Author Topic: Dual Momentum Investing  (Read 201432 times)

Mr. Rich Moose

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Re: Dual Momentum Investing
« Reply #1000 on: November 04, 2015, 12:10:59 PM »
Still a distraction, I think.  I believe that momentum trades increase volatility, but that is far from my primary objection to the idea.  It's just the one that miles took issue with.

I don't understand why this is an issue for you.

1) You have stated over and over that you are a buy and hold indexer, so momentum trading (or another other form of investing) should be of little interest to you as it won't affect your buy and hold strategy. Your strategy is entirely dependent on GDP growth and corporate profitability, in the long run. Unless the point of you being on this thread to argue to same issues repeatedly is simply to derail it into a nonsense gibberish about what Miles says and what you interpret him to say.

2) Obviously if a significant portion of investors followed a DM strategy then it would have a material impact on the market. But it doesn't, it never will, and you know that. There are too many funds that exploit market movements and way more people that believe in EMH than those that believe in DM. I would be much more concerned about hedge funds, large investors that employ stop-loss orders, flash traders, day traders, and the like than I would be about DM investors.

3) Miles has stated many times that DM does impact the market, but it doesn't impact it meaningfully. In fact, he compared a few pages back to a tear drop affecting the salinity of the ocean. I think that's a pretty fair statement. All trading impacts markets. If you look at charts for the S&P500 over the past year there is no evidence that DM amplified markets movements in any meaningful way. As Miles said before, a strategy that employs maybe one or two trades per year can hardly have a destructive effect on the market.

4) As I think you have pointed out, DM is always behind because decisions are made based on movements the market has already made. DM investors don't change their decisions from one day to the next, they make their trades (or they don't) once a month. We both know that for every 1 DM investor selling out of a position on the first market day of the month, there are countless of traders looking to take advantage of their move and buy when the market is already down (or sell when it is already up). Unless the DM investor so happens to make their trade and it is inline with that days' market fundamentals.

5) In today's information age, a crap article on Fox News or MSNBC has much more impact on the market (from a volatility perspective) than DM.

6) Much of your arguments are based on some theory that DM investing will catch on in a significant way and actually have a measurable impact on the market. While we're on this topic, let's not forget if everyone was a buy and hold investor there wouldn't be a market.
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Mr. Rich Moose

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Re: Dual Momentum Investing
« Reply #1001 on: November 04, 2015, 12:19:05 PM »
That same opinion cropped again in this thread just recently, with a claim that DM supports higher SWRs than an index portfolio.

Not that I believe it's a smart strategy to retire sooner because you choose to adopt DM investing, but it theoretically could. One of the biggest dangers of regular withdrawals on an index-based strategy is making those withdrawals during a deep bear market. DM should avoid this as based on historical data, it would have avoided most of losses of major bear markets. This means your draw down as a percentage of your portfolio value would be reduced.

This theory is based on historical data, naturally we don't know how DM investing will perform in the future and we don't know what form bear markets will take in the future.
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brainfart

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Re: Dual Momentum Investing
« Reply #1002 on: November 04, 2015, 12:23:10 PM »
... the key point that first got me involved in this thread, which was that DM is a bad strategy because it underperforms index investing.

Despite historical data saying otherwise?

Quote
Miles and the other market timers from early in this thread (you included, I think) seem to believe that data mining the historical record can reveal an investing strategy that will outperform the index in the future,

So this time everything is different? Then how can you for example rationalize a 4% SWR? It's based on the same historical data.

Crushtheturtle

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Re: Dual Momentum Investing
« Reply #1003 on: November 04, 2015, 12:31:16 PM »
In Miles' absence (and given that I have adopted DM with the tax advantaged portion of my savings), I will throw in my 2 cents for what little they're worth.

Regarding the argument of whether DM contributes to market volatility- I don't get it. There have to be billions sloshing around during every trading session; how any one strategy could be exacerbating any move in a particular direction is beyond my understanding. In any event, the BAH proponents believe in the Efficient (all informed) Market Theory, yes?Therefore DM trading decisions shouldn't be impacting much of anything- information is still being incorporated into the market moves.

Also, much is being made of the outsized positive equity returns in October, after the model indicated a switch to Fixed Income after August. If you recall from Miles' past blog posts (themselves derived from previous trend following research?), a sharp decline (in August) followed by a rapid recovery is one of the two scenarios under which DM will underperform (the other being "whipsaws"). The Oct '87 flash crash is cited as a previous example. I'm not sure  this detracts from Momentum theory. The DM strategy is predicated on human irrationality, and the past observations thereof. It remains to be seen whether the shift to bonds 2 months ago was wise, or whether stocks are destined to surpass their previous highs. The drop was caused by China GDP fears, yes? Have those fears been addressed? How will the herd react to further bad economic news? I find the "groupthink" basis of DM to be compelling, but admittedly I  am taking risk to test its validity.


Mr. Rich Moose

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Re: Dual Momentum Investing
« Reply #1004 on: November 04, 2015, 12:42:10 PM »
* This strategy has you in the market sometimes, in fixed or other assets sometimes.  If X is time in the market and Y time out of the market, Over time this will return X% market + Y% fixed in returns.  Your return will be proportional to your time in either asset class.  This is not a bad return and not far off from a fixed 'buy and hold' portfolio of X% stock.

This is a little flawed because of the timing aspect of DM investing. Let's say that historically the DM strategy has a person in stocks 80% of the time, while the other 20% would be in treasuries. If I'm understanding you correctly, you are saying over a long term a DM strategy should return the equivalent of an 80/20 balanced portfolio. I would say it won't because DM trades are not done on a random basis. Your theory would probably be accurate if on the first market day of each month Miles made his stock vs bonds decision based on a roll of dice. For example, a 5 or 9 = T-bills; anything else = stocks.

I believe you are correct to say DM probably won't give you a bad return. Although we can't predict the future, by it's nature DM should help avoid losses in prolonged bear markets. This is at the expense of missing rapid upswings in the market after the market has hit the bottom. I believe DM is a sound investment strategy if one believes in the likelihood of prolonged bear markets occurring in the future. Of course, someone that believes in EMH may argue this.
« Last Edit: November 04, 2015, 12:49:05 PM by Tuxedo »
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starguru

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Re: Dual Momentum Investing
« Reply #1005 on: November 04, 2015, 01:25:51 PM »
In Miles' absence (and given that I have adopted DM with the tax advantaged portion of my savings), I will throw in my 2 cents for what little they're worth.

Regarding the argument of whether DM contributes to market volatility- I don't get it. There have to be billions sloshing around during every trading session; how any one strategy could be exacerbating any move in a particular direction is beyond my understanding. In any event, the BAH proponents believe in the Efficient (all informed) Market Theory, yes?Therefore DM trading decisions shouldn't be impacting much of anything- information is still being incorporated into the market moves.

I'm not sure DM contributes to volatility any more than random trades do.  A DM trader trades once a month.  Depending on the month that trade might exacerbate volatility or limit it.  I think arguing DM increases volatility and is therefore undesirable is like arguing twice-a-month 401 contributions are bad, since they can also contribute to volatility, and are hence also undesirable. 

frugalnacho

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Re: Dual Momentum Investing
« Reply #1006 on: November 04, 2015, 01:41:39 PM »
In Miles' absence (and given that I have adopted DM with the tax advantaged portion of my savings), I will throw in my 2 cents for what little they're worth.

Regarding the argument of whether DM contributes to market volatility- I don't get it. There have to be billions sloshing around during every trading session; how any one strategy could be exacerbating any move in a particular direction is beyond my understanding. In any event, the BAH proponents believe in the Efficient (all informed) Market Theory, yes?Therefore DM trading decisions shouldn't be impacting much of anything- information is still being incorporated into the market moves.

I'm not sure DM contributes to volatility any more than random trades do.  A DM trader trades once a month.  Depending on the month that trade might exacerbate volatility or limit it.  I think arguing DM increases volatility and is therefore undesirable is like arguing twice-a-month 401 contributions are bad, since they can also contribute to volatility, and are hence also undesirable.

The point I think you guys are missing is that on average all DM traders will buy into the market as it starts to go up (thus driving the price up even further with their actions) and will sell out of the market as it starts to go down (thus driving the price down further with their actions).   With the ebb and flow of market prices the DM trader is always driving the price up (or has already blown his entire portfolio previously driving prices up) when long term trends are up, and vice versa.  They have to, it's the only way the strategy works. 

If trades were randomly timed I would agree they would all cancel each other out and not contribute to volatility overall, but the trades DM traders make are not random.

starguru

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Re: Dual Momentum Investing
« Reply #1007 on: November 04, 2015, 01:47:50 PM »
In Miles' absence (and given that I have adopted DM with the tax advantaged portion of my savings), I will throw in my 2 cents for what little they're worth.

Regarding the argument of whether DM contributes to market volatility- I don't get it. There have to be billions sloshing around during every trading session; how any one strategy could be exacerbating any move in a particular direction is beyond my understanding. In any event, the BAH proponents believe in the Efficient (all informed) Market Theory, yes?Therefore DM trading decisions shouldn't be impacting much of anything- information is still being incorporated into the market moves.

I'm not sure DM contributes to volatility any more than random trades do.  A DM trader trades once a month.  Depending on the month that trade might exacerbate volatility or limit it.  I think arguing DM increases volatility and is therefore undesirable is like arguing twice-a-month 401 contributions are bad, since they can also contribute to volatility, and are hence also undesirable.

The point I think you guys are missing is that on average all DM traders will buy into the market as it starts to go up (thus driving the price up even further with their actions) and will sell out of the market as it starts to go down (thus driving the price down further with their actions).   With the ebb and flow of market prices the DM trader is always driving the price up (or has already blown his entire portfolio previously driving prices up) when long term trends are up, and vice versa.  They have to, it's the only way the strategy works. 

If trades were randomly timed I would agree they would all cancel each other out and not contribute to volatility overall, but the trades DM traders make are not random.

I don't accept your assertions

"all DM traders will buy into the market as it starts to go up"

and

"will sell out of the market as it starts to go down"

as universally true.

It is very possible for a DM trader to switch from a rising asset to another rising asset, or to switch to an asset that is declining. 

Mr. Rich Moose

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Re: Dual Momentum Investing
« Reply #1008 on: November 04, 2015, 01:57:30 PM »
The point I think you guys are missing is that on average all DM traders will buy into the market as it starts to go up (thus driving the price up even further with their actions) and will sell out of the market as it starts to go down (thus driving the price down further with their actions).   With the ebb and flow of market prices the DM trader is always driving the price up (or has already blown his entire portfolio previously driving prices up) when long term trends are up, and vice versa.  They have to, it's the only way the strategy works.

This sounds like you are saying markets will continue to go up (or down) because of DM investors entering (or exiting) stocks. This is simply not true. Let's be sensible here. We all know that markets go up and down because of forces far beyond the small percentage of DM investors. DM investors simply make a move to "ride the wave" so to speak, knowing that historically herd mentalities have push markets in their respective directions. And by herd mentality I don't mean DM investors who use a disciplined investment strategy, I mean people like my mom and dad (your average retail investor) who call their brokers as soon as they realize they've lost some money and move their portfolios to gold.
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peterpatch

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Re: Dual Momentum Investing
« Reply #1009 on: November 04, 2015, 05:31:39 PM »
@ PizzaSteve: That's one of the most cogent arguments on this thread against dual momentum and I thank you for putting in the effort.


My 2 cents as an experienced investor with a degree in this stuff and experience and knowledge of markets probably more than most (20+ yrs experience auditing and providing strategic advice to financial services firms (not that that means much).

Situation
* Dual momentum = market timing
* All market timers = have a theory that sounds plausible + Back testing data can always find periods where a theory performs (dog of Dow, small/value premiums, momentum, Wykoff Wave, etc).  I grew up watching my dad using charts applying the latest and greatest technical tools, at a time when prices and volume were in the daily newspaper.  He made money and lost money too.  Those days of information gaps are gone though.

My Conclusions
* Sadly the future is not predictable by back testing
* The world is a much too complex with too many factors to model
* Any theory that worked, short term, would quickly be discovered by the incredible data mining and arbitrage horsepower of hedge funds and private investors.  They are putting way more horsepower into the alchemy of trying to take advantage of inefficiency.  This theory doesn't stand a chance.  No one reading this board can ever hope to match these guys and there is a good chance they are on the opposite side of your trades nickel and diming you.



Your conclusions seem to indicate, correct me if I am wrong, that you believe the market is very efficient and one can't hope to beat it because it's the aggregate sum of market intellect and resources that the average investor has almost no way, outside of luck, of beating. There has been research that shows that is not the case. In support of momentum for example Jagadeesh and Titman wrote a paper called "Returns to buying winners and selling losers:Implications for stock market efficiency" in 1993 which found momentum existed in backtests. They then ran the same tests on out of sample data and found that the momentum was still there, even after publishing widely available results. There have been many many other academic study's (the book is very good at citing them) proving that momentum exists and persists out of sample and across times and asset classes. So the empirical evidence seems to strongly indicate that momentum is real and exists despite what the EMH theory says but doesn't have any empirical evidence to back up.

I have seen some of the charting and technical tools and I wouldn't lump those ideas in with the momentum idea and call it market timing. Maybe I am totally biased but when I see someone trying to show me the head and shoulders formation or some such I just can't help but think my god who would invest like that. Momentum is at least academically tested, replicable, peer reviewed and statistically significant. We could expand the definition of market timing to stock market indexers and say they're investing in the stock market because they think it will go up now vs something like the real estate market. Maybe something like trending would be a better fitting term then timing.



The Good News
* This strategy has you in the market sometimes, in fixed or other assets sometimes.  If X is time in the market and Y time out of the market, Over time this will return X% market + Y% fixed in returns.  Your return will be proportional to your time in either asset class.  This is not a bad return and not far off from a fixed 'buy and hold' portfolio of X% stock.
* By historical returns and risk studies, this part time equities portfolio will have less volatility of returns (often called 'risk' by some), but also a lower expected return.  But not a ton less than most static portfolios.  You won't bankrupt yourself, most likely.

The Bad News
* Trading is very tax inefficient, so if you are trading taxable accounts the returns will be impacted a lot by tax inefficiencies and possible trading inefficiencies (hidden spreads)

 I agree wholeheartedly that this strategy will work best inside tax shelters, which is where I keep mine. I'm not sure about the actual impact outside of a tax exempt account but maybe someone else has some research around that.

Also you're right that at the very least if the dual momentum theory is bunk then you'll get some diversification between bonds and stocks, we could call this time sequence diversification which is sort of like normal diversification in the long run.

Have you read the book? If so what did you think of the research that was cited regarding both forms of momentum?

« Last Edit: November 04, 2015, 05:42:25 PM by peterpatch »

frugalnacho

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Re: Dual Momentum Investing
« Reply #1010 on: November 04, 2015, 11:25:26 PM »
In Miles' absence (and given that I have adopted DM with the tax advantaged portion of my savings), I will throw in my 2 cents for what little they're worth.

Regarding the argument of whether DM contributes to market volatility- I don't get it. There have to be billions sloshing around during every trading session; how any one strategy could be exacerbating any move in a particular direction is beyond my understanding. In any event, the BAH proponents believe in the Efficient (all informed) Market Theory, yes?Therefore DM trading decisions shouldn't be impacting much of anything- information is still being incorporated into the market moves.

I'm not sure DM contributes to volatility any more than random trades do.  A DM trader trades once a month.  Depending on the month that trade might exacerbate volatility or limit it.  I think arguing DM increases volatility and is therefore undesirable is like arguing twice-a-month 401 contributions are bad, since they can also contribute to volatility, and are hence also undesirable.

The point I think you guys are missing is that on average all DM traders will buy into the market as it starts to go up (thus driving the price up even further with their actions) and will sell out of the market as it starts to go down (thus driving the price down further with their actions).   With the ebb and flow of market prices the DM trader is always driving the price up (or has already blown his entire portfolio previously driving prices up) when long term trends are up, and vice versa.  They have to, it's the only way the strategy works. 

If trades were randomly timed I would agree they would all cancel each other out and not contribute to volatility overall, but the trades DM traders make are not random.

I don't accept your assertions

"all DM traders will buy into the market as it starts to go up"

and

"will sell out of the market as it starts to go down"

as universally true.

It is very possible for a DM trader to switch from a rising asset to another rising asset, or to switch to an asset that is declining.

How is selling one rising asset and buying a different an even faster rising asset make what I said any less true? If anything I feel like that strengthens my argument.  Not only are DM traders getting in on the action and driving the price up, but when multiple markets are all rising they are exacerbating the best performing asset even further.   And when the market is tanking the DM trader is getting out, or has already gotten out.   

Of course the statements aren't universally true, which is why I said "on average".  Some DM traders will be unlucky and get the wrong signal and get in/out at the wrong time.  But on average that is not the case, on average they will be buying into the best performing asset, or will continue to hold the best performing asset, and will get out of the market as it declines, or will continue to stay out of the market. 

frugalnacho

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Re: Dual Momentum Investing
« Reply #1011 on: November 04, 2015, 11:36:55 PM »
The point I think you guys are missing is that on average all DM traders will buy into the market as it starts to go up (thus driving the price up even further with their actions) and will sell out of the market as it starts to go down (thus driving the price down further with their actions).   With the ebb and flow of market prices the DM trader is always driving the price up (or has already blown his entire portfolio previously driving prices up) when long term trends are up, and vice versa.  They have to, it's the only way the strategy works.

This sounds like you are saying markets will continue to go up (or down) because of DM investors entering (or exiting) stocks. This is simply not true. Let's be sensible here. We all know that markets go up and down because of forces far beyond the small percentage of DM investors. DM investors simply make a move to "ride the wave" so to speak, knowing that historically herd mentalities have push markets in their respective directions. And by herd mentality I don't mean DM investors who use a disciplined investment strategy, I mean people like my mom and dad (your average retail investor) who call their brokers as soon as they realize they've lost some money and move their portfolios to gold.

Yes that is what I am saying.  It's not the main force, but yes I believe that buying/selling changes the price and contributes to the price swing.

brainfart

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Re: Dual Momentum Investing
« Reply #1012 on: November 04, 2015, 11:44:25 PM »
Quote
Not only are DM traders getting in on the action and driving the price up, but when multiple markets are all rising they are exacerbating the best performing asset even further.

Oh my. Just like millions of other institutional and private investors!!1!

Quote
And when the market is tanking the DM trader is getting out, or has already gotten out.

Isn't that cheating?!

This discussion is ridiculous. You're all barking up a little bush while there's a huge (derivatives and global high speed trading) giant sequoia growing right next to it. Which one is casting a bigger shadow?

frugalnacho

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Re: Dual Momentum Investing
« Reply #1013 on: November 04, 2015, 11:51:46 PM »
Quote
Not only are DM traders getting in on the action and driving the price up, but when multiple markets are all rising they are exacerbating the best performing asset even further.

Oh my. Just like millions of other institutional and private investors!!1!

Quote
And when the market is tanking the DM trader is getting out, or has already gotten out.

Isn't that cheating?!

This discussion is ridiculous. You're all barking up a little bush while there's a huge (derivatives and global high speed trading) giant sequoia growing right next to it. Which one is casting a bigger shadow?

Yes just like millions of other all participating in the trend.  Everyone buying in is having a tiny force in driving the price higher with each transaction, whether they are buying in based on a signal from their DM strategy or buying in based on greed or any other emotion or reason.  It's not so much the intention or rationale of the purchase so much as the actual purchase itself.

I really don't understand your logic.

This strategy causes X effect.
This other factor causes X effect to a greater degree,
Therefore this strategy doesn't cause X effect.

brainfart

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Re: Dual Momentum Investing
« Reply #1014 on: November 05, 2015, 01:46:40 AM »
Sorry, but if strategy A has a huge and strategy B a neglibile, probably unmeasurable effect then it really doesn't make much sense to argue about strategy B ad nauseum. A signal that hides in a huge amount of noise is indeed present but doesn't really contribute much to the overall picture.

starguru

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Re: Dual Momentum Investing
« Reply #1015 on: November 05, 2015, 05:53:41 AM »
In Miles' absence (and given that I have adopted DM with the tax advantaged portion of my savings), I will throw in my 2 cents for what little they're worth.

Regarding the argument of whether DM contributes to market volatility- I don't get it. There have to be billions sloshing around during every trading session; how any one strategy could be exacerbating any move in a particular direction is beyond my understanding. In any event, the BAH proponents believe in the Efficient (all informed) Market Theory, yes?Therefore DM trading decisions shouldn't be impacting much of anything- information is still being incorporated into the market moves.

I'm not sure DM contributes to volatility any more than random trades do.  A DM trader trades once a month.  Depending on the month that trade might exacerbate volatility or limit it.  I think arguing DM increases volatility and is therefore undesirable is like arguing twice-a-month 401 contributions are bad, since they can also contribute to volatility, and are hence also undesirable.

The point I think you guys are missing is that on average all DM traders will buy into the market as it starts to go up (thus driving the price up even further with their actions) and will sell out of the market as it starts to go down (thus driving the price down further with their actions).   With the ebb and flow of market prices the DM trader is always driving the price up (or has already blown his entire portfolio previously driving prices up) when long term trends are up, and vice versa.  They have to, it's the only way the strategy works. 

If trades were randomly timed I would agree they would all cancel each other out and not contribute to volatility overall, but the trades DM traders make are not random.

I don't accept your assertions

"all DM traders will buy into the market as it starts to go up"

and

"will sell out of the market as it starts to go down"

as universally true.

It is very possible for a DM trader to switch from a rising asset to another rising asset, or to switch to an asset that is declining.

How is selling one rising asset and buying a different an even faster rising asset make what I said any less true? If anything I feel like that strengthens my argument.  Not only are DM traders getting in on the action and driving the price up, but when multiple markets are all rising they are exacerbating the best performing asset even further.   And when the market is tanking the DM trader is getting out, or has already gotten out.   

Of course the statements aren't universally true, which is why I said "on average".  Some DM traders will be unlucky and get the wrong signal and get in/out at the wrong time.  But on average that is not the case, on average they will be buying into the best performing asset, or will continue to hold the best performing asset, and will get out of the market as it declines, or will continue to stay out of the market.

I don't disagree with you.  My entire point was that criticizing DM because of its effect on volatility was pointless.  DM actors have no more or less effect on volatility than any other market actors.

And, in your second argument you argue

"But on average that is not the case, on average they will be buying into the best performing asset, or will continue to hold the best performing asset, and will get out of the market as it declines, or will continue to stay out of the market. "

Isn't that an argument that DM will outperform BH?

frugalnacho

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Re: Dual Momentum Investing
« Reply #1016 on: November 05, 2015, 07:32:38 AM »
I don't disagree with you.  My entire point was that criticizing DM because of its effect on volatility was pointless.  DM actors have no more or less effect on volatility than any other market actors.

And, in your second argument you argue

"But on average that is not the case, on average they will be buying into the best performing asset, or will continue to hold the best performing asset, and will get out of the market as it declines, or will continue to stay out of the market. "

Isn't that an argument that DM will outperform BH?

Yes, if you believe DM will outperform.  That's my entire point.  I don't see how you can simultaneously hold these 2 views:

DM will outperform BH long term.
DM will not increase volatility. 

If the method works as stated (and outperforms BH) and you are moving your money at the early part of the wave then your actions have to be increasing volatility in both directions at different times.  As brooklynguy already pointed out, you are always moving towards the heavy side of the boat and you are never moving away from the heavy side. 

Even if DM doesn't outperform I still think it will increase volatility.  I am getting very tired of the volatility discussion though.

PizzaSteve

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Re: Dual Momentum Investing
« Reply #1017 on: November 05, 2015, 07:53:52 AM »
* This strategy has you in the market sometimes, in fixed or other assets sometimes.  If X is time in the market and Y time out of the market, Over time this will return X% market + Y% fixed in returns.  Your return will be proportional to your time in either asset class.  This is not a bad return and not far off from a fixed 'buy and hold' portfolio of X% stock.

This is a little flawed because of the timing aspect of DM investing. Let's say that historically the DM strategy has a person in stocks 80% of the time, while the other 20% would be in treasuries. If I'm understanding you correctly, you are saying over a long term a DM strategy should return the equivalent of an 80/20 balanced portfolio. I would say it won't because DM trades are not done on a random basis. Your theory would probably be accurate if on the first market day of each month Miles made his stock vs bonds decision based on a roll of dice. For example, a 5 or 9 = T-bills; anything else = stocks.

I believe you are correct to say DM probably won't give you a bad return. Although we can't predict the future, by it's nature DM should help avoid losses in prolonged bear markets. This is at the expense of missing rapid upswings in the market after the market has hit the bottom. I believe DM is a sound investment strategy if one believes in the likelihood of prolonged bear markets occurring in the future. Of course, someone that believes in EMH may argue this.
Preface:  my opinions only, not meant to be argumentative.  Removed many prior comments meant to explain points to a layperson, to shorten the post. 

My statements should not be characterized as a theory, but rather the conclusion of empirical research into market timing strategies and market efficiency.  Few would argue that the markets are not at least 'mostly efficient' and that market timing for 'beginners' is 'mostly futile.'

It is easy to find a strategy, such as this, that works, backwards.  That is a simple data mining exercise any statistics freshman can achieve.  The challenge is finding one that works forwards and with the ability to enter and exit successfully.

P.S. To peterpatch.  You response is very reasonable, but I fail to see how the simple model is demonstrated as being able to capture the 'momentum premium.'   If one really believes in the theory then I would invest in one of the newer funds that are built on top of the research you mention.  There is a great thread in bogleheads on QSPIX.  That is how I might invest if I believed in the strategy (though higher fee funds are not MMMish.  My comment is this.  Momentum existing and being able to time entry and exit into the market in order to 'capture it' are two entirely different things.  Sure, over time research can measure that the market grows too.  So how do you time trades in order to capture that growth?  It is apparent that if you 'buy at the wrong time' you can experience lower returns.  If you hold long enough the actual returns converge on a less volatile result.

https://funds.aqr.com/our-funds/alternative-investment-funds/style-premia-alternative-fund
« Last Edit: November 05, 2015, 01:31:06 PM by PizzaSteve »
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Re: Dual Momentum Investing
« Reply #1018 on: November 05, 2015, 06:39:49 PM »

P.S. To peterpatch.  You response is very reasonable, but I fail to see how the simple model is demonstrated as being able to capture the 'momentum premium.'   If one really believes in the theory then I would invest in one of the newer funds that are built on top of the research you mention.
https://funds.aqr.com/our-funds/alternative-investment-funds/style-premia-alternative-fund

I think the DM model appears simple but is not, it is simply a clever way of encapsulating two fairly complex strategies into a simple package using resources and ideas that have only recently become available in the last 20 or so years. It requires the existence of low fee market tracker funds, tax efficient holding vehicles (debatable), low commission brokerages, liquid markets (with tight spreads) and the academic data and research necessary to draw the conclusions.

Also the funds you reference only track what Antonacci calls relative momentum (quote from AQR: "Momentum — the tendency for an asset’s recent relative performance to continue in the future"). Loosely this means buying what has been recently strong in total performance and shorting what has been weak. This has historically been volatile and difficult to manage hence the high fee's. Absolute momentum isn't included at all in those funds (as far as I could tell) so I'd say the strategies are cousins but not close relatives. Antonacci truly simplifies the relative momentum phenomenon by limiting the whole system to 4 easily obtainable broad index funds. His system harnesses many of the strengths of bogle style index investing (low fees, broad diversification, reliance on traditionally strong US markets). However the addition of absolute momentum proposes to lower drawdowns and volatility and increase safe withdrawal rates. The relative momentum proposes to bring higher returns by keeping the investor in the asset class with the most upward momentum as judged by a 12 month look back period on  total returns. It has low turnover and inside of a low commission brokerage within a tax advantaged account it really isn't expensive at all from a trading/tax cost perspective.


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Re: Dual Momentum Investing
« Reply #1019 on: November 15, 2015, 09:22:37 PM »
Miles had a good post on his blog recapping how he's done in DM over the last 14 months.

www.milesdividendmd.com/dual-momentum-a-year-in-review/

The result is pretty bad, but he gives some interesting statistics on how DM will typically underperform or tie the benchmark. The idea is that this is okay, because when TSHTF, DM's drawdown should be less.

I think I'd have a hard time staying the course over decades of ER while underperforming regularly, but he's sticking with it. Gotta give props for that, and for the honest assessment and choice of timeframes, even though it makes DM look worse.

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Re: Dual Momentum Investing
« Reply #1020 on: November 16, 2015, 08:29:46 AM »
Reading Miles' blog post the question that came to mind was at what point after losing out to significant gains to the B and Hold approach is there no further ris protection upside to DM?

Say the BandH portfolio is up  20-30% that growth will compound and a 30%+ crash down the road will still not eat into the invested capital. But if there isn't a crash or the crash recovers quickly the BandH folks will be off to the races again.

If the big crash happens early on before the portfolios diverge AND the BandH investors have to liquidate enough of their investments that they have to sell the under performing asset classes I can see the DM approach being superior.

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Re: Dual Momentum Investing
« Reply #1021 on: November 16, 2015, 10:42:32 AM »
If the big crash happens early on before the portfolios diverge AND the BandH investors have to liquidate enough of their investments that they have to sell the under performing asset classes I can see the DM approach being superior.

Sure, any strategy that says "sell all of your stocks right before a big crash" is going to outperform B&H.  I don't think that's a particularly useful insight, though.  Market timing totally works if you could just time the market correctly.

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Re: Dual Momentum Investing
« Reply #1022 on: November 25, 2015, 08:50:51 PM »
I'm a newcomer to the discussion, but I wanted to throw out something new... I've been following a website for a few years which appears to use a version of DM.  Their signal is proprietary and supposedly has more elements to it, but it essentially moves completely between different asset classes and cash.  They post the historical signals back to 1996.  Performance has flattened out over the last few years, but these show real numbers rather than back-testing. 

http://www.decisionmoose.com/Home_Page.html


 

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Re: Dual Momentum Investing
« Reply #1023 on: November 27, 2015, 08:04:23 PM »
I'm a newcomer to the discussion, but I wanted to throw out something new... I've been following a website for a few years which appears to use a version of DM.  Their signal is proprietary and supposedly has more elements to it, but it essentially moves completely between different asset classes and cash.  They post the historical signals back to 1996.  Performance has flattened out over the last few years, but these show real numbers rather than back-testing. 

http://www.decisionmoose.com/Home_Page.html


 

It's not the same thing but if you want do discuss it I suggest you start a separate "decision moose" thread.

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Re: Dual Momentum Investing
« Reply #1024 on: November 28, 2015, 06:47:51 AM »

Sure, any strategy that says "sell all of your stocks right before a big crash" is going to outperform B&H.  I don't think that's a particularly useful insight, though.  Market timing totally works if you could just time the market correctly.

There are other momentum based strategies, like those described by Mebane Faber. Do you think they don't actually work over a longer period? Because they are based on insufficient data and overfitting?

Quote
"sell all of your stocks right before a big crash"

I always assumed these strategies sell their stuff AFTER the crash has started and just manage to limit their losses.

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Re: Dual Momentum Investing
« Reply #1025 on: November 28, 2015, 11:42:50 AM »




I always assumed these strategies sell their stuff AFTER the crash has started and just manage to limit their losses.

DM as well as some other absolute momentum strategies (like some of Meb's) have been shown to reduce drawdowns significantly on average based on past results across markets, asset types and time periods. However , and it's a big 'however', it hasn't always worked and there's no scientific law that says it will continue to work. Based on my studies I think there are behavioural reasons for both types of momentum that will persist and will cause the effects of momentum to persist.

The largest single day stock market crash we know of is Black Monday (Oct 19 1987) where the S&P 500 lost 20.5% in a day. Dual momentum did not take the investor out of that crash, there simply wasn't a long enough duration of downward momentum to trigger a sell signal. At the time that was a "black swan" event, nobody had ever seen anything like it and it wasn't part of most peoples models of what to expect. You could never totally eliminate the probability that DM is simply data mining. However the same could be said of indexing, US markets look great over the last 100 years but other countries markets have done horribly or outright failed (Russia, China, Japan, Germany). Past is not necessarily prologue but I can't think of a better way to invest then using empirical data to form statistical inferences along with plausible theories of why those patterns might exist.

I honestly don't believe DM is the best strategy for the average investor. The average investor doesn't have the time and wherewithal to read and digest the books and research necessary to understand the strategy. Also the average investor (according to the Dalbar studies) has trouble sticking to any strategy at all. If someone can stick to a simple indexing strategy through thick and then they are beating most investors just by riding the market wave.

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Re: Dual Momentum Investing
« Reply #1026 on: November 29, 2015, 11:51:34 AM »
Thanks for the comments Peter.

To be clear, I am not a complete believer in efficient markets.  I spent way too many years trying to advise CEOs and CIOs of large companies, only to see them invest in completely backwards ideas, waste their capital, etc.  I also invented and back tested an investment model in college that predicted outperforming companies with a 95% confidence interval, in an era when few used computers to predict stocks in the way I was applying.  I was too stupid to start a fund though, and the minicomputers I was using were university property :-)

Passive indexing is just a good bet.  Perhaps the best one to make.   It is still gambling, however, thinking you have a system with positive odds.   I get that.

I also can see how playing the odds on the craps table (with the house edge), is also not a sure thing either. I see momentum as an effort to rationalize riding a hot table.  Perhaps in truth luck exists.  Perhaps research even proves it.  Certainly a hot table will increase the number of players.  I think that is what momentum research measures.  Anyone who has seen the end of a hot roll, knows the house rakes in a huge pile on that final craps.  People leave the table.  Behavioral investing errors could create premiums.

But how to capture this?  I don't see a simple formula as working, at least not one published.  My method of picking stock winners had a secret sauce that explored a hidden 'tell' like in poker gambling.  Since momentum is not hidden, it seems very unlikely to me to be exploitable.

In other threads I have posted that ones pursuit of wealth should really focus on growing all your assets, as MMM shows.  If we take our energy and get another job, build our construction skills, sharpen our critical thinking and brain power by reading/learning, create and nurture good relationships with our business partners, etc.  These are proven exploitable wealth creators that I would recommend for those wanting an edge in retirement. 

For my stash, I personally try to diversify my assets, so I have some index funds and some assets I think will outperform in terms of risk/reward (mostly for my own ego's sake).  So I get the urge to explore this opportunity to its fullest.  Not for me though.  Narrative is too weak.

If momentum investing adds joy to your life, go for it.  It is like that Japanese book on tidying.  Look at each investment.  If it sparks joy, keep it.  If it does nothing for you and serves no useful purpose , then give it up.

P.S. Very good point about the risk of corporate earnings not growing, resulting in passive indexing in stocks becoming a poor performing asset class.  I see this possibility as a very real risk to retirement portfolios.  Future wealth creation, I believe, will require a civil society and continued technology driven innovation to sustain the success of our capital markets.  The risk this does not happen is one reason I am personally quite uber conservative with my own retirement plans. For example, I believe the possibility of politics to tank the economy is very real.  If we saw the emergence of a religious, social policy focused, anti technology, anti-government investment or trade isolationist government, I would expect falling profits and a totally tanking market.  How have Afghan or Iranian companies done over the last 20 years or so?
« Last Edit: November 29, 2015, 12:10:05 PM by PizzaSteve »
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Re: Dual Momentum Investing
« Reply #1027 on: December 14, 2015, 09:44:55 AM »
The latest (superb, as usual) article by Philosophical Economics ("Financial Backtesting: A Cautionary Tale") almost seems as if it was written in direct response to the extended debate that occurred over the course of this thread.  The author, using an analysis of a "daily momentum" trading strategy to illustrate his point, compellingly argues that "[f]rom an investment perspective, a theoretical understanding of how the market produces a given outcome is important--arguably just as important as 'the data' showing that it does produce that outcome."  The author concludes, even if out-of-sample historical backtesting demonstrates beyond all reasonable doubt that some causal factor is responsible for an investment strategy's successful historical performance (in other words, that the successful historical performance did not merely result from random chance), as follows:

Quote
As an investor evaluating a potential strategy, what I want to see is not just an impressive backtest, but a compelling, accurate, reductionistic explanation of what is actually happening in the strategy–who in the market is doing what, where, when and why, and how the agglomeration is producing the result, the pattern that the strategy is successfully exploiting.  I want an explanation that I know to be accurate, an explanation that will allow me to reliably gauge the likelihood that the pattern and the associated outperformance will persist into the future–which is the only thing I care about.

If I’m going to run a systematic strategy, I want the strategy to work now, when I run it, as I run it.  I don’t want to have to put faith in an eventual reversion to a past period of glory. That’s too risky–the exploited pattern could have been ephemeral, relevant conditions could have changed.  If a strategy can’t deliver success on a near-term basis, in the out-of-sample test that reality is putting it through, then I’d rather just abandon the systematic approach altogether and invest on my own concrete analysis of the situation, my own gut feel for where it is likely headed, given the present facts.  If I don’t have confidence in my own analysis, if I can’t trust my gut, then I shouldn’t be actively investing.  I should save the time and effort and just toss the money in an index.

Note that this is the same argument many of us made earlier in this thread, but the Philosophical Economics author makes it more forcefully than we did.  I would encourage anyone considering an active, data-driven investment strategy to read and give careful consideration to this article.

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Re: Dual Momentum Investing
« Reply #1028 on: December 14, 2015, 11:09:51 AM »
The latest (superb, as usual) article by Philosophical Economics ("Financial Backtesting: A Cautionary Tale") almost seems as if it was written in direct response to the extended debate that occurred over the course of this thread. 

As one of the largest and most active personal finance forums on the internet, I'm sure most bloggers in this niche peruse these boards for inspiration and guidance.  MMM included, obviously.  "Polling the people" is the primary purpose of forums.

Congratulations, all.  By virtue of your active participation here, you are helping define the tone and substance of a huge amount of related internet content.  Small groups changing the world, and all that.

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Re: Dual Momentum Investing
« Reply #1029 on: December 14, 2015, 11:39:16 AM »
This information on this thread has really took a dive since Miles got blocked...
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Re: Dual Momentum Investing
« Reply #1030 on: December 14, 2015, 11:58:35 AM »
This information on this thread has really took a dive since Miles got blocked...

I checked his blog. He hasn't posted any new DM info since mid-Nov.

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Re: Dual Momentum Investing
« Reply #1031 on: December 14, 2015, 12:05:05 PM »
This information on this thread has really took a dive since Miles got blocked...

Is he still blocked?  I understood it was a temporary ban.  One that could have been avoided if he had chosen to adhere to the forum rules of conduct.

Personally, I liked his contributions in most cases, if not his presentation.  And of course I strongly disagree with his opinions on investment gambling through market timing but that's okay too, isn't it?  We are each free to invest in the ways we think are best, and we are each free to promote or criticize other investment philosophies.  Miles chose a hard row when he came to a forum full of indexers to tout a non-indexed strategy, and he's probably a little chagrined that his optimistic predictions haven't played out as promised.

But he'll be okay in the long run.  The key to this forum is having a crazy high savings rate, and even a slightly suboptimal investment strategy won't sink you as long as you save enough.

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Re: Dual Momentum Investing
« Reply #1032 on: December 14, 2015, 02:06:24 PM »
Is he still blocked?  I understood it was a temporary ban.  One that could have been avoided if he had chosen to adhere to the forum rules of conduct.

Personally, I liked his contributions in most cases, if not his presentation.  And of course I strongly disagree with his opinions on investment gambling through market timing but that's okay too, isn't it?  We are each free to invest in the ways we think are best, and we are each free to promote or criticize other investment philosophies.  Miles chose a hard row when he came to a forum full of indexers to tout a non-indexed strategy, and he's probably a little chagrined that his optimistic predictions haven't played out as promised.

But he'll be okay in the long run.  The key to this forum is having a crazy high savings rate, and even a slightly suboptimal investment strategy won't sink you as long as you save enough.

His latest blog post said he's banned for good. He said its because of a disagreement with a moderator about dual momentum... seems a little odd to me because I thought most of the comments on this thread were reasonably healthy. But that's just my opinion of course.
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sol

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Re: Dual Momentum Investing
« Reply #1033 on: December 14, 2015, 02:26:34 PM »
To my knowledge, nobody lodged any complaints about miles based on this thread.  Perhaps a moderator could clarify, but it seemed there were a few other threads where he was warned for violating forum rules, and then either ignored the warnings or doubled down.

This thread was actually one of the places where miles was slightly better behaved, but I suppose that story doesn't serve his own blog interests so I don't blame him for adopting it.  Writing "I got temp banned for being a jerk to other forum members" is less useful for promoting your pariah complex than "I got permabanned for preaching the Truth about DM."

Our maybe he really was permabanned?  What do I know, I'm just some random forum participant.

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Re: Dual Momentum Investing
« Reply #1034 on: December 14, 2015, 02:37:30 PM »
MOD NOTE: Miles' ban (his third or fourth one over the last year and 1/2, due to breaking the forums rules over and over) was not initially permanent (and still isn't), but has been extended due to his multiple, multiple attempts to get around the ban, and create new login after new login, creating extra works for the mods, and causing collateral damage when the IP addresses, rather than emails, had to be banned, and others who used the same IPs from the ISP suddenly had trouble accessing the forums.

I suspect he will be back some day, but mods are still determining if and when that is the case.

The ban had to do with his behavior on other threads, specifically multiple violations of rule #1.  None of his ban has to do with anything on this thread--his behavior on this thread, and specifically his positive contributions to the forum and alternate viewpoints, was what has gotten him more leeway to this point (everyone else has been a three strikes and you're permabanned).

Feel free to PM me if you have any questions.

As a mod, when moderation is discussed publicly, it's a fine line.  I'm always for questioning authority, but also it feels inappropriate/inconsiderate to talk in too much detail about his behavior, so I don't intend to post more after this on Miles' ban, but I will happily discuss over PM, and if you think the discussion should be public at that point after a PM discussion, we can do that in a more appropriate--Off Topic--thread, created for that purpose.  Fair enough?

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Re: Dual Momentum Investing
« Reply #1035 on: December 15, 2015, 12:21:00 PM »
Thanks for clarifying Arebelspy.
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Re: Dual Momentum Investing
« Reply #1036 on: December 17, 2015, 07:39:49 AM »
As one of the largest and most active personal finance forums on the internet, I'm sure most bloggers in this niche peruse these boards for inspiration and guidance.  MMM included, obviously.  "Polling the people" is the primary purpose of forums.

Congratulations, all.  By virtue of your active participation here, you are helping define the tone and substance of a huge amount of related internet content.  Small groups changing the world, and all that.

The Philosophical Economics author has posted a (once again, superb) follow-up article to the piece on financial backtesting ("Momentum: Slip Counterfactuals, the 'Stale Price' Effect, and the Future"), noting at the outset that:

Quote from: Philosophical Economics
The recent piece on the dangers of backtesting has attracted an unusual amount of attention for a piece on this blog. 

Additional evidence that this forum's readership is at least partially responsible for "helping define the tone and substance of a huge amount of related internet content"?

In this piece, the author continues his* philosophical exploration of financial backtesting, but also substantively analyzes the momentum anomaly (which he didn't do in the previous piece, in which he simply used momentum as a convenient example to illustrate his point about the dangers of backtesting in general).

He discusses issues regarding momentum's second-order effects similar to those we've discussed in this thread, and he concludes that:

Quote from: Philosophical Economics
It seems, then, that one of two things will end up happening: either momentum will not work like it used to,  or it will work like it used to, and money will flock into it, either through the currently available funds, or through funds that will be set up to harvest it in the future, as it outperforms.  The result will either be a saturation of the factor that attenuates its efficacy, or a self-supporting momentum bubble that eventually crashes and destroys everyone’s portfolio.

But he also makes clear that:

Quote
To be clear, when I talk about momentum underperforming, I’m not talking about the underperformance of a long-short momentum strategy.  A long-short momentum strategy that rebalances monthly will experience severe momentum crashes during market downturns.  Those crashes are caused by rebalancing into 100% short positions on extremely depressed low momentum segments of the market.  When the market recovers, those segments explode higher, retracing the extreme losses. The increase in the 100% long position during the upturn fails to come close to making up for the extreme percentage increases of the 100% short position, which is rebalanced to a 100% position right at the low.  The result ends up being a significant net loss for the overall portfolio during the period.

Instead, I’m talking about the underperformance of simple vanilla strategies that go long the high momentum segments of the market.


* I'm not sure whether or not the Philosophical Economics author has ever revealed his or her gender, but I'll use the masculine pronoun simply because the author's pseudonym (Jesse Livermore) is male.

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Re: Dual Momentum Investing
« Reply #1037 on: December 18, 2015, 12:26:04 AM »
Thanks for the interesting post.  An interesting side topic might be "the power of an individual to shape thinking, as an accelerant (band wagoners) or retardant (skeptics) and their roles on the persistence or termination of trends.

For example, I saw former treasury secretary Paulson speak the other day and he went into TARP and the financial crisis. He seemed to feel the program, while very unpopular, really saved the economy.  It is possible, one or two people being unwilling to buck popular notions (bankers should not be bailed out, despite the consequences) can really swing the outcome of the global economy.

Can belief in the economics of Amazon or Twitter due to popular culture make the success happen?  Interesting to consider.  Many real estate deals pencil out or fail based on perceived desirability of the location.

Much food for thought.  Thanks.
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Re: Dual Momentum Investing
« Reply #1038 on: January 10, 2016, 07:57:12 AM »
I checked on Miles' blog and I'm surprised there have been no DM updates since Nov 2015.

Given how much effort he was putting into discussing DM here you'd think he'd at least publish an update once a month on his blog.

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Re: Dual Momentum Investing
« Reply #1039 on: January 10, 2016, 11:21:54 AM »
DM with a 6 month look back called for a shift to bonds in early December, so it's got that going for it.

Hopefully, Miles will (be allowed to?) return.

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Re: Dual Momentum Investing
« Reply #1040 on: January 10, 2016, 11:46:11 AM »
I checked on Miles' blog and I'm surprised there have been no DM updates since Nov 2015.

Miles tends to agree with most of us that short term results are pretty irrelevant.  There's no need for an update two months later, let alone every month.

Anyone interested in discussing DM with Miles can always leave a comment on his blog or email him; it's not like he's unreachable just because he's not on these particular forums.  Feel free to reach out to him.  :)
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Re: Dual Momentum Investing
« Reply #1041 on: January 10, 2016, 04:18:04 PM »

The Philosophical Economics author has posted a (once again, superb) follow-up article to the piece on financial backtesting ("Momentum: Slip Counterfactuals, the 'Stale Price' Effect, and the Future"), noting at the outset that:


It's certainly an interesting piece and it does raise some questions about the efficacy of using index data to back test real strategies. One would need to be very careful about the way they use the index so they aren't getting stale pricing effects (prices that weren't available IRL but became part of the index nonetheless).

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Re: Dual Momentum Investing
« Reply #1042 on: January 16, 2016, 07:33:22 AM »
If this turns out to be a bear market of  significance this might have turned out to be an early victory for dual momentum investing even though there has already been many claiming that the signal to sell earlier hurt miles and others who have incorporated DM.  I am still B&H with a AA but hope there is a bit of a correction as I am still early in the accumulating phase and would benefit from some good deals on stocks.  And regardless of how it plays out it is still early to say weather DM is better for a lifelong investor or not. 

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Re: Dual Momentum Investing
« Reply #1043 on: January 16, 2016, 10:36:43 AM »
If this turns out to be a bear market of  significance this might have turned out to be an early victory for dual momentum investing even though there has already been many claiming that the signal to sell earlier hurt miles and others who have incorporated DM. 

Maybe.  The details are important, because DM is essentially all about the timing.  Depending on when during the month you make your trades, and and what your lookback period is, it seems likely that a DM trader just traded back into 100% stocks in December right before this most recent stock downturn in January of 2016.  That looks to be the case for anyone using a 3 or 4 month lookback period and for some people using a 5 month lookback depending on the trade date, since the market was on a steady rise for about 5 months since the low point in August of 2015. 

Folks using a 6 month lookback, I think, should have avoided this trap.  Of course, those people also didn't get OUT of stocks until August or September of 2015, so they're really only back to about even after the ~8% drop in January 2016 thus far.  Some people have argued that the DM lookback period doesn't matter, but in this case I think it clearly does.

The sort of volatility we've been seeing recently isn't very common in the historical record that DM uses to support itself, which would worry me a little.  If I were a DM trader, I'd be praying that the future market doesn't deviate much from the historical market.  Of course, I'm praying for that as a B&H investor anyway, but for different reasons.

« Last Edit: January 16, 2016, 10:43:30 AM by sol »

brooklynguy

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Re: Dual Momentum Investing
« Reply #1044 on: January 18, 2016, 09:10:42 AM »
The sort of volatility we've been seeing recently isn't very common in the historical record that DM uses to support itself, which would worry me a little.  If I were a DM trader, I'd be praying that the future market doesn't deviate much from the historical market.

The latest installment of the Philosophical Economics blog ("Growth and Trend: A Simple, Powerful Technique for Timing the Stock Market," published today)
contains more fantastic analysis directly relevant to this topic (it's a long read (and, for a complete understanding of the author's arguments, it's a prerequisite to read the preceding few pieces (which were also long), but it's definitely worth the effort for anyone interested in this topic).

As the title suggests, the author ultimately proposes his own market timing technique (which is based on a momentum-like strategy), but I'm posting it here as recommended reading not for that purpose but for the in-depth analysis that directly applies to momentum trading strategies (and which is difficult to easily summarize here, but I've extracted the quoted tidbit below, which relates to sol's point quoted above, in an attempt to get the DM crowd's attention).

Quote from: Philosophical Economics
The consequence of secular stagnation--the reality of which has become an almost indisputable economic fact--is that you get weaker expansions, and also weaker downturns--weaker cyclicality in general, which is exactly what we've seen in the current cycle.  To a trend-following strategy, that's the equivalent of poison.  It attenuates the sources of gains–large downturns that get captured for profit--without attenuating the sources of losses: choppy volatility that produces whipsaws.

CriticalMass

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Re: Dual Momentum Investing
« Reply #1045 on: March 20, 2017, 08:29:36 AM »
Hello All - new to the forum and discovered this thread and forum by googling the book title.  I ordered the book yesterday.

Is anyone here still following DM?  Would be really interested to know how you are plotting the two momentum indicators and what criteria you use.

Thanks

anisotropy

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Re: Dual Momentum Investing
« Reply #1046 on: March 26, 2017, 04:15:50 PM »
Hello All - new to the forum and discovered this thread and forum by googling the book title.  I ordered the book yesterday.

Is anyone here still following DM?  Would be really interested to know how you are plotting the two momentum indicators and what criteria you use.

Thanks

I do. I use DM in conjunction with some other things, a little complicated, but my method has been working pretty well for me so far (2015-present).

Back testing showed that my timing strategy would underperform or tie the b&h approach roughly 65% of the time, net of taxes, with the average annual underperformance being 0%. Ya you read that right.

Mr. Rich Moose

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Re: Dual Momentum Investing
« Reply #1047 on: March 26, 2017, 05:41:04 PM »
I do. I use DM in conjunction with some other things, a little complicated, but my method has been working pretty well for me so far (2015-present).

Back testing showed that my timing strategy would underperform or tie the b&h approach roughly 65% of the time, net of taxes, with the average annual underperformance being 0%. Ya you read that right.

As in overall it doesn't really underperform that 65% of the time? Or that it neither outperforms nor underperforms 100% of the time?
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waltworks

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Re: Dual Momentum Investing
« Reply #1048 on: March 26, 2017, 06:02:22 PM »
Is anyone here still following DM?  Would be really interested to know how you are plotting the two momentum indicators and what criteria you use.
I do. I use DM in conjunction with some other things, a little complicated, but my method has been working pretty well for me so far (2015-present).

Come on on back in 10 years, okay? In the meantime, you might want to describe your actual lookbacks/method if by some chance you actually outperform and want to come brag about it.

-W

sol

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Re: Dual Momentum Investing
« Reply #1049 on: March 26, 2017, 06:41:04 PM »
We've had a lot of folks come to this thread with their great new method, then quietly disappear when it doesn't pan out for them.

Admittedly, it's been pretty hard to beat the market over the past 8 years of crazy growth.  For the entire duration of MMM's existence, indexing has been a golden ticket.  Maybe the market timers will do better in the future.