HEDGEFUNDIE's excellent adventure Part II: The next journey

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jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

tradri wrote: Mon Apr 26, 2021 6:59 pm
Hydromod wrote: Mon Apr 26, 2021 6:54 pm I think hedgefundie made the assumption that monetary policies fundamentally changed in the 1980s and are unlikely to return.

As a practical matter, I would prefer to hold on to an approach that would have worked well for the last 30 years until it stops working, but be prepared to switch to some other tried-and-true approach if the economic climate changes adversely.
Fair enough. I, personally, feel more comfortable following a strategy that didn't underperform the market for multiple decades in the past.
Then SCV is not a good choice for you, it under perform for more than a decade.
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

jarjarM wrote: Mon Apr 26, 2021 7:00 pm
Then SCV is not a good choice for you, it under perform for more than a decade.
I'm more interested in the momentum factor. It seems to have produced the highest returns in the backtests. (from 1982)
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by okwriter »

The best explanation I have seen for treating pre-1980 LTT data differently is in this post by vineviz: viewtopic.php?t=260386#p4150162. The following plot was particularly convincing:
vineviz wrote: Fri Oct 05, 2018 9:11 am To illustrate this, I computed rolling 10-year averages for inflation going back to 1951. I also computed rolling 10-year returns for two 60/40 stock/bond portfolios, one with short term bonds and the other with long term bonds.

The chart below plots the inflation rate on the y-axis and the long-term bond 'premium' (return of the long-bond portfolio minus the return of the short-bond portfolio).
Image
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RovenSkyfall
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RovenSkyfall »

tradri wrote: Mon Apr 26, 2021 7:06 pm
jarjarM wrote: Mon Apr 26, 2021 7:00 pm
Then SCV is not a good choice for you, it under perform for more than a decade.
I'm more interested in the momentum factor. It seems to have produced the highest returns in the backtests. (from 1982)
You seem to be interested in learning more about these things. You should read the chapter on Backtesting in Numerical Methods and Optimization in Finance. I bet it will blow your mind about how much weight you are putting in backtests. I know it changed my perspective.
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

RovenSkyfall wrote: Tue Apr 27, 2021 8:04 am
tradri wrote: Mon Apr 26, 2021 7:06 pm
jarjarM wrote: Mon Apr 26, 2021 7:00 pm
Then SCV is not a good choice for you, it under perform for more than a decade.
I'm more interested in the momentum factor. It seems to have produced the highest returns in the backtests. (from 1982)
You seem to be interested in learning more about these things. You should read the chapter on Backtesting in Numerical Methods and Optimization in Finance. I bet it will blow your mind about how much weight you are putting in backtests. I know it changed my perspective.
Ok, I will take a look.
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

RovenSkyfall wrote: Tue Apr 27, 2021 8:04 am
You seem to be interested in learning more about these things. You should read the chapter on Backtesting in Numerical Methods and Optimization in Finance. I bet it will blow your mind about how much weight you are putting in backtests. I know it changed my perspective.
Could you link me to a free version of the book/chapter or give me the main ideas behind it?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LadyGeek »

^^^ If the book is not in the public domain (not free), no links will be permitted.
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

LadyGeek wrote: Tue Apr 27, 2021 8:56 am ^^^ If the book is not in the public domain (not free), no links will be permitted.
Got it. :annoyed :sharebeer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LeverageWBeverage »

Fooling around with the portfolio visualizer and the rebalance settings. Is there a way to set up different allocations on a scale? Like if UPRO drops 30% maybe I don't want to rebal to my original 45/55 but to some other percentage like 70/30 and so on. I know I can always do this manually in real time going forward but how do I go back and look at backtests?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

LeverageWBeverage wrote: Tue Apr 27, 2021 11:35 am Fooling around with the portfolio visualizer and the rebalance settings. Is there a way to set up different allocations on a scale? Like if UPRO drops 30% maybe I don't want to rebal to my original 45/55 but to some other percentage like 70/30 and so on. I know I can always do this manually in real time going forward but how do I go back and look at backtests?
Check out the "Timing Models" on the main page, but I am not sure there is an option for a custom strategy with so many variables.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tchoupitoulas »

tradri wrote: Mon Apr 26, 2021 5:45 pm I looked a bit deeper into the backtests and from what I can tell HFEA might not be the best strategy to hold long-term.

First of all, here is a comparison between 55% 3x S&P 500 / 45% 3x LTT and the S&P 500 from 1955 to 2020.
Image

HFEA underperformed the S&P 500 from 1972 to 1996, but overall it didn't do too bad.

However, when you compare it to small cap value over that time frame, it makes HFEA look much worse.
Image

HFEA underperformed small cap value from 1966 all the way up to 2017. (with much higher drawdowns, obviously)

All this doesn't look great for leveraged ETF strategies, especially when compared to factor investing.
You're using the term "underperformed" in a somewhat misleading way. Anytime you just look at a graph of past returns like this you have to keep in mind that what you're seeing is start date sensitive. HFEA began the period by underperforming and didn't catch up to the S&P until 1996, meaning it took until then to regain the ground it had already lost. But it overperformed the S&P starting much earlier than that, hence its ability to catch up by '96. The outperformance began around 1981 and if you do a plot starting on that date all you'll see is HFEA going up and S&P left in the dust. I think you'll see the same phenomenon if you play around with the start dates in your HFEA vs. SCV chart too. The best way to correct for start date sensitivity is to look at rolling returns or the standard deviation of returns. But ultimately this comes back to the issue that has been debated ad nauseam: is HFEA going to revert to its pre-1980s performance or is that ancient history now? I really don't know.

Another thought: the chart you posted is in log scale. I can't tell if you were being sarcastic, but "overall it didn't do too bad" is a bit of an understatement, considering that HFEA finished with ~$500,000 vs. $71k for the S&P. That's a *huge* difference in outcomes.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

tchoupitoulas wrote: Tue Apr 27, 2021 12:41 pm Another thought: the chart you posted is in log scale. I can't tell if you were being sarcastic, but "overall it didn't do too bad" is a bit of an understatement, considering that HFEA finished with ~$500,000 vs. $71k for the S&P. That's a *huge* difference in outcomes.
I'm not the OP, but wow I totally missed that. Yes, the log scale is massively misleading - $71k vs. $500k is huge.
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

tchoupitoulas wrote: Tue Apr 27, 2021 12:41 pm You're using the term "underperformed" in a somewhat misleading way. Anytime you just look at a graph of past returns like this you have to keep in mind that what you're seeing is start date sensitive. HFEA began the period by underperforming and didn't catch up to the S&P until 1996, meaning it took until then to regain the ground it had already lost. But it overperformed the S&P starting much earlier than that, hence its ability to catch up by '96. The outperformance began around 1981 and if you do a plot starting on that date all you'll see is HFEA going up and S&P left in the dust. I think you'll see the same phenomenon if you play around with the start dates in your HFEA vs. SCV chart too. The best way to correct for start date sensitivity is to look at rolling returns or the standard deviation of returns. But ultimately this comes back to the issue that has been debated ad nauseam: is HFEA going to revert to its pre-1980s performance or is that ancient history now? I really don't know.

Another thought: the chart you posted is in log scale. I can't tell if you were being sarcastic, but "overall it didn't do too bad" is a bit of an understatement, considering that HFEA finished with ~$500,000 vs. $71k for the S&P. That's a *huge* difference in outcomes.
You're right. If we only look at the backtest from the 1980s onwards, things look amazing.

But aren't we then completely ignoring the long bull market for bonds from 1980-now? I think such an approach introduces many more conflicting variables.

I think it doesn't really matter what the final value after these 65 years is, since that's longer than most people can wait. The fact that it produces worse results from 1955 up until 1996 (or up until 2017 when compared to SCV!) is troubling, because that's much longer than anybody's time horizon.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tchoupitoulas »

tradri wrote: Tue Apr 27, 2021 12:54 pm I think it doesn't really matter what the final value after these 65 years is, since that's longer than most people can wait.
I agree- you're the one who posted the chart and mentioned the relative performance. Like you said, it all comes down to whether you think the pre- or post-1980 performance is more likely going forward.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

LeverageWBeverage wrote: Tue Apr 27, 2021 11:35 am Fooling around with the portfolio visualizer and the rebalance settings. Is there a way to set up different allocations on a scale? Like if UPRO drops 30% maybe I don't want to rebal to my original 45/55 but to some other percentage like 70/30 and so on. I know I can always do this manually in real time going forward but how do I go back and look at backtests?
There isn't one from PV, you'll have to roll your own backtest to customize that. There are other rebalancing strategies that you can try it out in PV though.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

tradri wrote: Tue Apr 27, 2021 12:54 pm
I think it doesn't really matter what the final value after these 65 years is, since that's longer than most people can wait. The fact that it produces worse results from 1955 up until 1996 (or up until 2017 when compared to SCV!) is troubling, because that's much longer than anybody's time horizon.
I disagree on the basis that at least in my case, I'm putting in more money periodically as I assume most are doing as well, meaning that HFEA would have caught up and surpassed the other two significantly earlier as a result of the new money coming in at the bottoms.
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

Afrofreak wrote: Tue Apr 27, 2021 2:33 pm
I disagree on the basis that at least in my case, I'm putting in more money periodically as I assume most are doing as well, meaning that HFEA would have caught up and surpassed the other two significantly earlier as a result of the new money coming in at the bottoms.
Sure, that would make it less likely that you buy at an all-time-high.

However, there is still a non-zero chance that your investment journey might look similar to this.

Image
Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

One might consider switching to TMV during a rising interest rate environment. That would have worked wonderfully 1955 to 1982.
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

Hey! 0.06% CAGR is nothing to sneeze at!

You could have done far worse, holding 100% cash. :mrgreen:
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by TheDoctor91 »

tradri wrote: Tue Apr 27, 2021 2:39 pm
Afrofreak wrote: Tue Apr 27, 2021 2:33 pm
I disagree on the basis that at least in my case, I'm putting in more money periodically as I assume most are doing as well, meaning that HFEA would have caught up and surpassed the other two significantly earlier as a result of the new money coming in at the bottoms.
Sure, that would make it less likely that you buy at an all-time-high.

However, there is still a non-zero chance that your investment journey might look similar to this.

Image
Or you could do it as part of a factor portfolio for the best of both worlds?
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

TheDoctor91 wrote: Wed Apr 28, 2021 4:29 am
Or you could do it as part of a factor portfolio for the best of both worlds?
What do you mean? I don't think there are factor LETFs available.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lazyinvestor30 »

Hydromod wrote: Tue Apr 27, 2021 2:54 pm One might consider switching to TMV during a rising interest rate environment. That would have worked wonderfully 1955 to 1982.
I know you have a done a lot of analysis and have provided that in other threads. But can you summarize that, and provide what indicators you would use to witch from a TMF to TMV. Are there specific indicators you will look at? I am not looking for perfect optimization, but if I have change from TMF to TMV every 2-3 years depending on the climate, that might work.

Thoughts? Also feel free to refer me to specific posts or threads in other places
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

lazyinvestor30 wrote: Wed Apr 28, 2021 9:39 amI know you have a done a lot of analysis and have provided that in other threads. But can you summarize that, and provide what indicators you would use to witch from a TMF to TMV. Are there specific indicators you will look at? I am not looking for perfect optimization, but if I have change from TMF to TMV every 2-3 years depending on the climate, that might work.

Thoughts? Also feel free to refer me to specific posts or threads in other places
So I'm not Hydromod, but I just wanted to point out that TMF vs. TMV is basically a long vs. short position. Choosing TMV would be very speculative and not Bogleheads-oriented at all, IMO.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

Hydromod wrote: Tue Apr 27, 2021 2:54 pm One might consider switching to TMV during a rising interest rate environment. That would have worked wonderfully 1955 to 1982.
But how do you know if you're in a rising interest rate environment? That's like saying you would consider going all bonds before a market crash.
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

lazyinvestor30 wrote: Wed Apr 28, 2021 9:39 am
I know you have a done a lot of analysis and have provided that in other threads. But can you summarize that, and provide what indicators you would use to witch from a TMF to TMV. Are there specific indicators you will look at? I am not looking for perfect optimization, but if I have change from TMF to TMV every 2-3 years depending on the climate, that might work.

Thoughts? Also feel free to refer me to specific posts or threads in other places
I don't know how such a market-timing strategy would look like, but so far investing in TMV has been equivalent to throwing money out of the window.

Image
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lazyinvestor30 »

tradri wrote: Wed Apr 28, 2021 10:14 am
lazyinvestor30 wrote: Wed Apr 28, 2021 9:39 am
I know you have a done a lot of analysis and have provided that in other threads. But can you summarize that, and provide what indicators you would use to witch from a TMF to TMV. Are there specific indicators you will look at? I am not looking for perfect optimization, but if I have change from TMF to TMV every 2-3 years depending on the climate, that might work.

Thoughts? Also feel free to refer me to specific posts or threads in other places
I don't know how such a market-timing strategy would look like, but so far investing in TMV has been equivalent to throwing money out of the window.

Image
Ofcourse, TMV in this situation is useless and that is why we are doing HEFA with TMF. But if this adventure had existed in 70's what would have been the recommendation? TMV, right? So we are not doing market timing, to know the exact dates, but if the FED raises rates for two years, I then switch to TMV? That is what I am trying figure out. What can overall macro economic factors, can be used to change directions within reason.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lazyinvestor30 »

DMoogle wrote: Wed Apr 28, 2021 9:43 am
lazyinvestor30 wrote: Wed Apr 28, 2021 9:39 amI know you have a done a lot of analysis and have provided that in other threads. But can you summarize that, and provide what indicators you would use to witch from a TMF to TMV. Are there specific indicators you will look at? I am not looking for perfect optimization, but if I have change from TMF to TMV every 2-3 years depending on the climate, that might work.

Thoughts? Also feel free to refer me to specific posts or threads in other places
So I'm not Hydromod, but I just wanted to point out that TMF vs. TMV is basically a long vs. short position. Choosing TMV would be very speculative and not Bogleheads-oriented at all, IMO.
Sure, yes. I think a lot of us are Bogleheads with rest of our portfolios. But as a side bet, to satisfy our urges to tinker, this was started.
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

lazyinvestor30 wrote: Wed Apr 28, 2021 10:20 am
Ofcourse, TMV in this situation is useless and that is why we are doing HEFA with TMF. But if this adventure had existed in 70's what would have been the recommendation? TMV, right? So we are not doing market timing, to know the exact dates, but if the FED raises rates for two years, I then switch to TMV? That is what I am trying figure out. What can overall macro economic factors, can be used to change directions within reason.
Yes, if we can predict future interest rates that would be helpful.

Looking back, you should have probably abandoned TMF before 1970 at the very latest.

Image

However, interest rates were actually falling after 1970, so you might have been tempted to switch back to TMF.

Image

I don't know if Hydromod has a better market-timing model. :confused

P.S. As a side note, adding 20% 3x gold would have saved the portfolio during that time period, but then the returns after 1980 wouldn't have been as juicy.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

tradri wrote: Wed Apr 28, 2021 10:28 am
lazyinvestor30 wrote: Wed Apr 28, 2021 10:20 am
Ofcourse, TMV in this situation is useless and that is why we are doing HEFA with TMF. But if this adventure had existed in 70's what would have been the recommendation? TMV, right? So we are not doing market timing, to know the exact dates, but if the FED raises rates for two years, I then switch to TMV? That is what I am trying figure out. What can overall macro economic factors, can be used to change directions within reason.
Yes, if we can predict future interest rates that would be helpful.

Looking back, you should have probably abandoned TMF before 1970 at the very latest.

However, interest rates were actually falling after 1970, so you might have been tempted to switch back to TMF.

I don't know if Hydromod has a better market-timing model. :confused

P.S. As a side note, adding 20% 3x gold would have saved the portfolio during that time period, but then the returns after 1980 wouldn't have been as juicy.
I just have the dual-momentum approaches discussed in the entries near here. Something like that might be workable, where the momentum comparison might compare a portfolio with TMV versus the same portfolio except with TMF. I haven't thought about it much since 2019, honestly.
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tradri
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

Hydromod wrote: Wed Apr 28, 2021 10:59 am
I just have the dual-momentum approaches discussed in the entries near here. Something like that might be workable, where the momentum comparison might compare a portfolio with TMV versus the same portfolio except with TMF. I haven't thought about it much since 2019, honestly.
Wow, those returns almost look like Bernie Madoff's returns. :wink:
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

tradri wrote: Wed Apr 28, 2021 11:06 am
Hydromod wrote: Wed Apr 28, 2021 10:59 am
I just have the dual-momentum approaches discussed in the entries near here. Something like that might be workable, where the momentum comparison might compare a portfolio with TMV versus the same portfolio except with TMF. I haven't thought about it much since 2019, honestly.
Wow, those returns almost look like Bernie Madoff's returns. :wink:
I have a nice bridge for sale too, if you’re interested... :beer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tradri »

Hydromod wrote: Wed Apr 28, 2021 10:59 am
I just have the dual-momentum approaches discussed in the entries near here. Something like that might be workable, where the momentum comparison might compare a portfolio with TMV versus the same portfolio except with TMF. I haven't thought about it much since 2019, honestly.
I do believe in the momentum factor, so I am pretty sure the strategy has some merit behind it, but I do prefer a hands-off approach through a conventional momentum ETF, so I will probably stick with that.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

tradri wrote: Wed Apr 28, 2021 11:37 am I do believe in the momentum factor, so I am pretty sure the strategy has some merit behind it, but I do prefer a hands-off approach through a conventional momentum ETF, so I will probably stick with that.
That's probably a much safer way to go.

I'm getting a little intrigued to revisit the notion, now that I have fairly well nailed down most of the approach I want to take. I'm almost taking the attitude that it sounds a little too good to be practical, but maybe there's something there.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lazyinvestor30 »

Hydromod wrote: Wed Apr 28, 2021 11:52 am
tradri wrote: Wed Apr 28, 2021 11:37 am I do believe in the momentum factor, so I am pretty sure the strategy has some merit behind it, but I do prefer a hands-off approach through a conventional momentum ETF, so I will probably stick with that.
That's probably a much safer way to go.

I'm getting a little intrigued to revisit the notion, now that I have fairly well nailed down most of the approach I want to take. I'm almost taking the attitude that it sounds a little too good to be practical, but maybe there's something there.
I would be curious to know what you can discover. It doesn't mean we have to change approaches, but being able to do further analysis would be fun to see.

Also when you say, you have the basic approach nailed down, its a 55/45 TMF at this point? Would love to know what you have as portfolio. If you can edit first post of the other thread, it would useful to see how your thinking has changed and what is currently your thoughts.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

lazyinvestor30 wrote: Wed Apr 28, 2021 12:22 pm I would be curious to know what you can discover. It doesn't mean we have to change approaches, but being able to do further analysis would be fun to see.

Also when you say, you have the basic approach nailed down, its a 55/45 TMF at this point? Would love to know what you have as portfolio. If you can edit first post of the other thread, it would useful to see how your thinking has changed and what is currently your thoughts.
My current approach is at the end, I just posted recently. It's a risk-budget flavor of minimum variance holding UPRO/TQQQ/DRN/UTSL/TMF, where the risk allocated to all equities combined is 60 percent and risk allocated to TMF is 40 percent. I'm planning on adjusting weights monthly. I'm doing this in Roth, it would be bad in taxable.

I didn't really envision my thread being a discussion of "my approach" per se, it has always been more of a way of collecting my learning process in one relatively compact and quiet place where I can revisit it easily. I find that entries in most active threads, such as this one, get lost quickly.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by BayStater »

tradri wrote: Wed Apr 28, 2021 10:28 am
lazyinvestor30 wrote: Wed Apr 28, 2021 10:20 am
Ofcourse, TMV in this situation is useless and that is why we are doing HEFA with TMF. But if this adventure had existed in 70's what would have been the recommendation? TMV, right? So we are not doing market timing, to know the exact dates, but if the FED raises rates for two years, I then switch to TMV? That is what I am trying figure out. What can overall macro economic factors, can be used to change directions within reason.
Yes, if we can predict future interest rates that would be helpful.
Would comparing the current rate to something like the Taylor Rule help inform the decision of whether the strategy should be positioned for rising/falling rates?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by TwoIdenticalIndexes »

Realized I never gave an update on my 15% utilities variant.

I turned off the adventure in January or February, because I became too uncomfortable with valuations. Before this, I was around 15% bonds and 100% equities, due to leverage from the adventure. Pretty sure 15% utilities outperformed the standard adventure, but it was close and a small sample size. I moved to about 15% bonds, 7.5% gold, 7.5% commodities, 70% equities (no leverage). So far this has underperformed 100% equities, but I'm fine with it.

I will probably move back to 100+% equities whenever the next downturn hits, but I'm out until then. We will see whether or not inflation can outpace valuations.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jdinatale »

I started the adventure on 2/9/21, rebalanced once, and I am significantly lagging the market. HFEA is up just under 3%, while SPY is up over 7 percent. In the historical data, how many months/years of underperformance have we seen?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

jdinatale wrote: Mon May 03, 2021 4:26 pm I started the adventure on 2/9/21, rebalanced once, and I am significantly lagging the market. HFEA is up just under 3%, while SPY is up over 7 percent. In the historical data, how many months/years of underperformance have we seen?
Check the links referenced in Part I in the beginning of the thread. Underperformance can last decades. If you're concerned about 4% underperformance over 2 months, this strategy is probably not for you.
Afrofreak
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Joined: Sat Feb 20, 2021 3:09 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

jdinatale wrote: Mon May 03, 2021 4:26 pm I started the adventure on 2/9/21, rebalanced once, and I am significantly lagging the market. HFEA is up just under 3%, while SPY is up over 7 percent. In the historical data, how many months/years of underperformance have we seen?
You gotta pump those numbers up! Those are rookie numbers in this racket! :-D
Centurion
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Joined: Wed Apr 08, 2020 10:49 am

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Centurion »

Question to those that reduced their TMF exposure (or like me just stopped re-balancing into it for a while due to rising yields):

Now that the 10 + 30 year treasury yields seem to have stabilized again at pre-covid levels are you re-balancing back into TMF?
If not: Why? What are your thoughts on the matter currently?
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OohLaLa
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Joined: Tue Mar 09, 2021 8:26 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

Centurion wrote: Wed May 05, 2021 5:33 pm Question to those that reduced their TMF exposure (or like me just stopped re-balancing into it for a while due to rising yields):

Now that the 10 + 30 year treasury yields seem to have stabilized again at pre-covid levels are you re-balancing back into TMF?
If not: Why? What are your thoughts on the matter currently?
I was never convinced that long-term bonds suddenly stopped acting as long-term bonds have been. There were relatively short periods where they were positively correlated with stocks but nothing that had me shaking in my boots. There is still a lot of debate about whether LTT provide the necessary ballast and whether increasing interest rates will demolish TMF. The articles and studies I've seen shared just add to my conviction that they are useful... things like:
- historical rates on a downward trajectory (https://www.visualcapitalist.com/700-ye ... est-rates/)
- progressive, reasonable rate increases not actually catastrophically destroying existing LTT value (can't remember where this one was discussed)
- LTT/ equities correlation potentially being more dependent on inflation (https://www.ubs.com/global/en/asset-man ... ation.html)

Overall, recent correlation has somewhat risen in comparison to long-term ratios, but I maintain TMF exposure and will actually continue my yearly de-risking plan, going more and more from stocks to bonds. I intend to move 5% of the strategy each year, this way, until I go from 3x to 2x leverage.

I think I grew wiser ( :mrgreen: ) by exchanging further with the folks here and toying with some data. I decided to diversify the hedge portion, as well as diversify the stocks portion quicker than I expected.

To help visualize how my approach has changed within the last year:
2020 AA:
75% TQQQ, 25% TMF

2021 AA (initial plan):
70% TQQQ, 30% TMF

2021 AA (adjusted plan):
65% TQQQ, 5% UPRO, 10% TMF, 10% TYD, 10% VXZ

The change in AA is still underway and is a bit fuzzy due to how my funds are separated and how I add funds, but that is the target at all times, for this year. Next year will see that 5% move from equities to TMF, as well as a further move from TQQQ to UPRO.

The core idea is to avoid having a single point of failure. The original UPRO + TMF mix achieved a certain level of this but I still find it too dependent on a specific set of assumptions. If you are in this for the long run, I strongly suggest adding other dampers in there, or simply lowering leverage, which will significantly lower your risks all over.
parval
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Joined: Tue Oct 22, 2019 9:23 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by parval »

Think the play is to rebalance into doge
rchmx1
Posts: 315
Joined: Sat Oct 26, 2019 6:38 pm

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rchmx1 »

Centurion wrote: Wed May 05, 2021 5:33 pm Question to those that reduced their TMF exposure (or like me just stopped re-balancing into it for a while due to rising yields):

Now that the 10 + 30 year treasury yields seem to have stabilized again at pre-covid levels are you re-balancing back into TMF?
If not: Why? What are your thoughts on the matter currently?
I lowered my TMF exposure significantly last summer, down to around 10% at the time. My plan currently is to start purchasing more insurance with new contributions. I will start this with this month's 401K and IRA contributions.
Centurion
Posts: 12
Joined: Wed Apr 08, 2020 10:49 am

Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Centurion »

OohLaLa wrote: Wed May 05, 2021 6:20 pm - historical rates on a downward trajectory (https://www.visualcapitalist.com/700-ye ... est-rates/)
- progressive, reasonable rate increases not actually catastrophically destroying existing LTT value (can't remember where this one was discussed)
- LTT/ equities correlation potentially being more dependent on inflation (https://www.ubs.com/global/en/asset-man ... ation.html)
Thanks for your detailed post. Especially for the links you posted. I also think that inflation could currently be the the biggest threat for TMF. I think it could show up when people start spending as usual after the covid crisis. However the effects probably should be temporary.
parval wrote: Wed May 05, 2021 7:31 pm Think the play is to rebalance into doge
Hehe - yes if you know when to rebalance out of it that is...:P
rchmx1 wrote: Wed May 05, 2021 8:06 pm I lowered my TMF exposure significantly last summer, down to around 10% at the time. My plan currently is to start purchasing more insurance with new contributions. I will start this with this month's 401K and IRA contributions.
Same for me - I guess I will add new contributions to TMF from now on until I reach my desired 30% TMF again.
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