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URL:  http://boards.fool.com/stevn-wrote-ive-arrived-a-bit-late-to-this-26868422.aspx

Subject:  Re: Blending at a Whole New Level Date:  8/2/2008  5:25 AM
Author:  Zeelotes Number:  211672 of 251797

Stevn wrote:
I've arrived a bit late to this thread. I've been on vacation the last two weeks with limited internet access and just look at the feast I've returned to. I'm still quite a bit behind in my reading but I just had to read all 46 posts in this thread.

Welcome back. Frankly, I've missed your participation in this research. I believe your contributions last November helped greatly.

1. Lets say one decided to go with this concept and use Sharpe to select the screens for the bull period and Sharpe/GSD for the bear period. When selecting screens for say the bull period, I assume you look at the Sharpe Ratio of each screen using all of it's backtest history and not just the "bull" part of the backtest history? Can you confirm that my understanding is correct.

Yes, I do not divide up the history. I wish that would be possible, but it is not. At least, not right now. Interesting idea though.

The bull signals have a lookback of six years of data. The bear signals have a lookback of three years of data. I found these to be more or less optimal. Using all the history, however, does not result in something significantly different than what I've posted. The lookback length, IOW, is not that important.

2. I may not have fully absorbed all 46 posts so please excuse me if the answer is clearly stated in this thread, but when you were ranking each measure for selecting screens for bull and bear periods, did you alway rank them by resulting CAGR or by resulting Sharpe?

I'm not sure what you mean here. The measure stated was the measure used for ranking the screens and determining which screens to select. So they would never use CAGR since that was not an option. Sharpe was used for when it was the measure selected. If you are referring to my various tables, most of the time I determined which measures were best by their Sharpe, not their CAGR.

Again, what would we do when this useless signal tells us it is a bear market? We would select our screens using Sharpe/GSD. Well the testing last November showed that this was better than Sharpe for selecting screens for all markets.

My conclusion is that this fits Jim's ideal of timing. Great if it works and harmless if it doesn't.


I'd agree with all your comments on this. But let me add a bit of data for your consideration. Here is a table of the blend's returns for each bull and bear signal in order to compare holding Sharpe/GSD for both, or Sharpe for both. I also include the Russell 2000 return for the sake of comparison. But first, let me share the summary tables of the full table.

The average return for Sharpe/GSD during the buy signals is 10.42% compared to 16.28% for Sharpe alone. During the bullish periods the Russell 2000 gained just over 6%. In contrast, when a bearish period comes the Sharpe/GSD has an average gain of 6.69% compared to the Sharpe gain of 4.95%. The index loses -1.11%.

Signal  Sharpe/GSD  Sharpe  Rus2k
BUY 10.42% 16.28% 6.04%
SELL 6.69% 4.95% -1.11%

Based on this you'd almost think the best option is to just use Sharpe all the time, or even to just use Sharpe/GSD all the time. Here is a table showing the various options with the far right column showing a blend where Sharpe is used to sort in the bullish periods and Sharpe/GSD in the bearish periods.

        Sharpe/GSD  Sharpe    Blend
CAGR % 34.60% 39.75% 45.41%
GSD 15.41 26.72 19.43
Sharpe 1.83 1.34 1.93
UI 4.97% 14.98% 5.25%
Max DD -28.66% -54.51% -26.63%

Here is the count of the ranks for each period -- full period, bull period and bear period:

                       Sharpe/GSD  Sharpe  Rus2k
All Signals Rank 1 33 36 7
Rank 2 33 30 13
Rank 3 10 10 56
Buy Signals Rank 1 15 19 4
Rank 2 17 16 5
Rank 3 6 3 29
Sell Signals Rank 1 18 17 3
Rank 2 16 14 8
Rank 3 4 7 27

And finally, the table of all returns for each period.

   Date     Signal  Sharpe/GSD  Sharpe    Rus2k   Sharpe/GSD  Sharpe  Rus2k
1/3/1989 BUY 24.93% 50.76% 13.63% 2 1 3
6/30/1989 SELL 12.37% 18.60% 1.12% 2 1 3
1/2/1990 BUY -4.64% -3.57% -8.28% 2 1 3
2/1/1990 SELL 7.08% 9.74% 4.97% 2 1 3
3/7/1990 BUY -0.73% 3.78% 1.25% 3 1 2
4/6/1990 SELL 1.58% 5.80% -1.25% 2 1 3
5/7/1990 BUY -0.08% 4.40% 4.26% 3 1 2
6/27/1990 SELL -6.21% -2.92% -19.07% 2 1 3
1/24/1991 BUY 64.52% 72.63% 32.39% 2 1 3
11/26/1991 SELL 35.23% 25.55% 13.07% 1 2 3
5/6/1992 BUY -0.10% -1.66% -2.23% 1 2 3
6/11/1992 SELL 4.09% 3.37% -2.83% 1 2 3
7/13/1992 BUY -7.31% -8.64% -0.73% 2 3 1
8/24/1992 SELL 28.79% 27.81% 0.38% 1 2 3
10/15/1992 BUY 16.01% 15.49% 14.28% 1 2 3
2/23/1993 SELL 25.10% 20.78% 15.82% 1 2 3
12/1/1993 BUY 13.73% 20.72% 2.65% 2 1 3
3/29/1994 SELL 1.32% 4.39% -4.01% 2 1 3
6/2/1994 BUY 5.76% 4.94% -3.74% 1 2 3
7/5/1994 SELL 2.74% 7.38% 2.21% 2 1 3
8/10/1994 BUY 2.85% 4.89% 1.80% 2 1 3
10/5/1994 SELL 6.50% 9.06% -0.94% 2 1 3
1/10/1995 BUY 35.20% 53.97% 18.62% 2 1 3
10/10/1995 SELL 27.36% 30.18% 16.24% 2 1 3
7/3/1996 BUY 1.50% 6.91% -2.56% 2 1 3
10/29/1996 SELL 7.36% 10.03% 4.12% 2 1 3
11/29/1996 BUY 8.09% 10.96% 1.33% 2 1 3
3/17/1997 SELL 0.92% 5.62% -0.23% 2 1 3
5/7/1997 BUY 26.94% 20.99% 18.84% 1 2 3
10/28/1997 SELL 9.52% 6.00% 4.02% 1 2 3
12/31/1997 BUY 14.89% 21.08% 7.96% 2 1 3
5/20/1998 SELL 1.29% -1.57% -2.34% 1 2 3
7/1/1998 BUY -6.73% -10.12% -8.23% 1 3 2
7/31/1998 SELL 13.81% 7.36% -9.94% 1 2 3
11/2/1998 BUY 5.21% 3.73% 2.59% 1 2 3
12/14/1998 SELL -0.83% 4.05% 7.46% 3 2 1
1/13/1999 BUY 2.76% 0.22% -6.88% 1 2 3
2/10/1999 SELL 2.17% -1.68% -0.51% 1 3 2
3/11/1999 BUY 13.12% 37.84% 10.09% 2 1 3
7/29/1999 SELL -1.04% 1.53% -4.31% 2 1 3
8/30/1999 BUY -1.10% 1.00% -2.45% 2 1 3
9/27/1999 SELL 0.10% 5.36% 2.77% 3 1 2
10/29/1999 BUY 6.49% 110.62% 35.95% 3 1 2
3/17/2000 SELL 3.05% -14.68% -20.02% 1 2 3
4/17/2000 BUY 2.96% 4.98% 11.53% 3 2 1
5/16/2000 SELL -0.18% 6.64% 4.11% 3 1 2
7/5/2000 BUY 3.60% 9.61% -3.89% 2 1 3
8/4/2000 SELL 3.50% 17.85% 7.92% 3 1 2
9/5/2000 BUY 0.29% -8.11% -6.87% 1 3 2
10/3/2000 SELL 26.01% -43.94% -5.07% 1 3 2
1/12/2001 BUY 13.59% 5.85% -0.07% 1 2 3
2/21/2001 SELL 5.09% 1.45% -3.82% 1 2 3
4/19/2001 BUY 7.97% 10.63% 4.76% 2 1 3
6/19/2001 SELL 3.89% -11.29% -13.46% 1 2 3
10/17/2001 BUY 13.61% 11.57% 7.03% 1 2 3
2/22/2002 SELL 19.46% 35.99% -18.53% 2 1 3
10/31/2002 BUY 8.73% 8.10% 2.47% 1 2 3
12/19/2002 SELL -2.12% -6.26% -3.52% 1 3 2
3/20/2003 BUY 30.17% 34.66% 52.80% 3 2 1
5/6/2004 SELL 4.90% 6.48% 1.55% 2 1 3
6/7/2004 BUY 4.87% 4.49% -1.24% 1 2 3
7/8/2004 SELL 3.85% 3.23% -3.83% 1 2 3
8/25/2004 BUY 40.10% 48.37% 14.30% 2 1 3
3/16/2005 SELL -0.83% -3.10% -2.61% 1 3 2
5/19/2005 BUY 13.64% 26.03% 4.95% 2 1 3
10/10/2005 SELL -0.52% -3.52% 2.40% 2 3 1
11/9/2005 BUY 5.55% 10.29% 10.61% 3 2 1
5/17/2006 SELL 0.28% -0.60% -2.39% 1 2 3
7/5/2006 BUY 0.90% -2.13% -4.04% 1 2 3
8/4/2006 SELL 2.75% 2.26% 3.28% 2 3 1
9/5/2006 BUY 10.86% 9.22% 5.93% 1 2 3
3/5/2007 SELL 5.89% 6.21% 5.05% 2 1 3
4/4/2007 BUY 7.17% 16.77% 0.45% 2 1 3
7/24/2007 SELL -3.46% -5.53% -4.11% 1 3 2
9/4/2007 BUY 10.57% 7.24% 0.29% 1 2 3
10/19/2007 SELL 3.35% 0.40% -15.80% 1 2 3
7/19/2008

My main concern is that I don't like trading much (time, hassle, tax time, etc) and I use HTD extensively to minimise trading. Any timing methods go against the philosophy of HTD so I would probably change my implementation along the lines of.

* Select my bull and bear screens.
* On my scheduled buy day, check the indicator and only buy new stocks from the applicable screens, but don't use the indicator for selling stocks - i.e. just sell based on my normal HTD rules.

These tweaks would mean that I would probably not get much of the benefit of the timing except on prolonged runs, but it should also mean that I should not see an increase in my trading.


I certainly appreciate your thoughts in this regard, but I guess I see the results above showing the worth in adopting this approach. If I could test what you suggest it would be great confirmation of whether your method would really impact the results or not. I have no way of knowing. Very hard to say.

Any other ideas on how to improve what has been done to date?
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