Author Topic: Dual Momentum Investing  (Read 214771 times)

boarder42

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Re: Dual Momentum Investing
« Reply #150 on: April 22, 2015, 07:48:23 AM »
So here is another way of thinking about this. If you use the Dual Momentum strategy but instead of back testing 6-12 months, you back test as far as you can go. You reach the result that the US stock market has produced the best returns over the period of time and should be invested in 100% in US stocks. This is the argument that MMM puts forth in his blog. So the question is do you think back testing for the whole historical period is a better choice then back testing 6-12 months? Back testing the whole historical period gives more data to work with, but could also be argued that much of the data is outdated. Back testing such a short period of time reduces the sample size but makes the data more relevant.

ok so most models show a 6 month lookback (not backtest) used with dual momentum, when backtested significantly out performed the market over time.  if you're saying change your look back to 100+ years and see what was the best then yeah you will probably always be 100% invested in one asset class but thats not the point of this you're confusing back testing and lookback windows. 
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thepokercab

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Re: Dual Momentum Investing
« Reply #151 on: April 22, 2015, 08:36:00 AM »
Interesting discussion. I'm also you're typical index investor, and I've been looking through a bunch of the dual momentum research, but what I can't seem to wrap my head around is how does this strategy work when you're in the accumulation phase, making, for instance, monthly contributions to your investment accounts?

For instance, if I'm understanding Dual Momentum correctly, you'll find yourself at a point where equities start underperforming a 'safe asset' such as cash, so you get out of equities entirely and move into cash.  But what do I do with the savings i'm continuing to generate and would normally invest in the market?  Wouldn't this be the perfect time to keep buying up equities, when they're 'on sale' so to speak? 

I'm not nearly smart enough to digest all of the research i've seen on this so far, but do these back tested studies account for the buy and holder, who is not only holding on to her equities, but is continuing to buy up equities at the bottom of a market?  Surely, she is realizing significant gain down the road vs the dual momentum investor who doesn't get back into equities months or years later? 

ChaseJuggler

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Re: Dual Momentum Investing
« Reply #152 on: April 22, 2015, 08:46:47 AM »
I would like to point out that even small flash crashes will not always cause harm to dual momentum. As long as the down and up takes less than a month to happen, it is possible to dodge them. For example, October 2014 would have only fooled you if your rebalancing date (or whatever you call it) was on the 15th of the month. Any other day was safe. (note the difference in date selection below)




Of course, this would have stung like a b#!ch if it had happened on the first of the month. But the odds are strong that DM will dodge the next October 2014 as well.
« Last Edit: April 22, 2015, 08:49:39 AM by ChaseJuggler »

frugalnacho

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Re: Dual Momentum Investing
« Reply #153 on: April 22, 2015, 08:46:53 AM »
Interesting discussion. I'm also you're typical index investor, and I've been looking through a bunch of the dual momentum research, but what I can't seem to wrap my head around is how does this strategy work when you're in the accumulation phase, making, for instance, monthly contributions to your investment accounts?

For instance, if I'm understanding Dual Momentum correctly, you'll find yourself at a point where equities start underperforming a 'safe asset' such as cash, so you get out of equities entirely and move into cash.  But what do I do with the savings i'm continuing to generate and would normally invest in the market?  Wouldn't this be the perfect time to keep buying up equities, when they're 'on sale' so to speak? 

I'm not nearly smart enough to digest all of the research i've seen on this so far, but do these back tested studies account for the buy and holder, who is not only holding on to her equities, but is continuing to buy up equities at the bottom of a market?  Surely, she is realizing significant gain down the road vs the dual momentum investor who doesn't get back into equities months or years later?

I assume you would just put your contributions into whatever fund you are currently holding.  Milesdividenmd said he was holding 100% s&p right now, so I assume he would just keep adding to that.

If you saw the market drop 10%, and thought it was going to drop another 10%, would you buy the stocks at 10% off, or save your cash until it's on sale for 20% off?  I think the dual momentum strategy claims to have superior returns because you don't buy any assets when they're inflated in price (ok maybe you do, but you do so with the assurance they will be even more inflated in the near term future), and you don't buy assets that are only partially on sale (you wait and buy them fully on sale).  That is the theory anyway.  Feel free to correct me if I am misunderstanding the strategy. 

ChaseJuggler

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Re: Dual Momentum Investing
« Reply #154 on: April 22, 2015, 08:59:47 AM »
I'm not nearly smart enough to digest all of the research i've seen on this so far, but do these back tested studies account for the buy and holder, who is not only holding on to her equities, but is continuing to buy up equities at the bottom of a market?  Surely, she is realizing significant gain down the road vs the dual momentum investor who doesn't get back into equities months or years later?

Crackers at the store are 5% off this week. What a deal!! You buy a 2 year supply of crackers. Only to find out that next week, crackers are now buy 1 get 1 free! But you already bought your crackers at last week's 'great prices' and can't take advantage.

Dual Momentum, as I understand it, ignores the 5-10% sale and waits for the 40%. (Which will only outperform if we have another crash in the next 10 years.)
« Last Edit: April 22, 2015, 09:05:26 AM by ChaseJuggler »

boarder42

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Re: Dual Momentum Investing
« Reply #155 on: April 22, 2015, 09:01:20 AM »
its just gaging the momentum of the market ... its a simple look back.. what has it done over the last 6 months.  then you put 100% of your money in the one that does the best.  you're not waiting or trying to time market selloffs.  you look at what happened in the last 6-12 months and you adjust 100% of your portfolio into whatever was the winner.  this isnt an over simplification its pretty much that easy.
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boarder42

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Re: Dual Momentum Investing
« Reply #156 on: April 22, 2015, 09:09:52 AM »
I'm not nearly smart enough to digest all of the research i've seen on this so far, but do these back tested studies account for the buy and holder, who is not only holding on to her equities, but is continuing to buy up equities at the bottom of a market?  Surely, she is realizing significant gain down the road vs the dual momentum investor who doesn't get back into equities months or years later?

Crackers at the store are 5% off this week. What a deal!! You buy a 2 year supply of crackers. Only to find out that next week, crackers are now buy 1 get 1 free! But you already bought your crackers at last week's 'great prices' and can't take advantage.

Dual Momentum, as I understand it, ignores the 5-10% sale and waits for the 40%. (Which will only outperform if we have another crash in the next 10 years.)

not necessarily true.  if the emerging markets or international are outperforming the US significantly or vice versa.  it could still minorly outperform.  but the largest performance gains are seen by shifting to bonds during large down turns yes.
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dragoncar

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Re: Dual Momentum Investing
« Reply #157 on: April 22, 2015, 09:18:38 AM »
I'm not nearly smart enough to digest all of the research i've seen on this so far, but do these back tested studies account for the buy and holder, who is not only holding on to her equities, but is continuing to buy up equities at the bottom of a market?  Surely, she is realizing significant gain down the road vs the dual momentum investor who doesn't get back into equities months or years later?

Crackers at the store are 5% off this week. What a deal!! You buy a 2 year supply of crackers. Only to find out that next week, crackers are now buy 1 get 1 free! But you already bought your crackers at last week's 'great prices' and can't take advantage.

Dual Momentum, as I understand it, ignores the 5-10% sale and waits for the 40%. (Which will only outperform if we have another crash in the next 10 years.)

You forgot the store return policy and/or price match "put"

halfshellmeijin

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Re: Dual Momentum Investing
« Reply #158 on: April 22, 2015, 09:21:37 AM »
Why don't you just take the bullet proof dual momentum strategy, and implement it one day earlier?  Just get onto that roller coaster one day earlier, and get off one day earlier.  Wouldn't that give you slightly more gains, and slightly less losses?

To me this does not seem like a logically valid strategy. There are only about 30 days in a month. That means that there are a finite amount of choices you could make to game the system. For instance, why not double bullet proof the strategy and go two days earlier? I mean you'll beat everyone that has thought like you! Also think if everyone did their DM balancing on the 1st. If you decided to do yours on the 15th, would you be half a month early, or half a month late? Well what if you did it on the 22nd? Would you be about 8 days early or would you be 7 days late from the 15th? It would be easy to game if everyone picked the same day, but more than likely people will distribute their choices across all the days of the month making it hard to be one day in front of everyone.

thepokercab

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Re: Dual Momentum Investing
« Reply #159 on: April 22, 2015, 09:24:33 AM »
I'm not nearly smart enough to digest all of the research i've seen on this so far, but do these back tested studies account for the buy and holder, who is not only holding on to her equities, but is continuing to buy up equities at the bottom of a market?  Surely, she is realizing significant gain down the road vs the dual momentum investor who doesn't get back into equities months or years later?

Crackers at the store are 5% off this week. What a deal!! You buy a 2 year supply of crackers. Only to find out that next week, crackers are now buy 1 get 1 free! But you already bought your crackers at last week's 'great prices' and can't take advantage.

Dual Momentum, as I understand it, ignores the 5-10% sale and waits for the 40%. (Which will only outperform if we have another crash in the next 10 years.)

not necessarily true.  if the emerging markets or international are outperforming the US significantly or vice versa.  it could still minorly outperform.  but the largest performance gains are seen by shifting to bonds during large down turns yes.

Ok- i guess that's what the answer I was looking for.  For instance, I've just been steadily investing in VFWAX the last couple of years as part of my asset allocation, and over the last 3 months or so, its up by like 8.5%. In the meantime a Dual Momentum investor has been 100% in the S&P.  If the 'momentum' in international equities continues he eventually goes 100% international, but misses out on some of those early gains.  But the argument is that he makes up for it later when he shifts to bonds or a safe asset during a down turn? 

halfshellmeijin

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Re: Dual Momentum Investing
« Reply #160 on: April 22, 2015, 09:31:46 AM »
So here is another way of thinking about this. If you use the Dual Momentum strategy but instead of back testing 6-12 months, you back test as far as you can go. You reach the result that the US stock market has produced the best returns over the period of time and should be invested in 100% in US stocks. This is the argument that MMM puts forth in his blog. So the question is do you think back testing for the whole historical period is a better choice then back testing 6-12 months? Back testing the whole historical period gives more data to work with, but could also be argued that much of the data is outdated. Back testing such a short period of time reduces the sample size but makes the data more relevant.

ok so most models show a 6 month lookback (not backtest) used with dual momentum, when backtested significantly out performed the market over time.  if you're saying change your look back to 100+ years and see what was the best then yeah you will probably always be 100% invested in one asset class but thats not the point of this you're confusing back testing and lookback windows.

Okay, sorry I was not confusing what lookback and back test are, just the words to describe them. Let me try to flesh out my idea a bit more.

The strategy for DM is to look back 6-12 months and pick the winning asset class and go 100% in and reevaluate every month. This is an effort to capture momentum.
The strategy behind indexing is to buy and hold. Many people will state, if you can tolerate the risk, you can go 100% into US Stocks. Many state that, (such as jcollins and MMM) that US stocks are the highest preforming asset since something like 1900 and that is why you can be sure that long term that 100% US Stocks will make you money.

In order to compare the two investing theories, I think it is worth while as viewing the indexing plan as DM with a look back of 100+ years. Especially if you are one of those individuals 100% in US stocks because of the historical returns and you feel you can handle the ups and downs.

I would also be interested in a conversation about applying the portfolio theory regarding diversification and rebalancing if it was applied to DM. "The Intelligent Asset Allocator" (a book MMM recommends) states that a 90/10 portfolio out performs a 100/0 portfolio in both reward and risk when back tested. I am just thinking about if the same ideas could be applied to the DM plan, or if it is too inherently conflicting to the strategy.

milesdividendmd

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Re: Dual Momentum Investing
« Reply #161 on: April 22, 2015, 09:35:57 AM »

So here is another way of thinking about this. If you use the Dual Momentum strategy but instead of back testing 6-12 months, you back test as far as you can go. You reach the result that the US stock market has produced the best returns over the period of time and should be invested in 100% in US stocks. This is the argument that MMM puts forth in his blog. So the question is do you think back testing for the whole historical period is a better choice then back testing 6-12 months? Back testing the whole historical period gives more data to work with, but could also be argued that much of the data is outdated. Back testing such a short period of time reduces the sample size but makes the data more relevant.

ok so most models show a 6 month lookback (not backtest) used with dual momentum, when backtested significantly out performed the market over time.  if you're saying change your look back to 100+ years and see what was the best then yeah you will probably always be 100% invested in one asset class but thats not the point of this you're confusing back testing and lookback windows.

In this comment you're  conflating back testing with the lookback period.  These are two completely different things.

Based on the observation that momentum predicts short-term price movement based on past results of 3 to 12 months(an empirical observation), it makes no sense to use all of history as your Lookback period.

Simply put,All of history gives no predictive information about how the market will perform in the short-term, unlike a 3 to 12 month look back period.

As an example,In 1989 Japan was the most successful stock market using all of history as a Lookback period.  deciding to buy-and-hold a 100% Japanese equities portfolio in 1989 would not of been a very smart decision in retrospect.  But if you had been toggling between Japan and America or the rest of the world based on dual momentum, you would've exited it 100% Japanese portfolio before too much blood was shed.
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milesdividendmd

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Re: Dual Momentum Investing
« Reply #162 on: April 22, 2015, 09:41:40 AM »

Why don't you just take the bullet proof dual momentum strategy, and implement it one day earlier?  Just get onto that roller coaster one day earlier, and get off one day earlier.  Wouldn't that give you slightly more gains, and slightly less losses?

To me this does not seem like a logically valid strategy. There are only about 30 days in a month. That means that there are a finite amount of choices you could make to game the system. For instance, why not double bullet proof the strategy and go two days earlier? I mean you'll beat everyone that has thought like you! Also think if everyone did their DM balancing on the 1st. If you decided to do yours on the 15th, would you be half a month early, or half a month late? Well what if you did it on the 22nd? Would you be about 8 days early or would you be 7 days late from the 15th? It would be easy to game if everyone picked the same day, but more than likely people will distribute their choices across all the days of the month making it hard to be one day in front of everyone.

Right. This is the issue I described earlier where I tried to imagine a world in which everyone used dual momentum. Even given this knowledge, It would be very difficult to arbitrage against dual momentum due to varying look back periods, days to make trades, etc.
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boarder42

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Re: Dual Momentum Investing
« Reply #163 on: April 22, 2015, 09:44:43 AM »
I'm not nearly smart enough to digest all of the research i've seen on this so far, but do these back tested studies account for the buy and holder, who is not only holding on to her equities, but is continuing to buy up equities at the bottom of a market?  Surely, she is realizing significant gain down the road vs the dual momentum investor who doesn't get back into equities months or years later?

Crackers at the store are 5% off this week. What a deal!! You buy a 2 year supply of crackers. Only to find out that next week, crackers are now buy 1 get 1 free! But you already bought your crackers at last week's 'great prices' and can't take advantage.

Dual Momentum, as I understand it, ignores the 5-10% sale and waits for the 40%. (Which will only outperform if we have another crash in the next 10 years.)

not necessarily true.  if the emerging markets or international are outperforming the US significantly or vice versa.  it could still minorly outperform.  but the largest performance gains are seen by shifting to bonds during large down turns yes.

Ok- i guess that's what the answer I was looking for.  For instance, I've just been steadily investing in VFWAX the last couple of years as part of my asset allocation, and over the last 3 months or so, its up by like 8.5%. In the meantime a Dual Momentum investor has been 100% in the S&P.  If the 'momentum' in international equities continues he eventually goes 100% international, but misses out on some of those early gains.  But the argument is that he makes up for it later when he shifts to bonds or a safe asset during a down turn?

the arguement isnt this loss will be made up when the market turns down the arguement is that while your portfolio is diversified you're missing out on larger gains by being in evenly distributed asset classes.  so if one asset class is outperforming the others over the last 6 months you swap to that asset class and historically doing this has lead to much higher returns ... your diversification is basically shifted to an over time diversification vs a constant diversification.  allowing you to capture gains of the best performing asset class.  it may very well shake out that you own at a similar asset distribution that you have now over a 30 year period.
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frugalnacho

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Re: Dual Momentum Investing
« Reply #164 on: April 22, 2015, 09:46:05 AM »

So here is another way of thinking about this. If you use the Dual Momentum strategy but instead of back testing 6-12 months, you back test as far as you can go. You reach the result that the US stock market has produced the best returns over the period of time and should be invested in 100% in US stocks. This is the argument that MMM puts forth in his blog. So the question is do you think back testing for the whole historical period is a better choice then back testing 6-12 months? Back testing the whole historical period gives more data to work with, but could also be argued that much of the data is outdated. Back testing such a short period of time reduces the sample size but makes the data more relevant.

ok so most models show a 6 month lookback (not backtest) used with dual momentum, when backtested significantly out performed the market over time.  if you're saying change your look back to 100+ years and see what was the best then yeah you will probably always be 100% invested in one asset class but thats not the point of this you're confusing back testing and lookback windows.

In this comment you're  conflating back testing with the lookback period.  These are two completely different things.

Based on the observation that momentum predicts short-term price movement based on past results of 3 to 12 months(an empirical observation), it makes no sense to use all of history as your Lookback period.

Simply put,All of history gives no predictive information about how the market will perform in the short-term, unlike a 3 to 12 month look back period.

As an example,In 1989 Japan was the most successful stock market using all of history as a Lookback period.  deciding to buy-and-hold a 100% Japanese equities portfolio in 1989 would not of been a very smart decision in retrospect.  But if you had been toggling between Japan and America or the rest of the world based on dual momentum, you would've exited it 100% Japanese portfolio before too much blood was shed.

Which begs the question: How does anyone ever lose money in the market if it's so easy to see the trend and get out of dodge before the shit hits the fan?

boarder42

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Re: Dual Momentum Investing
« Reply #165 on: April 22, 2015, 09:46:11 AM »

Why don't you just take the bullet proof dual momentum strategy, and implement it one day earlier?  Just get onto that roller coaster one day earlier, and get off one day earlier.  Wouldn't that give you slightly more gains, and slightly less losses?

To me this does not seem like a logically valid strategy. There are only about 30 days in a month. That means that there are a finite amount of choices you could make to game the system. For instance, why not double bullet proof the strategy and go two days earlier? I mean you'll beat everyone that has thought like you! Also think if everyone did their DM balancing on the 1st. If you decided to do yours on the 15th, would you be half a month early, or half a month late? Well what if you did it on the 22nd? Would you be about 8 days early or would you be 7 days late from the 15th? It would be easy to game if everyone picked the same day, but more than likely people will distribute their choices across all the days of the month making it hard to be one day in front of everyone.

Right. This is the issue I described earlier where I tried to imagine a world in which everyone used dual momentum. Even given this knowledge, It would be very difficult to arbitrage against dual momentum due to varying look back periods, days to make trades, etc.

the way to arbitrage away the system would be to vary the look back to 5 months vs 6 and get in one month earlier IMO if this became the norm .
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milesdividendmd

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Re: Dual Momentum Investing
« Reply #166 on: April 22, 2015, 09:48:26 AM »

Very interesting discussion. Following.

I understand you can backtest, but before going whole hog, I'd probably conduct a real test with a two-horse race between DM and buy-and-hold over a number of years. Then I'd trade a winning horse for a whole hog. I still wouldn't have enough animals for a farm, though.

The issue with that is that it might take a long time before you are able to confidently reach a conclusion on which is the better strategy.  As in it might take my entire working career before one strategy shows clear superiority.  What I need is a strategy I can implement right now, that not only back tests well, but has sufficient evidence to lead me to believe it will continue to perform.  Passive investing has that evidence.  Not only that, it makes perfectly logical sense to me - cut out middlemen and any unnecessary costs that don't add value, and minimize the costs that are absolutely necessary - that means more money goes into my account and I can calculate the effect of compounding that excess money.  It's not an anomaly, it's just costs reduction and math, so I have every reason to believe that advantage will persist.

Dual momentum however, doesn't make logical sense to me.  I don't understand how it works.  It seems to decouple risk from reward.  You bear essentially no risk when the market is on the way up yet you reap all the rewards, and when the market is going to go down you get out of the market so you essentially bear no risk.  All the reward (more than your fair share), and none of the risk.  A giant free lunch.  The phenomena has apparently existed for hundreds of years and pre dates the USA according to some, and yet still persists as an easily exploitable anomaly. 

Why don't you just take the bullet proof dual momentum strategy, and implement it one day earlier?  Just get onto that roller coaster one day earlier, and get off one day earlier.  Wouldn't that give you slightly more gains, and slightly less losses?

I also don't believe that ben graham just decided timing the market is impossible, presented no data, and then everyone just parroted him ad infinitum.  I've heard the argument from more than just ben, and i've seen it supported with evidence and data, over and over.  Whenever I have heard claims of being able to time the market and been presented with evidence of how it can be done, when I dig into the data I find it's either false or can be explained by some other logical fallacy, 100% of the time.  I've yet to see any strategy (excluding dual momentum - still undecided as of yet) that cuts the mustard.  Furthermore I fully expect any strategy that actually does work will be exploited to the point it is no longer possible.  The idea that an easily exploitable anomaly exists, is widely known, and yet remains unimplemented is troubling to me.

I get it. I completely agree, frugal, Dual momentum seems too good to be true.

You are wise to be suspicious of any approach which demonstrates superior return with less risk.

That being said, please use your suspicion to poke specific holes in the strategy. I've been trying to do this for a couple of years now, and aside from large flashcrashes like 1989, I can find no other major weaknesses in the strategy.

In other words your conceptual suspicion of dual momentum is a very good thing, but at some point it may be useful for you to move on to specific problems that you see with the strategy.

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frugalnacho

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Re: Dual Momentum Investing
« Reply #167 on: April 22, 2015, 09:51:01 AM »

Why don't you just take the bullet proof dual momentum strategy, and implement it one day earlier?  Just get onto that roller coaster one day earlier, and get off one day earlier.  Wouldn't that give you slightly more gains, and slightly less losses?

To me this does not seem like a logically valid strategy. There are only about 30 days in a month. That means that there are a finite amount of choices you could make to game the system. For instance, why not double bullet proof the strategy and go two days earlier? I mean you'll beat everyone that has thought like you! Also think if everyone did their DM balancing on the 1st. If you decided to do yours on the 15th, would you be half a month early, or half a month late? Well what if you did it on the 22nd? Would you be about 8 days early or would you be 7 days late from the 15th? It would be easy to game if everyone picked the same day, but more than likely people will distribute their choices across all the days of the month making it hard to be one day in front of everyone.

Right. This is the issue I described earlier where I tried to imagine a world in which everyone used dual momentum. Even given this knowledge, It would be very difficult to arbitrage against dual momentum due to varying look back periods, days to make trades, etc.

Which brings me back to what I posted earlier:


Maybe my perception of the market is wrong, but I see it as a positive sum game, where the positive sum is the total market capitalization.  For example is the total market is $1M, and then in the future it is $2M, then $1M in real (at least on paper) wealth has been created, but no more.  So buy and hold index investors would have realized average growth during that period, dual momentum investors would have realized above average growth, and because of the math some other group of rubes has achieved below average market returns for that period. 

So are you telling me if everyone employed a dual momentum strategy that everyone's portfolio would go gang busters, and no one would lose to a bear market?  Lake Wobegon, where every investor is above average?  How is that even mathematically possible?

thepokercab

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Re: Dual Momentum Investing
« Reply #168 on: April 22, 2015, 09:52:50 AM »
One other question I have is how do folks select their asset classes for this approach?  I'm at Vanguard currently, so if I was to move part of my portfolio to a dual momentum approach i'd probably focus on VTI, VEU, VWO (emerging markets), and then VFISX as the 'safe' asset.  Would this seem sound? 

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Re: Dual Momentum Investing
« Reply #169 on: April 22, 2015, 09:54:03 AM »

I would like to point out that even small flash crashes will not always cause harm to dual momentum. As long as the down and up takes less than a month to happen, it is possible to dodge them. For example, October 2014 would have only fooled you if your rebalancing date (or whatever you call it) was on the 15th of the month. Any other day was safe. (note the difference in date selection below)




Of course, this would have stung like a b#!ch if it had happened on the first of the month. But the odds are strong that DM will dodge the next October 2014 as well.

This is correct. I was 100% dual momentum in October 2014 in my retirement accounts. And I did absolutely nothing.

Unless the flash crash brings you down to a level below your Lookback period, it will have absolutely no effect on the strategy.

It was mildly painful to see my portfolio lose so much money so quickly, but behaviorally I was very reassured that if the market went down too far I would have a clear signal to exit stocks and get into short-term treasures.

All in all it was less stressful than holding a by and hold portfolio for me personally.
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frugalnacho

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Re: Dual Momentum Investing
« Reply #170 on: April 22, 2015, 09:56:37 AM »
That being said, please use your suspicion to poke specific holes in the strategy. I've been trying to do this for a couple of years now, and aside from large flashcrashes like 1989, I can find no other major weaknesses in the strategy.

In other words your conceptual suspicion of dual momentum is a very good thing, but at some point it may be useful for you to move on to specific problems that you see with the strategy.

I can find no obvious holes to poke yet.  I am hoping someone else will see the discussion and points raised and can perhaps point out a hole we are missing.  Or perhaps if I keep thinking about it I will have an epiphany and see the flaws with it.  Or maybe I (or someone) will go through the data and find holes.  I think I need to read more about it, and digest that information to have a better understanding of it.

milesdividendmd

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Re: Dual Momentum Investing
« Reply #171 on: April 22, 2015, 09:57:40 AM »


Why don't you just take the bullet proof dual momentum strategy, and implement it one day earlier?  Just get onto that roller coaster one day earlier, and get off one day earlier.  Wouldn't that give you slightly more gains, and slightly less losses?

To me this does not seem like a logically valid strategy. There are only about 30 days in a month. That means that there are a finite amount of choices you could make to game the system. For instance, why not double bullet proof the strategy and go two days earlier? I mean you'll beat everyone that has thought like you! Also think if everyone did their DM balancing on the 1st. If you decided to do yours on the 15th, would you be half a month early, or half a month late? Well what if you did it on the 22nd? Would you be about 8 days early or would you be 7 days late from the 15th? It would be easy to game if everyone picked the same day, but more than likely people will distribute their choices across all the days of the month making it hard to be one day in front of everyone.

Right. This is the issue I described earlier where I tried to imagine a world in which everyone used dual momentum. Even given this knowledge, It would be very difficult to arbitrage against dual momentum due to varying look back periods, days to make trades, etc.

Which brings me back to what I posted earlier:


Maybe my perception of the market is wrong, but I see it as a positive sum game, where the positive sum is the total market capitalization.  For example is the total market is $1M, and then in the future it is $2M, then $1M in real (at least on paper) wealth has been created, but no more.  So buy and hold index investors would have realized average growth during that period, dual momentum investors would have realized above average growth, and because of the math some other group of rubes has achieved below average market returns for that period. 

So are you telling me if everyone employed a dual momentum strategy that everyone's portfolio would go gang busters, and no one would lose to a bear market?  Lake Wobegon, where every investor is above average?  How is that even mathematically possible?

No, in this hypothetical there would be an asset bubble until all of the capital was used up. Then it would pop and destroy everyone.

The point is that it would be very hard to profit off of this information. In other words it is difficult to impossible to arbitrage away momentum.

Is a ridiculous hypothetical of course, but useful I think.
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GGNoob

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Re: Dual Momentum Investing
« Reply #172 on: April 22, 2015, 10:20:02 AM »
One other question I have is how do folks select their asset classes for this approach?  I'm at Vanguard currently, so if I was to move part of my portfolio to a dual momentum approach i'd probably focus on VTI, VEU, VWO (emerging markets), and then VFISX as the 'safe' asset.  Would this seem sound?

Because VEU contains emerging markets, I would think VTI, VEA, VWO for your stock options. Then either short term bonds or could even do total bond market.

sol

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Re: Dual Momentum Investing
« Reply #173 on: April 22, 2015, 12:06:22 PM »
I've been reading along for fun, even though I'm a dyed in the wool indexer who generally derides chartist fantasies like this.

As I understand this strategy, the secret sauce is entirely in the timing of how you ride the waves of market cycles. You ride early losses down until your signal tells you to get out, and then you miss early appreciation until your signal tells you to buy back in. In between you hope to catch the long upswings and avoid the prolonged downturns. Sounds about right?

If so, then the success of the strategy depends entirely on the relative magnitudes of price movements before vs after your signal to buy/sell.  You can outperform an indexer iff the bull runs gain more after your signal than before it and/or the bear runs lose more after your signal than before it, so the key is to find a lookback period that gives you a decision signal that is appropriately timed to the duration of those runs.

And that would totally make sense to me if we had confidence that the cycles were of a predictable pattern, but I'm not 100% convinced of that.  The fact that the past two recessions have had similar crash/recovery timings is going to give adherents of this strategy false confidence that the method will work in the future just because it has worked since 1995, but I see no good reason to believe that the next crash will look anything like the past two, as skyrefuge has convincingly pointed out elsewhere on this forum.  Are there reasons related to fiscal or monetary policy or other economic management to believe that the US economy will continue to behave the same way it has in the recent past? 

If you think that there are, and that the US business cycle is essentially now predictable in such a simple way, then technical trading metrics totally make sense.  Look for those 200 day moving average trendlines to cross the forward looking scaled P/E ratio, or trade those distinguishing shoulder charts and diagnostic dead cat bounces, and make a fortune because you can predict the future and no one else can.

Me, I don't believe in vampires or ghosts or crystal balls.  I believe the successful backtesting of this strategy is entirely coincidental, classic theory survivorship bias akin to buying a "how to win the lottery" book from a lottery winner.  I believe any strategy with a positive feedback loop like this is prone to being overhyped by people (not anyone here) looking to create and then cash in on a bubble by getting people to buy into it, like any other pump and dump scheme.

It's trivially easy to construct a hypothetical price history that would totally hose this strategy, though I don't claim to know how likely that potential price history is to actually unfold.  On the other hand, I'm not sure I exactly see an obvious downside here either so if your greed overcomes your skepticism then go for it.  Just don't be surprised if it turns out the fortune teller you just paid turns out to be a charlatan after all.

And who knows, maybe the crazy old gypsy lady is right for a while longer? If enough people fall for it, the strategy becomes a self fulfilling prophesy, temporarily.  The problem with a perfectly predictable stock market, as others have already pointed out upthread, is that it's too easy to exploit and all of those exploits make it unpredictable again.

MDM

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Re: Dual Momentum Investing
« Reply #174 on: April 22, 2015, 12:23:28 PM »
As I understand this strategy, the secret sauce is entirely in the timing of how you ride the waves of market cycles. You ride early losses down until your signal tells you to get out, and then you miss early appreciation until your signal tells you to buy back in. In between you hope to catch the long upswings and avoid the prolonged downturns. Sounds about right?

If so, then the success of the strategy depends entirely on the relative magnitudes of price movements before vs after your signal to buy/sell.  You can outperform an indexer iff the bull runs gain more after your signal than before it and/or the bear runs lose more after your signal than before it, so the key is to find a lookback period that gives you a decision signal that is appropriately timed to the duration of those runs.

Just highlighting this because it seems a particularly apt summary, and having it appear twice makes it more likely that others will comment....

frugalnacho

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Re: Dual Momentum Investing
« Reply #175 on: April 22, 2015, 12:28:46 PM »
Me, I don't believe in vampires or ghosts or crystal balls.  I believe the successful backtesting of this strategy is entirely coincidental, classic theory survivorship bias akin to buying a "how to win the lottery" book from a lottery winner. I believe any strategy with a positive feedback loop like this is prone to being overhyped by people (not anyone here) looking to create and then cash in on a bubble by getting people to buy into it, like any other pump and dump scheme.

Or to sell a book.  If I figured out a way to exploit the market for massive profits I sure as fuck wouldn't be publishing a book to tell everyone about it, i'd be too busy rolling around on my pile of hundred dollar bills.


milesdividendmd

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Re: Dual Momentum Investing
« Reply #176 on: April 22, 2015, 01:03:48 PM »
I've been reading along for fun, even though I'm a dyed in the wool indexer who generally derides chartist fantasies like this.

As I understand this strategy, the secret sauce is entirely in the timing of how you ride the waves of market cycles. You ride early losses down until your signal tells you to get out, and then you miss early appreciation until your signal tells you to buy back in. In between you hope to catch the long upswings and avoid the prolonged downturns. Sounds about right?

If so, then the success of the strategy depends entirely on the relative magnitudes of price movements before vs after your signal to buy/sell.  You can outperform an indexer iff the bull runs gain more after your signal than before it and/or the bear runs lose more after your signal than before it, so the key is to find a lookback period that gives you a decision signal that is appropriately timed to the duration of those runs.

And that would totally make sense to me if we had confidence that the cycles were of a predictable pattern, but I'm not 100% convinced of that.  The fact that the past two recessions have had similar crash/recovery timings is going to give adherents of this strategy false confidence that the method will work in the future just because it has worked since 1995, but I see no good reason to believe that the next crash will look anything like the past two, as skyrefuge has convincingly pointed out elsewhere on this forum.  Are there reasons related to fiscal or monetary policy or other economic management to believe that the US economy will continue to behave the same way it has in the recent past? 

If you think that there are, and that the US business cycle is essentially now predictable in such a simple way, then technical trading metrics totally make sense.  Look for those 200 day moving average trendlines to cross the forward looking scaled P/E ratio, or trade those distinguishing shoulder charts and diagnostic dead cat bounces, and make a fortune because you can predict the future and no one else can.

Me, I don't believe in vampires or ghosts or crystal balls.  I believe the successful backtesting of this strategy is entirely coincidental, classic theory survivorship bias akin to buying a "how to win the lottery" book from a lottery winner.  I believe any strategy with a positive feedback loop like this is prone to being overhyped by people (not anyone here) looking to create and then cash in on a bubble by getting people to buy into it, like any other pump and dump scheme.

It's trivially easy to construct a hypothetical price history that would totally hose this strategy, though I don't claim to know how likely that potential price history is to actually unfold.  On the other hand, I'm not sure I exactly see an obvious downside here either so if your greed overcomes your skepticism then go for it.  Just don't be surprised if it turns out the fortune teller you just paid turns out to be a charlatan after all.


And who knows, maybe the crazy old gypsy lady is right for a while longer? If enough people fall for it, the strategy becomes a self fulfilling prophesy, temporarily.  The problem with a perfectly predictable stock market, as others have already pointed out upthread, is that it's too easy to exploit and all of those exploits make it unpredictable again.

What a self aggrandizing and narcissistic tirade.  That must have felt good to write.

You deride trendfollowing here, but you ignore the fact that a simple 200 day moving average strategy always, but always decreases max drawdown in periods greater than 10 years and almost always increases CAGR.  And this pattern has persisted long after it was first described in the 30s.

And by by your very definition of charlatan, I would point out that Bogle is a charlatan for profiting immensely off of his own strategy:  the marketing of low cost cap weighted funds. 

So you believe in the the superiority of a theory that has been demonstrably outperformed by the very strategy that you deride.

So who is it exactly that believes in fairy tales?
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waltworks

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Re: Dual Momentum Investing
« Reply #177 on: April 22, 2015, 01:36:06 PM »
I thought Sol's post was actually pretty respectful.

As others (and Sol) have pointed out, the question is whether this pattern that exists in the data will persist in the future. That is a legitimate concern and spurious patternfinding is something that both human nature in general and investors in particular are notorious for. Anything involving large amounts of data will be chock full (and always will be in the future, as well) of apparently meaningful patterns that fail to persist going forward.

Like Sol, it's a little too "one weird old trick" for me. But best of luck.

-W

boarder42

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Re: Dual Momentum Investing
« Reply #178 on: April 22, 2015, 01:43:56 PM »
i'm gonna say you took SOL's post the wrong way.  But its the internet soooo.... he brings up the number one issue even i as a supporter see with this system  i'm still willing to take the risk.  but it is a very good point.  that for the system to work you need a long time of run up and run down at or better than 6 months in the 6 month system.  but traditional bear markets have lasted much longer than 6 months. 
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hodedofome

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Re: Dual Momentum Investing
« Reply #179 on: April 22, 2015, 02:03:09 PM »
I really wish people would first read all the links to previous research I have posted, as well as listen to the podcasts. Many of the questions have already been answered many times. To say momentum doesn't work is to say the work of Fama and many others doesn't work either. Remember Fama is the chief of the EMH and yet he acknowledges momentum is persistent across all asset classes all over the world.

Read all the previous academic work on momentum and then come back with your criticisms. It will make this conversation much more productive.

If you do your own research and decide it's still not for you, that's fine. It's not compatible with everyone's personality. That's the beauty of a marketplace, we all have differing beliefs.


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milesdividendmd

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Re: Dual Momentum Investing
« Reply #180 on: April 22, 2015, 02:08:29 PM »
i'm gonna say you took SOL's post the wrong way.  But its the internet soooo.... he brings up the number one issue even i as a supporter see with this system  i'm still willing to take the risk.  but it is a very good point.  that for the system to work you need a long time of run up and run down at or better than 6 months in the 6 month system.  but traditional bear markets have lasted much longer than 6 months.

Not sure I take your last point there, the longer the bear market, the better you will do with a trend following approach.

There are exactly 2 unique risks to dual momentum that I have explored previously.

1.  A whipsaw at the same frequency as your lookback period.
and
2. a large flash crash a la black monday.  (There has been but one of these in the history of the US stock market.)

I am open to the possiblility of other risks that I am not seeing, but haven't come across one of them yet.
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frugalnacho

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Re: Dual Momentum Investing
« Reply #181 on: April 22, 2015, 02:16:15 PM »
I really wish people would first read all the links to previous research I have posted, as well as listen to the podcasts.

Did anyone read my post? GMOM is a new fund that does dual momentum. For the past 40 years they were known as Managed Futures. There are managed futures mutual funds but they generally suck.

I did.  I can't view any of those pages without registering for an account, so I can't navigate through them


So the past 20 or so posts were because everyone is too lazy to register for a free account?

In response to the fees question, there are some funds that charge lower fees. But these are businesses we're talking about here. Some websites charge more for computer parts than Newegg but that hasn't put them out of business. Some funds perform better than others so they charge more. Some funds just like to help out their investors so they charge less. There's a floor to the fees however, because hedge funds are very expensive to run. Very high regulatory costs.

That and it requires an email address and phone number.  I don't trust them.

You posted a bunch of links to previous research that is all contained on a single website.  That website requires registration to read the pages, and requires you to disclose your email address and phone number to register.  I am not giving them that information.  It looks like no one else is either.

hodedofome

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Re: Dual Momentum Investing
« Reply #182 on: April 22, 2015, 02:23:41 PM »
There was another post that I threw up a bunch of other links a few pages back. No logins, just academic research.

If you are going to let a free signup keep you from getting to the truth, then I need to stop wasting my time with this argument.


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frugalnacho

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Re: Dual Momentum Investing
« Reply #183 on: April 22, 2015, 02:34:34 PM »
There was another post that I threw up a bunch of other links a few pages back. No logins, just academic research.

If you are going to let a free signup keep you from getting to the truth, then I need to stop wasting my time with this argument.


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Yes I see it now.  I completely missed that post.  Although i'm not sure why you think I should disclose my email address and phone number to a website I don't know/trust based on the recommendation of a forum poster that I don't know/trust. I will check out the other sources you posted however.

Just throwing up some momentum research here:

http://www.dualmomentum.net/2013/09/momentum-back-testing.html
http://www.aqrindex.com/AQR_Momentum_Indices/Momentum_Research/Content/default.fs
http://www.dualmomentum.net/2011/03/history-of-momentum-research.html
http://www.dualmomentum.net/2011/05/efficient-marketsnot.html
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2435323
https://www.aqr.com/~/media/files/papers/aqr-a-century-of-trend-following-investing.pdf
https://drive.google.com/file/d/0BzyyTlvGE-T2TFdZSG1rVmZYLVE/view?usp=sharing
https://drive.google.com/file/d/0BzyyTlvGE-T2R2pjMWhSbjVSSGc/view?usp=sharing
https://drive.google.com/file/d/0BzyyTlvGE-T2RWNINEpzc25Ma1U/view?usp=sharing
https://drive.google.com/file/d/0BzyyTlvGE-T2MURxZGtqNnYxMDA/view?usp=sharing
https://drive.google.com/file/d/0BzyyTlvGE-T2RG5zYkstZURrdDA/view?usp=sharing
https://drive.google.com/file/d/0BzyyTlvGE-T2c1ZFQllrMl92eFU/view?usp=sharing
https://drive.google.com/file/d/0BzyyTlvGE-T2eVFVZEF2ZHdkNlE/view?usp=sharing
https://drive.google.com/file/d/0BzyyTlvGE-T2QW1jM2M1ejdLSkU/view?usp=sharing
https://drive.google.com/file/d/0BzyyTlvGE-T2MHlLbS1tbzNVVDA/view?usp=sharing
https://drive.google.com/file/d/0BzyyTlvGE-T2S19LSVF5UlUtS0k/view?usp=sharing
https://drive.google.com/file/d/0BzyyTlvGE-T2eEswVmdGcjE2Q28/view?usp=sharing
https://drive.google.com/file/d/0BzyyTlvGE-T2UXV6Q3ZrYlkzYjg/view?usp=sharing


As for the comments about the lookback periods, the previous momentum research going back 80 years has consistently looked at previous returns for the past 6-12 months. Those lookback periods still work today so that's a pretty decent amount of out of sample evidence. Find me another strategy with that much out of sample evidence.


hodedofome

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Re: Dual Momentum Investing
« Reply #184 on: April 22, 2015, 02:39:49 PM »
No offense, but those who are intent on finding the truth will find a way to get it. Those who aren't, just make excuses for why they can't. You're obviously an intelligent person, you're telling me you can't make up an email address used for sign ups and put in a fake phone number?


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sol

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Re: Dual Momentum Investing
« Reply #185 on: April 22, 2015, 02:40:32 PM »
What a self aggrandizing and narcissistic tirade. 

I like you miles.  You have interesting things to say, and you're deliberately inflammatory.  I'll assume your personal insult was meant in the most benign way possible.

I was kind of hoping for a more thoughtful response to some of those issues though.

Quote
You deride trendfollowing here,

And you deride me personally here, but you still read what I have to say and maybe find value in it, just like I do with your momentum strategy.

For the record, I suspect that the US economy and thus the stock market, in broad strokes, has some particular traits that are predictable.  And I'm pretty sure that there are ways to exploit that predictability, for a while, particularly if you're ahead of the curve and can do so before others catch on.

I think you've done it with your work on travel hacking.  I'm guessing that in ten years time a short course on travel hacking will have no value, either because the loopholes have closed or because the knowledge is so widespread.  In the meantime, you're successfully profiting from leading the curve on that particular exploit.  Good on you.

I'm less convinced that an easy to implement technical trading strategy is the same kind of winner.  But I will not begrudge you the fortune you make of you turn out to be right.

Quote
by your very definition of charlatan, I would point out that Bogle is a charlatan for profiting immensely off of his own strategy: 

That seems like a fair point, but I might quibble over the details.  Bogle got rich facilitating the trades of people following his advice, not selling the advice itself.  It's probably an irrelevant distinction.

Quote
So you believe in the the superiority of a theory that has been demonstrably outperformed by the very strategy that you deride.

No, I believe that logic and reason are better predictors of future results than blindly following a strategy that might have succeeded by pure random chance.  I still don't understand WHY double momentum should work, so the fact that it appears to have worked in the past has not convinced me it will work in the future.

As an example, I really like Meb Faber's work on international equity exposure by using national market CAPE ratios.  It makes sense to me why it should work, so the fact that his strategy has been a dismal failure for the past few years doesn't discourage me and I think he might eventually be proven right.  Double momentum lacks that rational basis in my mind, so the fact that it has worked has not convinced me that it will continue to do so, when random chance is also a viable explanation.

You seem to really believe in the data mining approach to creating an investment strategy, and that's fine for you.   Lots of smart folks agree with you.  When I'm playing with my own money, though, I want more than that if I'm going to adopt any strategy that might do worse than my guaranteed average returns.

frugalnacho

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Re: Dual Momentum Investing
« Reply #186 on: April 22, 2015, 02:50:49 PM »
No offense, but those who are intent on finding the truth will find a way to get it. Those who aren't, just make excuses for why they can't. You're obviously an intelligent person, you're telling me you can't make up an email address used for sign ups and put in a fake phone number?


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If I thought it actually contained the truth I might be so inclined to jump through those hoops.  In fact I would probably just divulge my email and phone number if I truly believe it contained the truth.   I also believe if it did contain the truth, that it's probably not the only source that did, and I could find it elsewhere that didn't require personal information or me faking personal information to gain access to it.  Pretty much any website that requires me to sign up and divulge my email address and phone number gets automatically dismissed unless I already trust them and have confidence they won't sell that information, and I have no confidence in that website whatsoever.

milesdividendmd

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Re: Dual Momentum Investing
« Reply #187 on: April 22, 2015, 03:56:32 PM »
What a self aggrandizing and narcissistic tirade. 

I like you miles.  You have interesting things to say, and you're deliberately inflammatory.  I'll assume your personal insult was meant in the most benign way possible.

I was kind of hoping for a more thoughtful response to some of those issues though.

Quote
You deride trendfollowing here,

And you deride me personally here, but you still read what I have to say and maybe find value in it, just like I do with your momentum strategy.

For the record, I suspect that the US economy and thus the stock market, in broad strokes, has some particular traits that are predictable.  And I'm pretty sure that there are ways to exploit that predictability, for a while, particularly if you're ahead of the curve and can do so before others catch on.

I think you've done it with your work on travel hacking.  I'm guessing that in ten years time a short course on travel hacking will have no value, either because the loopholes have closed or because the knowledge is so widespread.  In the meantime, you're successfully profiting from leading the curve on that particular exploit.  Good on you.

I'm less convinced that an easy to implement technical trading strategy is the same kind of winner.  But I will not begrudge you the fortune you make of you turn out to be right.

Quote
by your very definition of charlatan, I would point out that Bogle is a charlatan for profiting immensely off of his own strategy: 

That seems like a fair point, but I might quibble over the details.  Bogle got rich facilitating the trades of people following his advice, not selling the advice itself.  It's probably an irrelevant distinction.

Quote
So you believe in the the superiority of a theory that has been demonstrably outperformed by the very strategy that you deride.

Quote
Just don't be surprised if it turns out the fortune teller you just paid turns out to be a charlatan after all.
No, I believe that logic and reason are better predictors of future results than blindly following a strategy that might have succeeded by pure random chance.  I still don't understand WHY double momentum should work, so the fact that it appears to have worked in the past has not convinced me it will work in the future.

As an example, I really like Meb Faber's work on international equity exposure by using national market CAPE ratios.  It makes sense to me why it should work, so the fact that his strategy has been a dismal failure for the past few years doesn't discourage me and I think he might eventually be proven right.  Double momentum lacks that rational basis in my mind, so the fact that it has worked has not convinced me that it will continue to do so, when random chance is also a viable explanation.

You seem to really believe in the data mining approach to creating an investment strategy, and that's fine for you.   Lots of smart folks agree with you.  When I'm playing with my own money, though, I want more than that if I'm going to adopt any strategy that might do worse than my guaranteed average returns.


Fair enough Sol,

I like you too, and enjoy your commentary very much when it is not so breezily dismissive of others (my) perspective(s.)

For the record here are the parts of your post that I found to be self aggrandizing and narcissistic:

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I'm a dyed in the wool indexer who generally derides chartist fantasies like this.

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If you think that there are, and that the US business cycle is essentially now predictable in such a simple way, then technical trading metrics totally make sense.  Look for those 200 day moving average trendlines to cross the forward looking scaled P/E ratio, or trade those distinguishing shoulder charts and diagnostic dead cat bounces, and make a fortune because you can predict the future and no one else can.

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Me, I don't believe in vampires or ghosts or crystal balls.

From my perspective basing an investing strategy on a good story is utter nonsense.  Furthermore its probably not what you do.  I would guess that you've chosen my second favorite investing strategy, (passive indexing,) because it has traditionally performed very well, and post facto you've bought into a theory about efficient markets, despite ample evidence that markets are not truly efficient.

To me it seems far more rational to invest in a way that has actually worked well in the past, in in and out of sample data, and which has persisted long after it was described, and makes sense in my view.  We invest in real markets, not ones of our own conception.

Investing in bad companies is not immediately intuitive from a risk perspective (value investing), but the small value effect persists regardless.  If risk and reward are irretrievably linked then why do low beta stocks persistently outperform relative to high?

I love in indexing because it is cheap and it works.  I love dual momentum because it is cheap and it works and it limits left tail exposure.

I make no claims about knowing the future.  I just think its smart to practice what works.

Betting on human irrationality is a very comfortable bet for me because I am convinced of my own irrrationality.  Maybe you find yourself to be perfectly rational, though I seem to recall you writing about "buying the dips" with EM indices, which strikes me as both technical trading and not perfectly in keeping with your own "logic".
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milesdividendmd

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Re: Dual Momentum Investing
« Reply #188 on: April 22, 2015, 03:59:26 PM »
No offense, but those who are intent on finding the truth will find a way to get it. Those who aren't, just make excuses for why they can't. You're obviously an intelligent person, you're telling me you can't make up an email address used for sign ups and put in a fake phone number?


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If I thought it actually contained the truth I might be so inclined to jump through those hoops.  In fact I would probably just divulge my email and phone number if I truly believe it contained the truth.   I also believe if it did contain the truth, that it's probably not the only source that did, and I could find it elsewhere that didn't require personal information or me faking personal information to gain access to it.  Pretty much any website that requires me to sign up and divulge my email address and phone number gets automatically dismissed unless I already trust them and have confidence they won't sell that information, and I have no confidence in that website whatsoever.

Why would you have a belief one way or another about its truth when you haven't read what it contains?
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sol

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Re: Dual Momentum Investing
« Reply #189 on: April 22, 2015, 04:32:21 PM »
For the record here are the parts of your post that I found to be self aggrandizing and narcissistic:

Yes, I am also deliberately inflammatory sometimes.  I think this is why our exchanges have always been so colorful.  Sometimes, late at night when my significant other has neglected my emotional needs, I'll lie in bed and fondly recall our long talks about effective vs marginal tax rates, and smile quietly to myself.  Smooches!

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To me it seems far more rational to invest in a way that has actually worked well in the past, in in and out of sample data,
...
Investing in bad companies is not immediately intuitive from a risk perspective (value investing), but the small value effect persists regardless. 

Like I said above, lots of smart people get paid heaps of money to agree with you.  The whole high speed high frequency trading movement is comprised of people like you, looking for an edge tracking the specific details of what looks to me like a random walk.

As for the non intuitive nature of value investing, I think the same could be said of this momentum strategy.  You're deliberately reducing diversification and flaunting modern portfolio theory in order to buy high and sell low.  Yet it still seems to work despite that sounding like terrible advice to me. Maybe they both work precisely because they are contrarian schemes in an essentially random market dominated by herd mentality?

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seem to recall you writing about "buying the dips" with EM indices, which strikes me as both technical trading and not perfectly in keeping with your own "logic".

Oh hell yes, I'm chock full of ugly contradictions. In this case though, I've been gradually increasing my EM exposure for reasons related to my long term projections of the global economy. I consider it my "play" money and I'm currently up to almost half a percent of my total liquid assets.

Buying on "down" days is purely for entertainment value, as my monthly contributions get a true-up at the end of every month anyway, if I haven't invested my target amount.  It's my own personal trick for meeting that internal desire for control through tinkering, while still helping myself stay the course through automatic larger investments aligned with my overall investment strategy.
« Last Edit: April 22, 2015, 04:34:08 PM by sol »

hodedofome

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Re: Dual Momentum Investing
« Reply #190 on: April 22, 2015, 04:47:13 PM »
'According to the data,' the difference between momentum and value is a matter of timeframe. Momentum appears to work in timeframes of 1 month up to 12 months with a fairly steep drop off afterwards, while mean reversion (value) works in timeframes of 3 years to 5 years. So if something has been up for the past 12 months, it would not make sense to bet against it, rather in the short term it would make sense to go along with the trend. But if something has been down for 3-5 years, it would make sense to buy it in anticipation of it reverting to the mean. So both momentum and value can work even though they appear opposite. The difference is a matter of differing timeframes.


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frugalnacho

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Re: Dual Momentum Investing
« Reply #191 on: April 22, 2015, 06:18:40 PM »
No offense, but those who are intent on finding the truth will find a way to get it. Those who aren't, just make excuses for why they can't. You're obviously an intelligent person, you're telling me you can't make up an email address used for sign ups and put in a fake phone number?


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If I thought it actually contained the truth I might be so inclined to jump through those hoops.  In fact I would probably just divulge my email and phone number if I truly believe it contained the truth.   I also believe if it did contain the truth, that it's probably not the only source that did, and I could find it elsewhere that didn't require personal information or me faking personal information to gain access to it.  Pretty much any website that requires me to sign up and divulge my email address and phone number gets automatically dismissed unless I already trust them and have confidence they won't sell that information, and I have no confidence in that website whatsoever.

Why would you have a belief one way or another about its truth when you haven't read what it contains?

As I already stated it's because I don't trust them.  They want my personal contact information.  That makes me think they are up to something. 

milesdividendmd

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Re: Dual Momentum Investing
« Reply #192 on: April 22, 2015, 06:32:26 PM »
Right, but  if you "thought it contained the truth" you would trust them? 

The question is not why you don't give them your email, It's why you do not think it actually contains the truth, when there seemingly is no basis for that opinion.
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milesdividendmd

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Re: Dual Momentum Investing
« Reply #193 on: April 22, 2015, 07:08:27 PM »
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Like I said above, lots of smart people get paid heaps of money to agree with you.  The whole high speed high frequency trading movement is comprised of people like you, looking for an edge tracking the specific details of what looks to me like a random walk.

First of all, no one gets paid a cent to agree with me.  I guarantee it.  And high frequency trading is generally not about market timing, it is about millisecond price arbitrage.  It is technological insider trading.  For the most part HF traders are agnostic about predicting market movement.  They want to sell items that have already been ordered for a slightly higher price.  (their profit)

My guess is that you don't really believe in a random walk.  I would wager that you firmly believe in continued public company revenue growth going forward, an equity risk premium, decreased volatility in bonds, and mean reversion.

I would guess that relative to the true world economy your portfolio is overweight equities, domestic equities, domestic debt, and underweight commodities, and currency, and global debt.

Why? because you either believe in the underlying story of your chosen investments, or you have noted their outperformance historically, or both. 

The best argument for buy and hold bogle investing is that it is cheap.  But it is not as cheap as a cap weighted global market portfolio that represents the actual capitalization of the world economy (because you would never need to rebalance such a portfolio) . And it is not passive, because you are putting your penny down too.  You are betting that some assets will overperform, and some will under perform.

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As for the non intuitive nature of value investing, I think the same could be said of this momentum strategy.  You're deliberately reducing diversification and flaunting modern portfolio theory in order to buy high and sell low. 

Absolutely, which is why these are called anomalies.  (except for the part about buying high and selling low.  The idea of momentum (and its actual record) is to buy at some price and sell higher.)

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Oh hell yes, I'm chock full of ugly contradictions.

Me too.  Which is why momentum is a cohesive story to me.  I am perfectly irrational as is everyone I see around me and we all use the same heuristics to make decisions, and these heuristics create momentum.  A perfect reflection of our own human irrationality.  (To me this is the most logical story of all!  But these are merely my own biases.)

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Buying on "down" days is purely for entertainment value, as my monthly contributions get a true-up at the end of every month anyway, if I haven't invested my target amount.  It's my own personal trick for meeting that internal desire for control through tinkering, while still helping myself stay the course through automatic larger investments aligned with my overall investment strategy.

It wouldn't be entertaining if you didn't think (feel?) it was useful. 
I can teach you to play the miles game in 30 days.  http://www.travelmiles101.com/travel-rewards-course-registration.  (A free course by mustachians for mustachians)

frugalnacho

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Re: Dual Momentum Investing
« Reply #194 on: April 22, 2015, 08:14:49 PM »
Right, but  if you "thought it contained the truth" you would trust them? 

The question is not why you don't give them your email, It's why you do not think it actually contains the truth, when there seemingly is no basis for that opinion.

My default position is that it most likely does not contain the truth (like 99% of websites).  I have no reason to believe it does contain the truth besides hodedofome saying it does.  I don't personally know hodedofome, and I can't recall any interaction with him on this forum.  I'm not saying it definitely doesn't contain the truth, or definitely is a scam, i'm just not willing to invest the time to circumvent their registration process or give them my personal contact information. 

In my experience any place that requests for my email address and phone number has ulterior motives.
« Last Edit: April 22, 2015, 08:36:16 PM by frugalnacho »

milesdividendmd

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Re: Dual Momentum Investing
« Reply #195 on: April 22, 2015, 08:33:26 PM »
I'll vouch for hodedofome. He's solid!
And honestly a wealth of info.
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jcoz

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Re: Dual Momentum Investing
« Reply #196 on: April 22, 2015, 10:28:44 PM »
http://www.optimalmomentum.com/faq.html

The optimal momentum website has a faq which addresses a few common questions posted on this thread such as:
   If momentum investing is so great, why are not more people doing it?
   It usually takes awhile for academic research to work its way into the investment marketplace. We saw that with indexing and value   investing. Public awareness should grow as momentum research information gets assimilated over time.

While the answer probably leaves us all a bit wanting, it is directly from the author/researcher's mouth.

I am still performing a bit of reading/research prior to committing even my madmoney to the approach.  I am, however, appreciative of milesdividendmd's writing on the subject as his coward's series is an enjoyable read.

HipGnosis

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Re: Dual Momentum Investing
« Reply #197 on: April 23, 2015, 10:03:25 AM »
I've been reading along as I like to learn what I can about investing strategies from where ever I can.
I did some internet searching on my own.  It's amazing how much vague info there is about Dual Momentum investing (a name that I abhore btw).
The term 'excessive negative gain' made  me gag...
I eventually found (somewhere) on optimalmomentum.com that they actually did a bit better (they don't say how much...) with industry sector indexes than with their 'Global Equities Momentum'.  They call it: Dual Momentum Sector Rotation.

I'm going to backtest applying absolute momentum (another abhorable term) to proven sector rotation.

I am new here, but I gotta say;  I wish the folks that get so disturbed when anyone doesn't take everything they say as the gospel truth, and those who lambaste what they don't understand or agree with would go back to their playschool computers.

PathtoFIRE

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Re: Dual Momentum Investing
« Reply #198 on: April 23, 2015, 10:24:34 AM »
So I understand the "dual" refers to two measures of momentum, the first looking at the various asset classes chosen (SP500, international, etc), and the second looking at everything versus cash/short-term treasuries. However, in practice, isn't this just a one step process, where you compare everything at one time, and pick the best performer over the past 3/6/12 months? And if everything is negative except treasuries, then you move into that? I'm just trying to see if there is something I don't understand about the absolute momentum part. Also, why are total bond funds usually not added to the mix, or real estate? Looking back at the funds in my 401k over the past 5 years on stockcharts.com, there are times when either of these show superior performance to the SP500 or international funds (although after fees, especially the the ER of 0.89 on the real estate fund, the superiority is less clear), but it wasn't clear from a cursory look that there was any momentum, meaning usually when there was a signal to buy either the total bond or the real estate fund, there was a signal to sell relatively shortly after, suggesting no real momentum.

boarder42

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Re: Dual Momentum Investing
« Reply #199 on: April 23, 2015, 10:48:13 AM »
So I understand the "dual" refers to two measures of momentum, the first looking at the various asset classes chosen (SP500, international, etc), and the second looking at everything versus cash/short-term treasuries. However, in practice, isn't this just a one step process, where you compare everything at one time, and pick the best performer over the past 3/6/12 months? And if everything is negative except treasuries, then you move into that? I'm just trying to see if there is something I don't understand about the absolute momentum part. Also, why are total bond funds usually not added to the mix, or real estate? Looking back at the funds in my 401k over the past 5 years on stockcharts.com, there are times when either of these show superior performance to the SP500 or international funds (although after fees, especially the the ER of 0.89 on the real estate fund, the superiority is less clear), but it wasn't clear from a cursory look that there was any momentum, meaning usually when there was a signal to buy either the total bond or the real estate fund, there was a signal to sell relatively shortly after, suggesting no real momentum.

so all equities dont necessarily have to be negative over the look back window to move to bonds.  the short term note was as high as 6% in the real estate bubble of 2008.  so you just compare all 4 ... its really simple and you just check it once a month and realocate if needed.
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