic plc / 9 vol rank
HEALTH / Baxter International Inc. / 15 vol rank
HEALTH / Stryker Corporation / 19 vol rank
INDUST / Republic Services, Inc. / 2 vol rank
INDUST / Waste Management, Inc. / 6 vol rank
IT / The Western Union Company / 13 vol rank
IT / Paychex, Inc. / 15 vol rank
IT / Accenture plc / 15 vol rank
MATERIAL / Air Products and Chemicals, Inc / 18 vol rank
REITS / Equity Residential / 1 vol rank
UTILITY / Eversource Energy / 1 vol rank

I will benchmark this list versus USMV then decide whether to proceed next year.
Interesting, thanks for sharing, a couple of points:

1. Where did you find shareholder yield info.......is this the Quantopian data?
2. It's worthwhile to contemplate the difference between doing the initial removal based on vol or momentum
3. What's the weighting scheme...equal weight?
4. Your methodology seems similar to Robeco's conservative equity. (except see #1)
5. All tickers are similar (I hold 4 of them, and have held many more of those) ......sector constrain is key.
6. How often rebalancing?

Good Luck :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: "Steelmanning" the case for owning individual stocks

Post by protagonist » Wed Oct 23, 2019 11:05 am

hdas wrote:
Tue Jan 29, 2019 12:48 pm


However, how about the cases when:

1. A desirable fund with X,Y characteristics doesn't exist.<<< UPDATE : See DVOL
2. The investor is willing to follow a well researched disciplined systematic approach.
3. The strategy can be implemented at reasonable cost and sensitive to tax issues.
4. The investor has the interest, quantitative skills and time to carry on with the endeavor.
5. The main objective is to have an appropriate growth with a lot less volatility and small drawdowns.

I used to agree with this back in the halcyon growth period of the 1990s. I was convinced that I met criteria #2-5, and besides, it was fun at the time. But in the long run, I did not beat the market.

I think the main reason is that I overestimated my "quantitative skills" (point #4). The fact is, with every trade, there is a winner and a loser. Most trades are institutional. As smart as I thought I was, the chances are that most times I traded a stock I was not trading with some average Joe or Jody who had a day job like me but less smarts. I was trading with some hotshot recent MIT/Harvard/ CalTech graduate in finance/economics who was hired by Goldman Sachs because he was the best in his class, who had access to the fastest state-of-the-art computers and data base (cf. my IBM laptop with a 28K or 56K dial-up modem), who spent his whole life trading stocks, and whose entire livelihood depended on "winning".

I concluded that what I was doing was the equivalent of playing chess (for big money) against Garry Kasparov.

Plus it took a lot of time, that I thought would be better spent with my family than on a laptop.

I switched to index funds around 2000. I haven't looked at a Wall Street Journal since, unless I was a captive audience in a waiting room where it was the only thing available to read.

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Re: "Steelmanning" the case for owning individual stocks

Post by Forester » Wed Oct 23, 2019 11:18 am

hdas wrote:
Wed Oct 23, 2019 10:53 am
Forester wrote:
Wed Oct 23, 2019 10:41 am
Starting with the largest 1,000 US stocks. Removed 500 based on percentile rank of 6mo momentum & shareholder yield.

Remaining 500 sorted by percentile rank of 1 yr & 6mo relative volatility.

20 stocks, each US sector must be represented by one stock, however small that sector is relative to the broad index. "1 vol rank" = is in the least volatile 1% of all US stocks.

COMMS / Verizon Communications, Inc. / 10 vol rank
COMMS / AT&T, Inc. / 21 vol rank
CON DISCRET / McDonald's Corporation / 5 vol rank
CON DISCRET / YUM! Brands, Inc. / 7 vol rank
CON STAPLES / PepsiCo, Inc. / 6 vol rank
CON STAPLES / The Coca-Cola Company / 9 vol rank
ENERGY / Chevron Corporation / 22 vol rank
FINANCIALS / The Hanover Insurance Group, Inc. / 1 vol rank
FINANCIALS / TFS Financial Corporation / 5 vol rank
HEALTH / Medtronic plc / 9 vol rank
HEALTH / Baxter International Inc. / 15 vol rank
HEALTH / Stryker Corporation / 19 vol rank
INDUST / Republic Services, Inc. / 2 vol rank
INDUST / Waste Management, Inc. / 6 vol rank
IT / The Western Union Company / 13 vol rank
IT / Paychex, Inc. / 15 vol rank
IT / Accenture plc / 15 vol rank
MATERIAL / Air Products and Chemicals, Inc / 18 vol rank
REITS / Equity Residential / 1 vol rank
UTILITY / Eversource Energy / 1 vol rank

I will benchmark this list versus USMV then decide whether to proceed next year.
Interesting, thanks for sharing, a couple of points:

1. Where did you find shareholder yield info.......is this the Quantopian data?
2. It's worthwhile to contemplate the difference between doing the initial removal based on vol or momentum
3. What's the weighting scheme...equal weight?
4. Your methodology seems similar to Robeco's conservative equity. (except see #1)
5. All tickers are similar (I hold 4 of them, and have held many more of those) ......sector constrain is key.
6. How often rebalancing?

Good Luck :greedy
1) my stock screener (valuesignals.com)
3) equal weight
2) & 4) Pim van Vliet's method in his book sorts by low vol first (1,000 into 500) then selects the top 100 stocks by a percentile rank of value & momentum. It occurred to me that this would resemble more of a multi-factor portfolio than a low vol portfolio, and not a very concentrated one at that.
6) USMV has a turnover of 21% so I would aim for no higher than 25%. A reason not to load heavily on momentum would be to keep the turnover down, and really bet the house on low vol. Although I can own US/foreign stocks in my tax-free account, I still incur a 0.3% currency fee on every purchase or sale.

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Re: "Steelmanning" the case for owning individual stocks

Post by Forester » Wed Oct 23, 2019 3:27 pm

USMV metrics vs Russell 1000. I was most interested in finding the average volatility rank of USMV - how realistic is it that it can be improved upon by a DIY investor? This is what my stock screener & Excel throw up, I have no Bloomberg machine.

USMV (212 stocks)
Median EV/EBIT: 21.04
Median 6mo price appreciation: 9.8%
Average Piotroski score: 5.85
Average volatility percentile (2yr,1yr,6mo): 26

Russell 1000
Median EV/EBIT: 19.94
Median 6mo price appreciation: 5.2%
Average Piotroski score: 5.49

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Re: "Steelmanning" the case for owning individual stocks

Post by Random Walker » Wed Oct 23, 2019 3:38 pm

The market compensates undiversifiable risks, but not ones that can be diversified away. To experience the gains of an asset class, the investor needs to be diversified within the asset class. Most all of an asset class’ performance is explained by a few winners, and we can’t predict which stocks those are in advance. Single stock investing is loaded with uncompensated risk: the expected return is the same as the asset class and there is no increase in expected return for taking on the additional uncompensated single stock risk.

Dave

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Re: "Steelmanning" the case for owning individual stocks

Post by hdas » Wed Oct 23, 2019 3:52 pm

Forester wrote:
Wed Oct 23, 2019 3:27 pm
USMV metrics vs Russell 1000. I was most interested in finding the average volatility rank of USMV - how realistic is it that it can be improved upon by a DIY investor? This is what my stock screener & Excel throw up, I have no Bloomberg machine.
The key obstacle for the DIY investor is the optimization rutine, they use Barra. Here are some ideas one can improve as shown in my experiment:

- the skewness of returns (I measure it on weekly resolution) Avg return of positive weeks / Avg return of negative weeks. 1.5 vs 1.1 for USMV.
- If you add a momentum you can add some bsp of performance during the "risk on" trends.
- Depending on how you rebalance and your observation windows you can rotate your portfolio quicker so you are less affected for periods of under performance. For instance I have now a fair amount of "value" stocks that meet the criteria of momentum and low volatility and have benefited from the last 3-4 weeks.

In general, if you want something hands off, better to stick with an ETF, if you want to improve, you have to be more active, more concentrated and more "different".

Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: "Steelmanning" the case for owning individual stocks

Post by Forester » Thu Oct 24, 2019 6:10 am

hdas wrote:
Wed Oct 23, 2019 3:52 pm
Forester wrote:
Wed Oct 23, 2019 3:27 pm
USMV metrics vs Russell 1000. I was most interested in finding the average volatility rank of USMV - how realistic is it that it can be improved upon by a DIY investor? This is what my stock screener & Excel throw up, I have no Bloomberg machine.
The key obstacle for the DIY investor is the optimization rutine, they use Barra. Here are some ideas one can improve as shown in my experiment:

- the skewness of returns (I measure it on weekly resolution) Avg return of positive weeks / Avg return of negative weeks. 1.5 vs 1.1 for USMV.
- If you add a momentum you can add some bsp of performance during the "risk on" trends.
- Depending on how you rebalance and your observation windows you can rotate your portfolio quicker so you are less affected for periods of under performance. For instance I have now a fair amount of "value" stocks that meet the criteria of momentum and low volatility and have benefited from the last 3-4 weeks.

In general, if you want something hands off, better to stick with an ETF, if you want to improve, you have to be more active, more concentrated and more "different".

Cheers :greedy
I'm unsure how much value is added by the cross correlation optimisation. My bet would be if SPLV simply equal-weighted its sectors it would track USMV closely.

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Need fund names

Post by Taylor Larimore » Thu Oct 24, 2019 7:54 am

Forester:

It will help if you would give the fund names as well as the ticker symbols. Few of us have memorized ticker symbols.

Thank you and best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The big advantage to investors is the instant diversification that comes with funds, as opposed to buying individual stocks or bonds."
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Need fund names

Post by Forester » Thu Oct 24, 2019 9:17 am

Taylor Larimore wrote:
Thu Oct 24, 2019 7:54 am
Forester:

It will help if you would give the fund names as well as the ticker symbols. Few of us have memorized ticker symbols.

Thank you and best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The big advantage to investors is the instant diversification that comes with funds, as opposed to buying individual stocks or bonds."
iShares USMV MSCI US Minimum Volatility - low vol with sector constraints
https://www.msci.com/documents/10199/f5 ... 761d009094

Invesco SPLV S&P 500 Low Volatility - simply the 100 least volatile S&P 500 stocks, regardless of their industry sector
https://www.invesco.com/static/us/inves ... dnsName=us

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hdas
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The Impact of Constraints on Minimum-Variance Portfolios

Post by hdas » Sun Oct 27, 2019 6:49 pm

Nice article pertinent to the balance between min volatility and real world implementation. Seems to me that some of the issues are less relevant for DYI with our small portfolios.

The Impact of Constraints on Minimum-Variance Portfolios
Tzee-Man Chow,Engin Kose &Feifei Li
Pages 52-70 | Published online: 27 Dec 2018
ptimized minimum-variance strategies tend to have low liquidity; high turnover; high tracking error; and concentrated stock, sector, and country positions. Minimum-variance index providers typically mitigate these implementation problems by imposing constraints. The authors construct minimum-variance portfolios for the United States, global developed markets, and emerging markets and apply commonly used constraints to determine their effect on simulated portfolio characteristics, performance, and trading costs. The constraints they test succeed in improving investability but shift portfolio characteristics toward those of the capitalization-weighted benchmark. In particular, each additional constraint increases volatility. Nonetheless, minimum-variance strategies are a valid choice for risk-averse investors.
On the bright side:
We conducted a series of tests designed to evaluate the robustness of minimumvariance strategies in the presence of constraints. They included shortening the historical period on which the covariance matrix is based, reducing the number of eligible stocks, and rebalancing more often than once
a year. In this section, we summarize the results for developed market portfolios. All the robustness tests produced similar results in the US and emerging market portfolios.
Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

mathguy3021
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Re: "Steelmanning" the case for owning individual stocks

Post by mathguy3021 » Sun Oct 27, 2019 11:06 pm

Thanks for the update on this strategy. I believe in using a percentage of one's portfolio for strategies like this as long as you have most of your money in traditional index funds and this is money that you can afford to underperform with. I also have a small percentage of my assets in unique strategies of my own. It is good that you are striving for high performance with less volatility.

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Re: "Steelmanning" the case for owning individual stocks

Post by smectym » Mon Oct 28, 2019 12:23 am

2015 wrote:
Tue Jan 29, 2019 1:36 pm
An obsession with investing, personal finance, and microeconomics is a great way to wake up one day and find one has been a victim of personal disruptive innovation as a result of being too focused on only one small area of the complex adaptive system that an individual lives in. Success in life occurs in many dimensions, and high performing individuals are efficient in parceling out their time and attention among all of those dimensions.
“Success Theatre” is out of place on this forum, but since you raise the topic, the idea that most people are successful because they’re super good at time management is a hilariously off-base fallacy. The cited skills are strictly for lower-level management. Those guys work for somebody successful.

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Re: "Steelmanning" the case for owning individual stocks

Post by hdas » Wed Oct 30, 2019 11:44 am

Random Walker wrote:
Wed Oct 23, 2019 3:38 pm
The market compensates undiversifiable risks, but not ones that can be diversified away. To experience the gains of an asset class, the investor needs to be diversified within the asset class. Most all of an asset class’ performance is explained by a few winners, and we can’t predict which stocks those are in advance. Single stock investing is loaded with uncompensated risk: the expected return is the same as the asset class and there is no increase in expected return for taking on the additional uncompensated single stock risk.

Dave
Yes, idiosyncratic risk it's a thing, but depending on your risk management protocols and the rotation of your portfolio you can mitigate a great deal. This morning one of my holdings NYCB was down ~10%. I simply sold it and replace it for the next stock in the queue. As of this moment my portfolio is up 0.45%, USMV up 0.35%, SPY is flat. Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: "Steelmanning" the case for owning individual stocks

Post by Forester » Thu Oct 31, 2019 12:10 pm

Bit of choppiness in USMV in the last couple of weeks. Could be a decent indicator - if USMV has more return volatility recently than the S&P 500, that's bullish for risk assets.

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Re: "Steelmanning" the case for owning individual stocks

Post by hdas » Thu Oct 31, 2019 1:28 pm

Forester wrote:
Thu Oct 31, 2019 12:10 pm
Bit of choppiness in USMV in the last couple of weeks. Could be a decent indicator - if USMV has more return volatility recently than the S&P 500, that's bullish for risk assets.
Your observation is accurate and it's easy to check your hypothesis. However, one must go from descriptive to predictive, and look at the lead-lag relationship instead of the coterminous one. Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: "Steelmanning" the case for owning individual stocks

Post by hdas » Fri Nov 01, 2019 1:43 pm

Forester wrote:
Thu Oct 31, 2019 12:10 pm
Bit of choppiness in USMV in the last couple of weeks. Could be a decent indicator - if USMV has more return volatility recently than the S&P 500, that's bullish for risk assets.
Furthermore, I think the action of the last weeks tells you the market is trying to balance from being severely underweight beta and value. Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: "Steelmanning" the case for owning individual stocks

Post by hdas » Fri Nov 08, 2019 12:11 am

taojaxx wrote:
Sun Oct 13, 2019 1:19 pm
How about you buy DVOL, leave it at that and spend quality time with friends and family?
Just a thought 8-)
Check DVOL recent performance :twisted:
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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