Author Topic: Dual Momentum Investing  (Read 195109 times)

frugalnacho

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Re: Dual Momentum Investing
« Reply #950 on: October 28, 2015, 10:13:47 AM »

Actually the push only effects needle movement at the moment force is exerted. So the future movement (ie the movement that occurs after the finger has lost contact with the needle) is independent of the push. But that's not actually so important. What is important is that future movement or positions of the needle are not predicted by the direction of the push.

Wait a minute, isn't this the momentum thread? I was under the impression that several people reading the momentum of the needle and pushing it up will not only cause the needle to go up (the immediate effect while force is being exerted), but that will in turn make prices higher, which will in turn trigger more fingers pushing the needle up*, which will in turn make prices higher, etc. creating a cycle.  The future price is not independent of the push because it carries that momentum forward.

*Not necessarily from DMers, but from everyone, because this is fundamental to how momentum, and this strategy, work in the first place.

frugalnacho

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Re: Dual Momentum Investing
« Reply #951 on: October 28, 2015, 10:19:18 AM »
If you or I trade our entire portfolio at any one time it effects the global capital markets much as a tear drop effects the salinity of the ocean.

We have no measurable market impact by virtue of our small size.

No one is arguing that any individual does.  No individual rain drop feels responsible for the flood.  And it's damn near impossible to measure the magnitude with which one rain drop did contribute to the flood.  But I still know as a matter of logic that in aggregate those rain drops did indeed cause the flood.

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Re: Dual Momentum Investing
« Reply #952 on: October 30, 2015, 07:24:04 AM »
I think it is interesting to look at the role 'portfolio insurance' played in the 1987 crash. It can be argued that automated selling in downturns does increase volatility - but DM is looking at much longer time frames months instead of intraday. Over these time frames - and especially considering the volume of DM trades - there are many other macro factors including value investors buying to net out the effect.

https://en.wikipedia.org/wiki/Portfolio_insurance

K-ice

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Re: Dual Momentum Investing
« Reply #953 on: October 30, 2015, 09:15:00 AM »
Sorry if this has been addressed. I have skimmed through much of this thread and it is hard to pull out information.

So I have a simple question to those using DMI.

With how much of your net worth are you actually doing DMI?

I have heard it is best with tax advantaged accounts.  Also, some of us have a large amount of net worth in real-estate (prime residence & rentals).

To answer my own question.

Out of my investable assets (cash, stocks, bonds etc.)  I would consider DMI with about 50%.  Out of my total net worth it would be less than 20%.


Some of you may have a number figure like, I will try DMI with $10K $100K etc.

I am just trying to get a feel for what people are actually doing.

Thanks in advance for sharing.



RobertMa

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Re: Dual Momentum Investing
« Reply #954 on: October 30, 2015, 03:49:12 PM »
So, Miles, at the end of the month I'm showing the S&P dead even with SHY for the past six months. What's the plan for Monday? (I'm assuming you're trading on the first day of each calendar month, like me)


The Converted

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Re: Dual Momentum Investing
« Reply #955 on: October 30, 2015, 04:14:26 PM »
I need that sweet sweet end of the month update from Miles. :)

Quick Q - I have five funds i use to track for DMI purposes (ST bonds, Vanguard Domestic Large Cap Growth, DFA Large Cap International, Vanguard Small Cap, Principal SP500).

Is it stupid to have that many?   Should i bring it down to three?  I'm thinking the more you have the more often you'd be moving funds, but having trouble rationalizing removing any one of the five.

BTW i synced up with Miles and for me Domestic Large Cap Growth wins over a 6 month lookback, and hence i've moved my funds there.

Thanks

sol

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Re: Dual Momentum Investing
« Reply #956 on: October 30, 2015, 05:03:23 PM »
I need that sweet sweet end of the month update from Miles. :)

See the note above about how miles is taking an unplanned break from the forum for getting too many reports about violating forum rules.  I'm sure he'll be back soon with updates to this thread, because there are clearly (and I think unfortunately) a lot of people here who have bought into this market timing philosophy of investing.

But if I may venture a guess, the s&p500 today at 2079 is down compared to a three or six month lookback period, as it was on September 1 when miles sold all of his stocks at a market price of 1917.  The stock market is up 8.5% since he sold 60 days ago, and the strategy he is promoting suggests you should continue to avoid stocks for now, if you're using a 3 or 6 month lookback.

As a devoted buy and hold investor, I'm delighted in my 8.5% return over the past two months and secretly gloating a little bit that market timers like miles and the rest of the followers in this thread got burned by ignoring my advice.  Sorry, I know that's immature of me.  Maybe the market will crash again next month and start the long bear that miles has been warning us about?

edit:  miles is lurking here and has challenged my assertion of 8.5% return on the S&P500 over the past 2 months.  To clarify, the index price was 1917 on September 1 when he sold, and is 2079 today.  That's a diffference of 162, whicch is 8.45% of the starting price of 1917.  Maybe he's calculating the growth of the index in a different way than I am, but since he was upset enough about this to create a new account just to message me about it I figured it was worth clarifying.
« Last Edit: October 30, 2015, 08:49:26 PM by sol »

RobertMa

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Re: Dual Momentum Investing
« Reply #957 on: October 30, 2015, 07:44:08 PM »
Sorry, I know that's immature of me.

Yeah, kinda.

Momentum trading has multiple past decades when I can see it working, right on the chart in front of me. And it is built on a logical framework that seems like it should work in the future years. This is why I'm testing it with about 8% of my portfolio. Sometimes new ideas work. Buy and hold is better than what came before it, which was better that whatever came before that, which was better than investing in tulips. There might be a way to improve on good ole B&H. However, yes, I concede that momentum will not beat the S&P over every rolling 60 day period.

But I'll remember to gloat when other forum members lose money and I profit that particular month. Jeez.

sol

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Re: Dual Momentum Investing
« Reply #958 on: October 30, 2015, 09:06:55 PM »
Yeah, kinda.

Sorry, couldn't help myself.  Miles and I had this discussion several pages back in this thread, when he made the trade out of stocks, and we discussed where the market would have to go in the future to make that a good vs a bad idea.  I clearly thought it seemed very unlikely that the market would crash, and he mostly seemed to agree but was sticking by the strategy based on his analysis of the historical record.  Maybe this time is different?

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is built on a logical framework that seems like it should work in the future years.

This is the part I've never really understood.  Ultimately, the performance of this strategy is entirely dependent on the duration of market downturns following a predictable pattern, and then the pace of early declines at the start of a bear (within the lookback period) being smaller than the pace of early climbs a the start of a bull.  That pattern may hold in the future, but I wouldn't exactly call it "logical framework" when it's just based on empirical observations.  The entire grounding of the DM strategy as presented in this thread is agnostic of mechanics, because it times the market based solely on a price signal.  That's not logic, that's data mining.

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However, yes, I concede that momentum will not beat the S&P over every rolling 60 day period.

This is really the crux of my gloating.  This particular episode turned out really bad for market timers following a DM strategy.  I only highlight that because this thread was started in the optimistic hopes that this strategy would handily beat the index, and after all arguing it about violently for a few weeks we sort of begrudgingly agreed "fine, we'll just wait and see what happens then."  Then we waited, then this happened.  You can't really expect me to pass up an opportunity to point that out when the entire argument was basically "you just wait, you'll see that we're right and DM is awesome."  In this moment, not so awesome.  Maybe next month?

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I'll remember to gloat when other forum members lose money and I profit that particular month. Jeez.

Hey, if you spend 50 long posts trying to defend your investment philosophy, and people call you an idiot and then do something stupid that your philosophy would have saved them from, then you too can gloat, but only in the thread where you tried to dissuade them.  It won't be nice when you do it either, but I'll be more understanding.  I'm not gloating because I'm happy anyone lost money, and in fact I've repeated several times in this thread that I hope miles gets rich with his scheme.  But in this particular case, he would have been better off listening to me.

Not that I'm going to claim I'm a market genius for sticking with passive investing.  You don't get to start up a hedge fund just because you DIDN'T trade away a big chunk of your portfolio with poorly timed trades based on chartist voodoo.  (I'm sure that will get miles' blood to boiling.  Hi miles!)

arebelspy

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Re: Dual Momentum Investing
« Reply #959 on: October 31, 2015, 02:51:15 AM »
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is built on a logical framework that seems like it should work in the future years.

This is the part I've never really understood.  Ultimately, the performance of this strategy is entirely dependent on the duration of market downturns following a predictable pattern, and then the pace of early declines at the start of a bear (within the lookback period) being smaller than the pace of early climbs a the start of a bull.  That pattern may hold in the future, but I wouldn't exactly call it "logical framework" when it's just based on empirical observations.  The entire grounding of the DM strategy as presented in this thread is agnostic of mechanics, because it times the market based solely on a price signal.  That's not logic, that's data mining.

THIS is the important part to me.

It has happened, but that doesn't mean it will continue to happen because there is no logical reason for some certain lookback period to outperform.

Miles did a whole blog post this past June trying to refute that by talking about it as needing a "story," but yes, I'd like logical reasons why something should work, and I don't see it for DM.

The fact that DM underperformed over a 60 day period?  Meh.

If it had beaten whatever index you compare it to, that wouldn't have convinced me it's great, just like it underperforming doesn't convince me it's bad--but the logical reasons behind it (or lack thereof) are the reason I don't care for DM and other forms of market timing.

What it did, or didn't do, in the short term I couldn't care less about.
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Re: Dual Momentum Investing
« Reply #960 on: October 31, 2015, 08:43:55 AM »
For what it's worth, being a buy and hold investor hasn't necessarily been fantastic over the past year. Hasn't been horrible either. But no matter what it's not logical to compare investment strategies based only on recent performance. Due to its nature, DM won't do particularly well in volatile up-down markets because you will generally be a little late on the move to T-bills and again be late on the move to stocks. That's the nature of this beast.

I would say that DM is an effective strategy for reducing losses during large market downturns (think 77, 81-82, 00-01 & 08-09). Not an effective strategy for navigating what I'll call blips - short term swings in the market or flash crashes (87). Of course we don't know what form market declines will take in the future... but regardless you have to give miles credit for this:

he mostly seemed to agree but was sticking by the strategy based on his analysis of the historical record
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sol

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Re: Dual Momentum Investing
« Reply #961 on: October 31, 2015, 10:21:50 AM »
The fact that DM underperformed over a 60 day period?  Meh.

Of course, it's no more indicative of the strategy's value than any other 60 day long period.  It's just the first 60 day period we personally argued about in real time, so no I'm thumbing my nose at miles like an annoying child.  I'm sure he'll get the chance to return the favor some day, but today is my day to say "neener neener neener."

darth

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Re: Dual Momentum Investing
« Reply #962 on: October 31, 2015, 10:59:27 AM »
The fact that DM underperformed over a 60 day period?  Meh.

Of course, it's no more indicative of the strategy's value than any other 60 day long period.  It's just the first 60 day period we personally argued about in real time, so no I'm thumbing my nose at miles like an annoying child.  I'm sure he'll get the chance to return the favor some day, but today is my day to say "neener neener neener."

The telling thing is that you were silent last month when DM beat the S&P.

Also telling is that you don't know the difference between CAGR and arithmetic returns.  For those keeping track at home, the actual CAGR of the S&P from 8/31-10/30 was 5.7%, not 8.5%.

Easily verifiable here.

http://www.etfreplay.com/combine.aspx

sol

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Re: Dual Momentum Investing
« Reply #963 on: October 31, 2015, 11:32:42 AM »
The telling thing is that you were silent last month when DM beat the S&P.

My previous posts in this thread discussing last month's returns are apparently forgotten? 

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Also telling is that you don't know the difference between CAGR and arithmetic returns.  For those keeping track at home, the actual CAGR of the S&P from 8/31-10/30 was 5.7%, not 8.5%.

I know the difference, miles.  So do you, which means you know that CAGR is a meaningless stat for a period of 2 months.  It's designed to compare annualized returns.

Look, I'll say it real slow this time so it's clear.  The Sept 1 index price was 1917.  Over the next 60 days the price rose to 2079.  That's an increase of 162, which is 8.45% higher on Oct 30th than it was on Sept 1.  Clear enough this time?

MDM

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Re: Dual Momentum Investing
« Reply #964 on: October 31, 2015, 11:37:47 AM »
edit:  miles is lurking here and has challenged my assertion of 8.5% return on the S&P500 over the past 2 months.  To clarify, the index price was 1917 on September 1 when he sold, and is 2079 today.  That's a diffference of 162, whicch is 8.45% of the starting price of 1917.
Also telling is that you don't know the difference between CAGR and arithmetic returns.  For those keeping track at home, the actual CAGR of the S&P from 8/31-10/30 was 5.7%, not 8.5%.

Apples vs. oranges vs. kumquats.

Sol:                   Oct. 30 vs. Sept. 1
Darth (miles?):  Oct. 30 vs. Aug. 31

Both are correct for the percentage increase of the index for the date range specified by each, although the date ranges are different.  There was a large drop in the S&P500 on Sept. 1.

Also, neither 8.45% nor 5.7% is the Compound Annual Growth Rate (CAGR).  Using sol's index values the CAGR from 9/1 to 10/30 was 65.2%.

On balance, seems sol wins this round.

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Dual Momentum Investing
« Reply #965 on: October 31, 2015, 11:42:46 AM »
Name's Darth,

My recollection is that you were interested in the results mid month when the S&P was up, but oddly silent at the end of the month, when it was losing. Do you have evidence to the contrary?

The closing price of VOO (vanguards S&P ETF) on 8/31, when Miles exited stocks was 181.11, close yesterday was 190.56.

In what world is that an 8.5 % gain?

Show me an S&P fund with an 8.5% gain from close on 8/31 to close yesterday  (as opposed to a 5.2 % gain.)

Based on your ability to do math I am concerned for your retirement plans.
« Last Edit: October 31, 2015, 11:55:40 AM by darth »

sol

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Re: Dual Momentum Investing
« Reply #966 on: October 31, 2015, 12:02:29 PM »
Darth (miles?):  Oct. 30 vs. Aug. 31

I'm assuming it's miles because the first post is almost an exact quote of a PM miles sent me making the same point, which is why I amended my post above to explain how I came up with 8.5%.

Forums are addictive.  It's hard to take a break, even when you've been banned. 

My recollection is that you were interested in the results mid month when the S&P was up, but oddly silent at the end of the month, when it was losing. Do you have evidence to the contrary?

I wasn't interested in results at any point, so much as what the future would have to bring in order for your decision to turn out well vs poorly.  The large jump in index price right after you sold sort of started you at a disadvantage, meaning that the price would have to drop quite a bit from there for you to come out ahead on that deal, right at a time when suddenly the financial press (for whatever they're worth) was prediciting the start of a recovery.  This time, looks like they guessed right.

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The closing price of VOO (vanguards S&P ETF) on 8/31, when Miles exited stocks was 181.11, close yesterday was 190.56.

I've been quoting S&P500 index prices in this thread, as a proxy.  You can of course get slightly different results if your chosen investment doesn't track the S&P500 very well.

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Based on your ability to do math I am concerned for your retirement plans.

That's a good one, thanks for the laugh.  Coming from a market timer who just blew roughly 8% of his retirement by making a poorly timed trade with 100% of his portfolio into short term treasuries right before a big bull run, that's a hilariously ill-considered jab.  Got any more? 

Retire-Canada

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Re: Dual Momentum Investing
« Reply #967 on: October 31, 2015, 12:07:30 PM »
Maybe he's calculating the growth of the index in a different way than I am, but since he was upset enough about this to create a new account just to message me about it I figured it was worth clarifying.

Wow. Darth/Miles must be mad. Creating sock puppet accounts is usually grounds for being banned on most of the forums I belong to.

Let's be real. Nobody including Sol is really evaluating DM or B&H based on 2 months of data.

To everyone - Insulting people won't get the discussion moving in a positive direction. Let's take a few deep breathes.

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Dual Momentum Investing
« Reply #968 on: October 31, 2015, 12:13:31 PM »
edit:  miles is lurking here and has challenged my assertion of 8.5% return on the S&P500 over the past 2 months.  To clarify, the index price was 1917 on September 1 when he sold, and is 2079 today.  That's a diffference of 162, whicch is 8.45% of the starting price of 1917.
Also telling is that you don't know the difference between CAGR and arithmetic returns.  For those keeping track at home, the actual CAGR of the S&P from 8/31-10/30 was 5.7%, not 8.5%.

Apples vs. oranges vs. kumquats.

Sol:                   Oct. 30 vs. Sept. 1
Darth (miles?):  Oct. 30 vs. Aug. 31

Both are correct for the percentage increase of the index for the date range specified by each, although the date ranges are different.  There was a large drop in the S&P500 on Sept. 1.

Also, neither 8.45% nor 5.7% is the Compound Annual Growth Rate (CAGR).  Using sol's index values the CAGR from 9/1 to 10/30 was 65.2%.

On balance, seems sol wins this round.

Great point. that explains the confusion.

So the real question becomes why Sol chose to measure from the close of the first trading day of one month to the close of the last trading day of another month. What a nonsensical interval, and completely unrelated to the actual recorded history of when the positions were changed.

Two possibilities leap to mind.

1. Curve fitting to bolster his argument.

Or

2. Sloppy thinking.

So which one is it Sol?

darth

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« Reply #969 on: October 31, 2015, 12:25:35 PM »
Quote

Wow. Darth/Miles must be mad. Creating sock puppet accounts is usually grounds for being banned on most of the forums I belong to.


That was presumably the intent of Sol's original comment regarding Miles.

Mission accomplished, so presumably MD2 doesn't have much to lose.

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Let's be real. Nobody including Sol is really evaluating DM or B&H based on 2 months of data.

Sol is. See his endzone dance above. It's embarrassing, but true

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To everyone - Insulting people won't get the discussion moving in a positive direction. Let's take a few deep breathes.

That's true.
« Last Edit: October 31, 2015, 12:32:22 PM by darth »

sol

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Re: Dual Momentum Investing
« Reply #970 on: October 31, 2015, 12:27:15 PM »
So the real question becomes why Sol chose to measure from the close of the first trading day of one month to the close of the last trading day of another month. What a nonsensical interval, and completely unrelated to the actual recorded history of when the positions were changed.

I chose Sept 1 because you told me you used the first day of the month to make your trading decisions, and I was trying to humor you.

I chose Oct 30th because November 1 isn't here yet, but is only one trading day away.  I'll happily update on Monday.  I expect you'll be re-banned by then, though.

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« Reply #971 on: October 31, 2015, 12:34:44 PM »
So the real question becomes why Sol chose to measure from the close of the first trading day of one month to the close of the last trading day of another month. What a nonsensical interval, and completely unrelated to the actual recorded history of when the positions were changed.

I chose Sept 1 because you told me you used the first day of the month to make your trading decisions, and I was trying to humor you.

I chose Oct 30th because November 1 isn't here yet, but is only one trading day away.  I'll happily update on Monday.  I expect you'll be re-banned by then, though.

If you want to compare performance, all that matters is when the position was actually changed and the record is clear. Miles sold out of FSPNX, after close on 8/31.
« Last Edit: October 31, 2015, 12:37:41 PM by darth »

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Re: Dual Momentum Investing
« Reply #972 on: October 31, 2015, 02:07:20 PM »
I'd say this thread has now officially jumped the shark (propelled by its own momentum, of course).

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Re: Dual Momentum Investing
« Reply #973 on: October 31, 2015, 03:42:38 PM »
I'd say this thread has now officially jumped the shark (propelled by its own momentum, of course).

You won't be able to say that until we can look back six months or so.
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Re: Dual Momentum Investing
« Reply #974 on: October 31, 2015, 06:31:37 PM »
I'd say this thread has now officially jumped the shark (propelled by its own momentum, of course).

You won't be able to say that until we can look back six months or so.

Don't you have to compare it to the performance of other threads too? What are your alternative benchmark threads? Maybe "introduce yourself" is Treasuries equivalent?

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Re: Dual Momentum Investing
« Reply #975 on: October 31, 2015, 06:56:41 PM »
Does anyone know any other forums where this topic can be discussed with less or even without personal attacks? Except the blogs of miles and Mr. Antonacci?

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Re: Dual Momentum Investing
« Reply #976 on: October 31, 2015, 10:38:34 PM »
^^^^^ I agree @ brainfart

I posted a question above but there is so much fighting no one can discuss on this thread.


So I have a simple question to those using DMI.

With how much of your net worth are you actually doing DMI?


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Re: Dual Momentum Investing
« Reply #977 on: October 31, 2015, 10:53:16 PM »
^^^^^ I agree @ brainfart

I posted a question above but there is so much fighting no one can discuss on this thread.


So I have a simple question to those using DMI.

With how much of your net worth are you actually doing DMI?


I didn't answer because I didn't think you'd be interested in my answer, which is zero percent because I don't believe in market timing.

There are only a handful of people here actually doing this craziness with their real money, which probably shouldn't be surprising considering hour financially savvy most people on this forum are.

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Re: Dual Momentum Investing
« Reply #978 on: November 01, 2015, 02:15:07 AM »

So I have a simple question to those using DMI.

With how much of your net worth are you actually doing DMI?


I don't think there are that many following DM, which is why you have a dearth of answers.  If you asked what percent people are in equities, you'd get more responses, because more people invest in equities (and I realize the groups overlap, i.e. DM is a subset of the larger group, but my point is the DM subset is small).

Doesn't investing such a small percent of your NW in DM indicate a lack of confidence?

Someone who is 80/20 equities, or 100/0, and fully invested seems pretty confident in their choice.  Someone with 8% of their portfolio in DM?  Not so much.

Does anyone know any other forums where this topic can be discussed with less or even without personal attacks? Except the blogs of miles and Mr. Antonacci?

You could contact them at their blogs and ask.

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Re: Dual Momentum Investing
« Reply #979 on: November 02, 2015, 11:39:36 AM »

Someone who is 80/20 equities, or 100/0, and fully invested seems pretty confident in their choice.  Someone with 8% of their portfolio in DM?  Not so much.

I am not particularly confident in DM, beyond a toe-in-the water trial amount. That's why I am *trying* it. A trial. An attempt to see what it's like with my fun money. I, unlike others, am agnostic on any strategy and I'll try interesting ideas with my Roth fun money. I now realize this violates the Core Beliefs here.

This whole thread started with such promise, then devolved into a simple religious war. There was  vitriol that I haven't seen when talking about any other strategy. Stock picking, dividend investing, seat-of-the-pants market timing, robo-advisors...all are discussed with at least some logic. However, it HAS been fun watching The Faithful react to the sight of the DM heresy. That was educational.

If anyone wants to discuss the positives and negatives of this approach any further, just hit me up with a PM and tell me where. Later.

arebelspy

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Re: Dual Momentum Investing
« Reply #980 on: November 02, 2015, 11:44:20 AM »
I certainly think it's fine having "play money" of ~5% or less of your portfolio.

But it does indicate a lack of confidence in what you're doing with that money, typically because it's riskier.
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sol

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Re: Dual Momentum Investing
« Reply #981 on: November 02, 2015, 12:02:36 PM »
I certainly think it's fine having "play money" of ~5% or less of your portfolio.

But it does indicate a lack of confidence in what you're doing with that money, typically because it's riskier.

I think miles would argue that DM is less risky, because it is designed to limit drawdowns in big bear markets, but that's getting a little loose with the definition of "risk" when you're comparing returns against an index that a passive indexing strategy is guaranteed to match.

If risk means "smaller price swings over a months long time frame" then DM might qualify as less risky.  If it means "more likely to underperform the index" then I think DM is more risky.

arebelspy

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Re: Dual Momentum Investing
« Reply #982 on: November 02, 2015, 02:15:05 PM »
I meant typically when people use a small percent of their portfolio, it indicates a lack of confidence in that trading strategy, usually due to their acknowledgement of risk.

I wasn't talking about DM specifically, or how risky it is.

But I'm curious why someone with the confidence in DM would use it as a small fraction of their portfolio.  It seems like you either buy into it, or not.

The permanent portfolio is similar in that way, IMO.
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peterpatch

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Re: Dual Momentum Investing
« Reply #983 on: November 02, 2015, 06:39:47 PM »
I meant typically when people use a small percent of their portfolio, it indicates a lack of confidence in that trading strategy, usually due to their acknowledgement of risk.



I don't know if it's typical of small portfolio allocations but I'd agree that there are people who dabble in small portfolio allocations that they would invest more heavily into if they had more confidence. However I wouldn't say it was typical unless I saw strong statistical evidence of that.



 It seems like you either buy into it, or not.


If you're saying that one needs to make a material investment for it to really count then I also agree.

There's nothing wrong, IMHO, with diversifying using strategies as long as it's done sensibly. For example many MMM people diversify into active real estate investing (typically renting from my experience) along with index investing. Those two things are totally different strategies. I don't see why one couldn't use DM as part of a group of investment strategies to help diversify away from risks. 

If DM works like it is proposed to work then one should have a significantly higher SWR then they would simply indexing and taking 3% or 4% SWR per year. You would also have less mental anguish about market crashes , if DM works out as expected, because they would be far less extreme. There's no guarantee any strategy will work out as expected indexing and real estate included. I think the two main reasons stock market indexing has worked so well (the third being diversification) is low fee's and the other part is a very strong US (and to a lesser degree world) economy over the last 50 or so years. The stock market basically follows returns on invested capital (including dividends) over long periods. If those earnings take a 10-20 year dive then the stock market and thus the vaunted "average" could be horrible and could take a really long time to revert to the mean. Other strategies might do much better, or much worse. I suspect strategic and sensible diversification of investing strategies (investing as defined by Ben Graham) will provide similar diversifying effects to using asset classes (better risk adjusted returns on average).

« Last Edit: November 02, 2015, 06:43:36 PM by peterpatch »

Radagast

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Re: Dual Momentum Investing
« Reply #984 on: November 02, 2015, 10:42:49 PM »
I'm not taking sides, but this is my current understanding of momentum.


sirdoug007

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Re: Dual Momentum Investing
« Reply #985 on: November 03, 2015, 10:32:53 AM »
Well it looks like anyway you slice it, S&P500 etfs beat SHY over the last 6 months on our around the end of October/beginning of November.

So I assume miles is back in US equities.  Right?

http://stockcharts.com/freecharts/perf.php?SHY,SPY,VFIAX&l=3212&r=3340&O=011000

Lowerbills

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Re: Dual Momentum Investing
« Reply #986 on: November 03, 2015, 11:01:03 AM »
Apologies for not quoting due to laziness... But one other basic, perhaps dumb question for those comparing September and October returns.

What about dividend payments?  Are these, and their compounding being factored in for the comparisons?

I hold VTI and know 10/1/2015 was a payment date for one quarter of the 2.07%.  Another poster referenced VOO which also had a quarterly dividend payment on 9/25/2015.

Small, but not inconsequential.  Bummer for the timing to coincide and miss out on the dividend payments.

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Re: Dual Momentum Investing
« Reply #987 on: November 03, 2015, 11:26:23 AM »
Apologies for not quoting due to laziness... But one other basic, perhaps dumb question for those comparing September and October returns.

What about dividend payments?  Are these, and their compounding being factored in for the comparisons?

I hold VTI and know 10/1/2015 was a payment date for one quarter of the 2.07%.  Another poster referenced VOO which also had a quarterly dividend payment on 9/25/2015.

Small, but not inconsequential.  Bummer for the timing to coincide and miss out on the dividend payments.

Dividends should be included in the return you look at.  Stockcharts.com gives you total return.  Other websites may exclude dividends.

http://stockcharts.com/docs/doku.php?id=policies:historical_price_data_is_adjusted_for_splits_dividends_and_distributions

PizzaSteve

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Re: Dual Momentum Investing
« Reply #988 on: November 03, 2015, 01:25:16 PM »
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.

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)
« Last Edit: November 03, 2015, 01:31:05 PM by PizzaSteve »
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Re: Dual Momentum Investing
« Reply #989 on: November 03, 2015, 05:50:30 PM »
...Bunch of great stuff...

That's all fine but now I just want some pizza Steve!
https://youtu.be/YRQFMHRSj9I
Indecision may or may not be my problem.

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Re: Dual Momentum Investing
« Reply #990 on: November 03, 2015, 07:23:23 PM »
Ok.  To sustain 'momentum' for pizza I updated my profile pic.  Enjoy.
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arebelspy

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Re: Dual Momentum Investing
« Reply #991 on: November 04, 2015, 02:13:02 AM »
Great post, PizzaSteve.

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sol

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Re: Dual Momentum Investing
« Reply #992 on: November 04, 2015, 09:11:36 AM »
This thread is far too boring without miles here to promote market timing.  Is there anyone else present who would like to defend dual momentum investing, or rebut PizzaSteve?

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Re: Dual Momentum Investing
« Reply #993 on: November 04, 2015, 09:23:07 AM »
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)

Well I'm not a DMer and not an uber investor of any stripe, but I read these boards regularly just to stay at a functional level of understanding that supports my modest FIRE goals.

Without going back and re-reading this thread the items highlighted in Steve's post above are what I got from Miles' discussions so far. So if everyone agrees with those statements I don't see anything in Steve's post that needs rebutting.

The point of contention that made this thread go all pear shaped was whether DM increased market volatility and from that whether there was a morality issue with DMing.

arebelspy

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Re: Dual Momentum Investing
« Reply #994 on: November 04, 2015, 09:37:20 AM »
The point of contention that made this thread go all pear shaped was whether DM increased market volatility and from that whether there was a morality issue with DMing.

Someone can find a moral issue with pretty much anything, including and especially any sort of investing.  There are so many ethical viewpoints, and investing can be viewed as a sort of usery, which could be seen as unethical, etc.

It's important to raise and consider ethical issues, but just because it's a consideration doesn't necessarily make it an issue, per se.
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Retire-Canada

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Re: Dual Momentum Investing
« Reply #995 on: November 04, 2015, 09:52:44 AM »
The point of contention that made this thread go all pear shaped was whether DM increased market volatility and from that whether there was a morality issue with DMing.

Someone can find a moral issue with pretty much anything, including and especially any sort of investing.  There are so many ethical viewpoints, and investing can be viewed as a sort of usery, which could be seen as unethical, etc.

It's important to raise and consider ethical issues, but just because it's a consideration doesn't necessarily make it an issue, per se.

I've got no objection to the discussion of DM volatility effects and related ethical issues in theory, but I think in practice we have proven that this is not a fruitful path in this particular thread at this moment in time.

sol

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Re: Dual Momentum Investing
« Reply #996 on: November 04, 2015, 10:00:56 AM »
The point of contention that made this thread go all pear shaped was whether DM increased market volatility and from that whether there was a morality issue with DMing.

That wasn't my impression at all.  I thought the volatility and morality issue was purely a distraction from the key point that first got me involved in this thread, which was that DM is a bad strategy because it underperforms index investing.

You seem to agree with that assessment, by agreeing with PizzaSteve, but miles definitely does not.  He argued at length that momentum investing is a persistent and exploitable inefficiency in the market that any schmuck can use to outperform the index, in some cases by huge amounts.  That same opinion cropped again in this thread just recently, with a claim that DM supports higher SWRs than an index portfolio.

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, though I'm not sure I've seen any evidence to support that claim other than "it should be obvious" which is why we spent like three pages arguing over a priori rationalizations.


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Re: Dual Momentum Investing
« Reply #997 on: November 04, 2015, 10:13:46 AM »
The point of contention that made this thread go all pear shaped was whether DM increased market volatility and from that whether there was a morality issue with DMing.

That wasn't my impression at all.  I thought the volatility and morality issue was purely a distraction from the key point that first got me involved in this thread, which was that DM is a bad strategy because it underperforms index investing.

Pretty much.  The volatility/morality was later.  The morality issue can't even be addressed until miles admits DM increases market volatility, which appears to be a logical and self evident truth to everyone in the thread except miles. 

sol

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Re: Dual Momentum Investing
« Reply #998 on: November 04, 2015, 10:22:59 AM »
The morality issue can't even be addressed until miles admits DM increases market volatility, which appears to be a logical and self evident truth to everyone in the thread except miles.

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 want everyone here to get rich, including the market timers.  I just think they're hurting their chances by abandoning a low cost index strategy that is guaranteed to track the market.

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Re: Dual Momentum Investing
« Reply #999 on: November 04, 2015, 10:32:17 AM »
That wasn't my impression at all.  I thought the volatility and morality issue was purely a distraction from the key point that first got me involved in this thread, which was that DM is a bad strategy because it underperforms index investing.

I may have got it wrong, but I thought Miles acknowledged that DM would suffer a little compared to BAH in terms of total return, but he was okay with that in exchange for reduced risk.

I'm not motivated enough about this topic to reread pages of this thread to be sure.


I got curious and reread a few of Miles' posts on performance. I was incorrect in my post above. He does seem to say that DM will outperform BAH. The post I was thinking of was referring to absolute momentum. I confused the two.
« Last Edit: November 04, 2015, 10:45:07 AM by Vikb »