Post New

Jim does your old post on Mechanical for Taxed using RSP and QQQ Futures still work, or how would you chanfe it?
http://www.datahelper.com/mi/search.phtml?nofool=y...

Thanks in advance.

Sorry, I haven't done a numerical follow up in a few years.
I'd love to revisit it, but I've got stuff on my plate at the moment.

But in general, I think it's fair to say that none of the timing signals mentioned in the post has covered itself with glory since then.
Timing is hard.
I have become particularly skeptical of higher frequency timing signals, though the longer cycle bull/bear detectors have had some discriminating power.

To add insult to injury, we have come off a period that SPY has done quite a lot better than RSP, so using RSP as the basis has been the safer option, but not the higher return one.
This is historically the minority of the time, but it certainly happens, sometimes for a few years at a time.

On the lighter side, the strategy as defined doesn't wipe you out when the timing is bad, mainly you just don't get a return during those periods.


One flaw of the system as described, which I don't think was mentioned in the thread: some of the time you're both long and short, and the returns of the two generally cancel out. Cool.
Picture an interval that the index is going up but you're hedged--that happens. The mark to market returns will be flattish. Still cool.
Since you are long stock and short futures, the long side produces unrealized profits while the short side sucks up cold hard cash immediately.
Where does that cash come from? If it were all of your portfolio, you'd have to liquidate bit of stock on the way up. And, to keep the hedge ratio correct, you'd have to close bits of the hedge as well.
It's not a night and day issue, but horrible bookkeeping and hard to decide the precise liquidation/rebalancing/reinstating system you'd use.
If you're the sort of person who generally keeps a big pile of cash around at all times, it's not an issue.

Jim

I have become particularly skeptical of higher frequency timing signals, though the longer cycle bull/bear detectors have had some discriminating power.


FWIW,

The "99 day rule" post was 2008-09-26
Since then, the return on e-mini S&P futures--
During bullish periods: CAGR +12.00%, 84.9% of the time
The rest of the time: CAGR +0.91%, 15.1% of the time

So it would not be the basis of a profitable long/cash trading system, nor long/short.
But it does identify the broad swathes of time that the risk is pretty low, versus the time that things are iffy--about what it was designed to do.

This signal is based on the notion that it is very rare for a market drop to be both big and lasting if it's a short time after a recent market high.
I consider this a pretty good result, considering it really failed on one thing: the pandemic crash was precisely the [rare] sort of thing it can't handle, so it was bullish for it.
History suggests that the sort of plunge resulting in that sort of bone-headed call happens only about three times per century. Though of course it could happen again at any time.

Jim

Echoing / amplifying from Mungo's latest 2: the 99d / DBE signal *WAS NOT DESIGNED* to handle a market shock such as covid crash January-March 2020.

Just one "tool" analogy. One wouldn't expect a cruise ship to execute a turn like a destroyer would (or a smaller boat). New users should think of the 99D like a cruise ship that takes some time to change direction compared to the "smaller ships".

My opinion - to call the 99D highs *during Covid crash* a "failure" is inapt.

Thanks Jim and FlyingCircus
I am looking for a system that can average about 10% with low drawdowns.
My emotions like many make me jump out with fear once the market pulls down.
I would like to stay with an Spy, RSP, Or QQQ, and if possible get 1 year long term capital gains. If not long term one year gains, stay invested while feeling somewhat safe,not to lose a lot, during shorter time spans.

I know one idea is to barbell, and just put a smaller amount in stocks, and other in very safe investments, cash,money market, bonds,etc.

Any suggestions of conservative, low drawdown strategies, appreciated.

Also, are there similar better systems like this?
https://allocatesmartly.com/dr-keller-keunings-sim...

Thanks Jim and FlyingCircus
I am looking for a system that can average about 10% with low drawdowns.
...
Any suggestions of conservative, low drawdown strategies, appreciated.


I think the best solution is to consider deeply the reasons you want low drawdowns.
If you're retired and living from your portfolio with periodic liquidations, certainly a long drawdown will cause problems because you'll eat into your capital a bit more than you would like. But for most investors, what really matters is long term rate of return, not the smoothness of the ride along the way. It's a hard truth to remember, but an important one: you pay a high price for a smooth ride. Usually the high price is a low long run return, or something that isn't a safe place for your money. The harder you try, the bigger the risks you're taking (usually).

It's a pretty sure thing that almost any strategy using equities (your only hope of 10%/year) is going to lose you half your money on a mark-to-market basis from time time time. Learn to live with it, because it's the way the world works. There are strategies that do it someone less often, but no magic bullets. What you're looking for is what Mr Madoff was selling, and he had no trouble selling it, because that's what everybody wants (and nobody gets) : )

What I do instead is to do everything I can to make sure that the things I'm investing in will come back AFTER the price drop. i.e., price drops aren't a result of lasting value drops, just transient changes in market price. There are various ways to ensure that the companies you're investing in are financially robust with prospering business models. I am happy with investments which will make me money with high reliability over the next 3-5 years, and I don't really care about the current year. This places me in such a minority that it's like having no competition.


The closest I have managed is this
http://www.datahelper.com/mi/search.phtml?nofool=y...
"The goal is a screen which is as safe as the S&P 500 but with the hope of somewhat higher returns over the long run."

It has done very nicely since then, about 3.5 years so far. The "dividend required" version in particular, which also backtests a whisker better anyway.
Sure, it will have big drawdowns like anything else. I mention it here partly because it has very high short-term market correlation. If you're like most people, a drawdown when everyone else is having one is not NEARLY as painful as a drawdown all by your lonesome. (emphatically true if you're a professional money manager!)

Jim

Also, are there similar better systems like this?

There are two parts to these schemes.
One is selecting the asset(s) to hold
The other is the in/out (timing) signal.

I hate it when they mush the two parts into one conglomeration. You don't know which part was the primary factor in the increased returns.

They mention "HAA-Balanced" which is essentially Faber's QTAA but using TIPS as the in/out signal.

I am partial to Growth Trend Timing as a timing signal. But actually, any timing signal that got you out in 2008 was good.

FWIW, Jim once mentioned a monthly rotate, SPY / PRF / IWF / QQQ (switch to the one that was best in the previous month).
PORTFOLIO VISUALIZER shows this is OK. https://www.portfoliovisualizer.com/tactical-asset...

Wan, that's a good long term target. You have to assess what kind of investor you are first.

There are plenty of mechanical strategies, even MI screens, that will get you an average 10% over years. But, without some method of downside protection (Bear Catchers), you may see a 10%+ drawdown in any given month, or over 20% over months, on average every few years.

Or, you can invest in ETFs following relative strength methods, including a number with good dividend yields, without the volatility of stock screens or stock picking. But, still need downside protection -
like the Bear Catchers or other intermediate timing signals - when the market goes south there's no place to hide (unless you're a brilliant contrarian / shorter / leverage guy).

A barbell of high growth / high vol funds / stocks (20%) with super safe Treasury funds with less than 7 years maturity on the other end (20-30%) is a good approach as well.

It really depends on how much time you have left to accumulate funds vs spend them (years to retirement), which drives how much drawdown you're willing / able to tolerate.

There are two parts to these schemes.
One is selecting the asset(s) to hold
The other is the in/out (timing) signal.

This is a very profound summary, because the first step is underappreciated: I think the key is to have something in step 1 that won't blow up in your face.

To get the smooth returns that the OP desires, it would almost be a requirement to be hedged all the time.
Why?
Because at a very high level, there are two kinds of market drops: rollovers and plunges.
Almost all (not all, but most) timing systems are in one way trend followers, so as a rule they can't handle sudden plunges.
There are good timing systems that will add value over time in terms of much better sleep, but only on average. Once in a while there will be a drop that it didn't catch--you have to be prepared to live with that.
Getting back to my first comment, if what your underlying securities are solid, any plunge will unwind so it's not that bad. They'll come back.


Anyway, here is an example. A very dumb but kinda typical momentum system, calendar month based.
If the S&P total return was less than -3% in the last 3 months, be bearish. That's it. You're long around 78% of the time.

Here is something from the LargeCapCash screen family.
I just did a test with this variation:
VL universe
price/52-week high top 50%
ROE top 30%
5-year sales growth positive
(cash - long term debt) top 40
(5-year sales growth) * ROE top 30, hold till drop at 40

The timing overlay: go to cash if the S&P return in the last 3 months was less than -3%

Backtest results 1997 to 2023 inclusive:
CAGR screen 14.9% versus S&P 9.1%
Risk (rolling year downside deviation with MAR 10%): drops by half compared to S&P
Probability of a positive rolling year 87% versus S&P 79%
90% of rolling years have a return over -1.5%. S&P with 90% better than -15.5%.
Still only a 60% chance of the OP's goal of 10%/year in a rolling year.

Jim

Here is something from the LargeCapCash screen family.
I just did a test with this variation:
...
The timing overlay: go to cash if the S&P return in the last 3 months was less than -3%

PS
FWIW, that screen has two years out of sample.
With that timing, it almost exactly tied the S&P 500 in those two years.
But that's actually a pretty good result, as it was long only 71% of the months.
It didn't actually make any money, though--both alternatives were just a bit above net flat.

Jim

Jim wrote: Here is something from the LargeCapCash screen family.
I just did a test with this variation:
VL universe
price/52-week high top 50%
ROE top 30%
5-year sales growth positive
(cash - long term debt) top 40
(5-year sales growth) * ROE top 30, hold till drop at 40
----
Is this (or the LargeCapCash) screen being posted anywhere?
TIA!

Is this (or the LargeCapCash) screen being posted anywhere?

Not this specific variation of LargeCapCash, which till now existed only on my hard drive. (differing mainly by the addition of the first momentum step, the final sort change is trivial)
I think there are no posts for the original Value Line LargeCapCash either.

But I believe the two posted SI screens ROE_Cash_boris and ROE_Cash_elann are "similar" to LargeCapCash.
A different universe will always give a different result, but may depend on the same underlying reason to hope for outperformance.
You may want to look up the definitions.

Jim

Is this (or the LargeCapCash) screen being posted anywhere?

Not this specific variation of LargeCapCash, which till now existed only on my hard drive. (differing mainly by the addition of the first momentum step, the final sort change is trivial)
I think there are no posts for the original Value Line LargeCapCash either.

But I believe the two posted SI screens ROE_Cash_boris and ROE_Cash_elann are "similar" to LargeCapCash.
A different universe will always give a different result, but may depend on the same underlying reason to hope for outperformance.
You may want to look up the definitions.

Note that I also post ROE_Cash and ROE_Cash2 in my weekly rankings. They are minor variations of Jim's original VL based screens.

Elan

Author: mungofitch ✸🐝🐝🐝 BRONZE
SHREWD 😊 😞
Number:
1449
of 2714
Subject: Re: mechanical for taxed
Date: 02/21/2024 9:49 AM
Post Reply | Report Post | Recommend It!
No. of Recommendations: 8
There are two parts to these schemes.
One is selecting the asset(s) to hold
The other is the in/out (timing) signal.

This is a very profound summary, because the first step is underappreciated: I think the key is to have something in step 1 that won't blow up in your face.

To get the smooth returns that the OP desires, it would almost be a requirement to be hedged all the time.
Why?
Because at a very high level, there are two kinds of market drops: rollovers and plunges.
Almost all (not all, but most) timing systems are in one way trend followers, so as a rule they can't handle sudden plunges.
There are good timing systems that will add value over time in terms of much better sleep, but only on average. Once in a while there will be a drop that it didn't catch--you have to be prepared to live with that.
Getting back to my first comment, if what your underlying securities are solid, any plunge will unwind so it's not that bad. They'll come back.


Anyway, here is an example. A very dumb but kinda typical momentum system, calendar month based.
If the S&P total return was less than -3% in the last 3 months, be bearish. That's it. You're long around 78% of the time.
---------------------------------------------------------------
Here is something from the LargeCapCash screen family.
I just did a test with this variation:
VL universe
price/52-week high top 50%
ROE top 30%
5-year sales growth positive
(cash - long term debt) top 40
(5-year sales growth) * ROE top 30, hold till drop at 40

The timing overlay: go to cash if the S&P return in the last 3 months was less than -3%

Backtest results 1997 to 2023 inclusive:
CAGR screen 14.9% versus S&P 9.1%
Risk (rolling year downside deviation with MAR 10%): drops by half compared to S&P
Probability of a positive rolling year 87% versus S&P 79%
90% of rolling years have a return over -1.5%. S&P with 90% better than -15.5%.
Still only a 60% chance of the OP's goal of 10%/year in a rolling year.

Jim
Print the post
-------------------------------------------------------------------------------------------------
The timing overlay: go to cash if the S&P return in the last 3 months was less than -3%
Using this rule how would just buying SPY have done, when in it per this rule?
Thanks to anyone who can help with this.

The timing overlay: go to cash if the S&P return in the last 3 months was less than -3% Using this rule how would just buying SPY have done, when in it per this rule?
Thanks to anyone who can help with this.

Ah, well, I have this pretty comprehensive spreadsheet for SPY.
2/5/1950 to 3/4/2024, by weeks. 3 months = 13 weeks.

SPY B&H:

11.4%     CAGR
 -51%     MaxDD
 1.05     Sortino
  15%     stdev
 100%     in
    1     trades

This timing. Sell when SPY is -3.0% below the 13 week SMA. Buy at 0% vs. the SMA

11.2%     CAGR
 -33%     MaxDD
 1.27     Sortino
  13%     stdev
   91%     in
   93     trades

That is a lot of trading for just a little difference.

For comparison:
GTT (growth trend timing), 43 week SMA, sell at 0% below, buy at 0% above

11.5%     CAGR
 -26%     MaxDD
 1.87     Sortino
  12%     stdev
  84%     in
  83      trades

In general, a good timing scheme slightly lowers the overall return while improving the drawdowns. A non-good timing scheme (which most of them are, the way people run them) greatly reduces the return.

You have to take EVERY timing scheme that includes the 2008/2009 crash but doesn't include several decades before 2000 with a huge grain of salt. They will give you a false picture of what the overall results will likely be. That was likely a one-time-only event.

==============
I used to run a Jim's LargeCapCash screen, but the source I was getting the (cash - long term debt) from went behind a paywall so I couldn't get it anymore.

The timing overlay: go to cash if the S&P return in the last 3 months was less than -3%
Using this rule how would just buying SPY have done, when in it per this rule?
Thanks to anyone who can help with this.

Using GTR1

Since 1993 SPY

No timing 10.55% Drawdown -55% Safe withdrawal 5.33%
SPY above -5%: 9.06% Drawdown -40% Safe withdrawal 5.47%
Spy above -3% 8.93% Drawdown -35% Safe withdrawal 5.48%

https://gtr1.net/2013/?h21f0.10000::tr%281,63%29gt...

The link uses parameters so you can see the change for various values of SPY return over previous 3 months.

Aussi

Post New

Berkshire Hathaway FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.