These are my returns for January 2008.
January Return: -3.7%
3 month Return: -11.0%
6 month Return: 6.2%
12 month Return: 1.8%
Year To Date Return: -3.7%
Inception Return: 46.7%
Annualized Return Since Inception: 14.5%
These are my current personal positions, along with portfolio weight, as of Thursday, January 31, 2008.
Agriculturals (DBA) - 10.5%
Brazil (EWZ) - 9.4%
Euro Currency (FXE) - 10.0%
Gold (GLD) - 11.3%
India (INP) - 10.0%
Clean Energy (PBW) - 9.3%
Russia (RSX) - 8.5%
Steel (SLX) - 9.9%
Treasuries 20+ Yrs (TLT) - 10.5%
Oil (USO) - 10.7%
I’m holding almost NO cash. I am approximately 99.95% long.
9 Comments
Bill…
During your planning do you account for potential bear markets or corrections? Meaning lets assume your formula show a slowing of momentum in the markets or a slow down in particular sectors. Do you wait for those signal to strengthen for longs and weaken for shorts? If you don’t, is there any reason why you choose not to go this route.
Thanks,
LP
Good question!
It’s different in each system I have used/tested/developed, and I imagine that’s the same for most traders.
Timing does exactly that. It is currently 25% stocks and 25% bonds, and 50% cash. That system uses the S&P 500 as a relative benchmark, and it’s designed to not trade often, and strictly limit the downside.
Aggressive tries to stay 100% long, but it plays with stocks that are near their highs. As demonstrated last month, when there aren’t a lot of stocks near their highs, it starts to show cash. It’s not usually much cash in backtest, the current 40% is high. In backtest, it made good money in the 2000-2003 period, but didn’t do very well at all in 1998.
Fundamental also tries to stay 100% long. It’s not likely to hold much cash at all. In backtest, Fundamental held its own in the 2000-2003 period, gaining only about 5%, not including any dividends.
Rotational is what I’m trading personally right now. It could potentially go to cash, but not often. Rather, it keeps a hedge of other assets (bonds, currencies, commodities, etc.) and shifts to them. You can see what I mean, above. It’s 100% long, but only 50% of that is stocks. It will slowly “rotate” out of stocks as their trends die.
Think about Rotational this way: 2000-2002 was a “bear market,” right? Well, not if you were in gold, gold miners, bonds, and real estate investment trusts, it wasn’t a bear market! Rotational is the type of system that will catch that kind of trend. Unfortunately, it’s weakness is that long, choppy, trendless periods will eat into it.
I’ve done some work with trying to match Timing to the other systems, but I have found nothing conclusive yet.
Now, let’s think about OTHER public domain systems.
CANSLIM would time the market, it’s a combination of two systems (timing and stock trading).
Magic Formula Investing wouldn’t care, it just revisits so much of its portfolio every few months.
Mebane’s TAA (tactical asset allocation) would check the positions every month, and if any of them were below a moving average trendline, that portion of the system would go to cash.
So there are a variety of answers to that question, for a variety of systems (and system developers).
It’s a question of how well the system tests and how comfortable you are with the system results. It could be that overlaying a timing system on one trading system makes it just great for you; it could be that some systems don’t need a timing overlay; etc.
January was a crazy month.
It seems every time we have one of those crazy moves we discover after the fact that a large hedge fund blew up.
A quick question. Have you considered timing your entry points? or waiting for a pullback when a position is too extended?
Born2Code, that’s almost the same question as LP’s. Almost.
Not every extended move has a pullback. If I were to take Rotational and handle the swaps this way: ditch when it loses momentum, and make the new buy when it gains momentum - BUT - wait for a pullback first, then I may miss a large portion of the move. Granted, it would have worked great in Jan 2008, but let’s avoid having a recency bias, shall we? I would want to test several pullback ideas and see how they work.
I grant that it’s an area that can be improved, and working on some kind of timing overlay on the other systems is a project I have, but I haven’t found anything (yet) that works better than what I’ve got. When I do, I will change.
My Timing Model is issuing a SELL signal. Methinks that the market has talked itself into a recession!
It’ll be fun to see how it plays out!
Right now, my intuition is that both of our Timing models are wrong - and that the bottom has been reached and a multi-month rally is on.
That being said, I am trading a different model and separately tracking the four raw mechanical model results. I may modify or tweak what I trade based on my intuition, but I plan to keep that to a minimum.
Well I might just be Bearishly biased but I really believe that the past 8 years of prosperity were just fabricated by loose credit.
Those cows have now come home and I don’t think throwing more liquidity into the system will help.
However, everyone forgets that a weak dollar spurs a lot of exports and a lot of investment by foreign entities into this country, as they struggle with high labor costs.
I guess I sum myself up as Short term Bearish but Long Term Bullish.
Go Giants!
Bill, I admire your intelligence. That’s a well balanced plan. However, I’m not particularly bright, and Iam forced to use another tactic. I find those trades that are like “Shooting ducks in a barrel” and put them on….long or short. I’m in a position for less time than you, and I trade all sorts of stuff, but my method has worked for me for the last 30 years. I don’t think I have the discipline to look at a term of longer than a year….and that’s stretching it. My longest trade last year was 5 months in the Minneapolis/Chicago wheat spread that I was able to pull almost a buck a bushel out of. My shortest trade was last week, when I dropped $6,000 in Copper in 8 minutes. Oh well, you win some and lose some……that’s what keeps us coming back.
Good post.
Jeff
Jeff, for what it’s worth, I’m not equipped to trade in the pits based on the verbal and body language cues given off by the other traders … there are lots of ways to make money in the markets, but they all boil down to the same things: know your edge, apply it repeatedly, and use risk control.
2 Trackbacks
[…] What I do know is that most of money still remains in cash and bonds, about 50% now, and I’m looking to put more of it back to work. The trick is figuring out when to put it work, will I be buying into the next massive sell off or will it be on dips in a sustained rally? […]
[…] February 2nd: Right now, my intuition is that both of our Timing models are wrong - and that the bottom has been reached and a multi-month rally is on. […]