No. of Recommendations: 26
As most of you realize, I've come to the conclusion that being invested 100% of the time in just about anything is a fool's errand (especially screens like we've developed here). Not only does it consume a tremendous amount of time, but also emotional fortitude.

As I wrote on this board at the start of 2011:

I see little advantage in screening for the best stocks when you can so much more easily just identify the best times to be invested and stay safe the rest of the time.

Today I updated my brother-in-law's 401k to see the results from when I took over (start of 2010) to the present. The choice of options for investment in this 401k are extremely limited. And yet, it certainly seems that a KISS approach works well despite the limitations.

The key thing that I've layered on is the investment selection, and the time to be invested in riskier stuff compared to safe. For example, most of this year I've had the account holding PIMCO Real Return Instl (PRRIX). Why? More about the busyness of my life this year than anything else. I've pretty much ignored the account and not followed my own signals. This has dropped the CAGR down some, but it is still doing pretty well compared to most benchmarks.

1/1/2010 to 11/30/2012    ROI    CAGR     GSD   Sharpe  Max DD   DDD3
Brother-in-Law's 401k
80.37% 22.40% 12.55% 1.63 -11.14% 0.22%

NASDAQ 30.19% 9.52% 22.87% 0.52 -18.71% 1.45%
DOW JONES 22.61% 7.28% 18.42% 0.50 -16.82% 1.01%
S&P500 24.45% 7.83% 20.57% 0.49 -19.39% 1.41%
Russell 2000 27.85% 8.83% 29.93% 0.44 -29.56% 3.66%
Index Average 26.28% 8.37% 22.95% 0.49 -21.12% 1.88%

Berkshire Hathaway 33.33% 10.42% 24.19% 0.55 -23.84% 4.93%


DDD3 is based on 1 year treasuries, not the 10% or so that Jim typically uses, so the values are much lower. The key point is the relative difference between them all.

From 1/1/2010 to the present I've held risky stuff like PIREX only 25% of the time. So the primary advantage of this approach is the fact that the account is invested in relatively safe stuff 75% of the time. Any black swan event is more than likely going to benefit the return rather than harm it simply because 75% of the time if it happens then money will run into the safe stuff I'm holding and drive the prices higher which will ultimately improve the CAGR of the account.

I recall comparing my CAGR to all mutual funds at Morningstar and in the past found that this simple approach beat out the vast majority by a significant margin. I wonder if that is the case now that the CAGR is down to 22%.

Anyone else here using an approach like this where they are invested in safer stuff the vast majority of the time?
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Z:

Depending on your definition of "safer stuff", I may be doing this. From the standpoint of my philosophical interpretation of "wealth" based on relative currency valuation, I would call moving into USD "cash" as "safer stuff" (but this might not be what you are referring to?)

Jeff
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No. of Recommendations: 8
The answer to my question regarding all Mutual Funds is there are 17 funds out of a total of 10,691 funds that beat out the 22.40% CAGR over the past three years. In other words, just 0.16% beat out this simple strategy, and don't forget, that is holding risky stuff just 25% of the time.

You don't have to be fully exposed to market risk 100% of the time to have market beating returns!

    Ticker                    Name                         3 Year
total return
1 PETAX PIMCO Real Estate Real Return Strategy A 31.36
2 DXQLX Direxion Mthly NASDAQ-100 Bull 2X Inv 27.34
3 RYVYX Rydex Dynamic NASDAQ-100 2X Strategy H 26.64
4 UOPIX ProFunds UltraNASDAQ-100 Inv 26.59
5 MXXVX Matthew 25 26.2
6 WCPIX ProFunds UltraSector Mobile Telecom Inv 25.93
7 BIPIX ProFunds Biotechnology UltraSector Inv 25.86
8 CYPIX ProFunds Consumer Services Ultra Sec Inv 25.82
9 SSSFX SouthernSun Small Cap Investor 24.86
10 PSLDX PIMCO StocksPLUS Long Duration Instl 24.75
11 FBIOX Fidelity Select Biotechnology 23.81
12 FBTAX Fidelity Advisor Biotechnology A 23.78
13 LREOX Lazard U.S. Realty Equity Open 23.51
14 REPIX ProFunds Real Estate UltraSector Inv 23.41
15 AUMIX Allianz AGIC Ultra Micro Cap I 23.38
16 WSCVX Walthausen Small Cap Value 23.12
17 UMPIX ProFunds UltraMid Cap Inv 23.08
**********************************
18 DXRLX Direxion Mthly Small Cap Bull 2X 22.35
19 DWUGX Dynamic US Growth I 22.34
20 INPIX ProFunds Internet UltraSector Inv 22.01

The group average CAGR is 8.75%.

Interestingly, the primary fund I've used during the Risky periods is PIREX which holds Real Estate, and the top fund of all those listed above is PIMCO Real Estate Real Return Strategy A.
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No. of Recommendations: 26
It's a very sensible approach. Risk will certainly be controlled.
However, good overall returns will be achievable only to the extent that
you have a very good method to determine which times to be invested.
Simply put, you're a lot better at this than most people, so it looks (and is) easy and obvious to you!
With the wrong signal one could little more than a string of very unpleasant whipsaws.
Without giving away the farm, I'm sure we'd all be interested to know
which general family of timing systems you find works well for this
approach of being long only during the very best times.

Most of my timing systems have been built to be long around 2/3 of the
time and very few signals per year as that's what usually comes out optimal
by the numbers with perfect hindsight. Not to be confused with real life—
I agree that long much shorter periods might be much better in reality,
again provided that a good robust and sufficiently fast-reacting signal is available.

Anyone else here using an approach like this where they are invested in safer stuff the vast majority of the time?

Yes, partly.
My own portfolio is strongly bifurcated by hold period.
Some very long hold stuff at one end (usually held via repeatedly written puts),
and MI at the other. But yes, I have been doing something similar to what you
suggest for my MI stuff, being in it only when all the omens look good.
I have been out of it for most of this year, for example.
Long at the beginning, out for a long while, in again, out now.
My problem is that because I have long hold things too, when I'm out
of MI for timing reasons with cash sitting there I get tempted to
deploy it if one of my favourite firms goes on sale, then I don't
have that much cash left to go back into MI when the signal comes.
A bit of fine tuning still needed, clearly.

Great to hear from you here!

Jim
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I've slowly migrated to a 80% out, 20% in approach in 2012. So far, no draw down, with a 5% return in 6 months but this includes an extended "out" period in August to mid October.

I have not given much thought to the out periods, just cash for now.

Basically as an "in" period approaches I look for a pullback and jump in, usually SPY. Then as the "out" period approaches look for a spike and exit. Yesterday I locked in a 2.5% gain as the "out" date is mid next week and I did not want to hold over the weekend.

This is a hybrid mechanical and trading approach.
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No. of Recommendations: 9
Jim asked:
Without giving away the farm, I'm sure we'd all be interested to know
which general family of timing systems you find works well for this
approach of being long only during the very best times.


This account is based more upon identifying market bottoms, selecting the investment option that has the greatest potential to pop the most once the intensity switches to bullish, and then holding it a relatively short period of time. I use a few distinct options for determining when the odds are no longer in favor of continuing to hold the investment and then exit it and choose the bond/mutual fund option with the same potential for the greatest gain. Quite a bit of what I'm talking about is well known by those who follow my work on my forum.

In fact, for almost all of this year I've just held PRRIX and it has returned 8.96%.

A very simple approach is what I call the Navigating the Summer Blues which is my rendition of Sell in May. Using this approach and the same methods for selection of the fund, the returns from 1/1/2001 to present are, with a hold of one to four.

My rendition finds times when it makes no sense to exit the market in the summer so stays invested, which it did in 2003 and 2009.

  ROI      CAGR   GSD   Sharpe  DDD3    BBW   % Win  Yrs >= Index  Drawdown  # to Hold
1111.69% 23.30% 19.9 1.14 1.57% 13.95 67% 83.33% -18.07% 1
971.32% 22.03% 16.9 1.22 0.90% 20.66 73% 83.33% -17.46% 2
870.27% 21.02% 16.1 1.22 1.42% 13.74 74% 91.67% -18.18% 3
745.84% 19.64% 14.8 1.23 1.58% 11.76 73% 100.00% -17.31% 4
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No. of Recommendations: 14
Zeelotes, it's comforting to see real time results like the ones that you are sharing and good to see that you're still around after a seemingly long absence from this board and your blog. Real results like these provide confidence to those like me to continue searching for the goose that lays the golden egg in the market timing realm. As someone who has spent a large amount of time over the last few years combing the incredibly useful posts you and others like Jim have made over the years on the subject, purchasing data subscriptions, creating my own signal backtester, and analyzing dozens of potential signals including some from my own research, the fruits of the labor have been admittedly somewhat slim.

I've had good luck identifying methods that, when used in the past at least, would have reduced risk metrics like drawdown, volatility, GSD, and so forth. But in spite of that, I have very little to show for timing methods that substantially improve CAGR. As someone who probably has a much longer investing timeframe than many here with no plans to tap the funds for many years yet to come, and as someone with an iron stomach (in no small part because of that) when it comes to dealing with market volatility, my main focus has been just on finding strategies to maximize return. But recently I feel I have come up short and that I've hit a brick wall, at least in the world of market timing.

Perhaps I have everything I need and it's just a matter of combining signals in some fashion that I haven't discovered yet, but after stewing on what to do next over the last half of the year, I feel like I'm really lacking direction. If you have the free time and would be willing to share some general thoughts such as on signal varieties, considerations, and the process of developing a consensus system, I would enjoy reading them. I feel like I've come a long way down the path of developing a timing signal, but I need a critical nudge in the right direction to complete the journey.
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Well, it's probably not quite what you had in mind, but I spend the majority of time "safe invested" by being nearly 100% hedged rather than in cash. It's not quite as safe as cash, but can give some return in the absence of market direction.
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No. of Recommendations: 7
Knighted wrote:
Zeelotes, it's comforting to see real time results like the ones that you are sharing and good to see that you're still around after a seemingly long absence from this board and your blog.

Yes, my focus over the last couple years has been on writing up research and sharing it with a select few who have shown an interest in such things. It hasn't left me with a whole lot of time to share on this site or even on my blog.

As someone who has spent a large amount of time over the last few years combing the incredibly useful posts you and others like Jim have made over the years on the subject, purchasing data subscriptions, creating my own signal backtester, and analyzing dozens of potential signals including some from my own research, the fruits of the labor have been admittedly somewhat slim.

I'm sorry to hear that, though I will freely admit, that arriving at something useful is not easy. It is most definitely very rewarding.

But recently I feel I have come up short and that I've hit a brick wall, at least in the world of market timing.

Finding a system that will reduce risk metrics is relatively easy, but maximizing return takes quite a bit more work. Actually, I'd say about 50% of the return comes from identifying points of transition in the market, and another 50% comes from identifying the investment vehicle that will produce the greatest gain. Both of these pursuits are equally important. You can have a great timing system, but invest in the wrong thing at the wrong time, and the result will be sub-par returns.

If you have the free time and would be willing to share some general thoughts such as on signal varieties, considerations, and the process of developing a consensus system, I would enjoy reading them. I feel like I've come a long way down the path of developing a timing signal, but I need a critical nudge in the right direction to complete the journey.

It is partly related to consensus, but it doesn't have to be. Many trading systems can be developed that are independent of each other, but prove to be very profitable if followed in a discipled way.

The biggest enemies of success with a timing system:

1. Lack of Discipline
2. Exhaustive Tweaking or Over Tuning
3. Non-Mechanical Implementation
4. Emotionally Driven at Key Points of Opportunity
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Knighted wrote:
Perhaps I have everything I need and it's just a matter of combining signals in some fashion that I haven't discovered yet

In order to illustrate the point that combining signals is not always necessary I put together a chart of QLD showing all the buy signals for one of my indicators this year -- the indicator is called Institutional Spike.

The sell signals are one of my other indicators, but is not the point I'm making here.

You can view the chart here:

http://www.zeelotes.org/data/2012_IS.PNG
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Zeelotes,

I'm curious how you chose PIREX as a "safe" place to park money. While it's rise has been gratifying over the past three years, its performance over the previous couple of years was "a bit" bumpy (especially compared to USD). Was that drawdawn, in your opinion a one shot aberration (or are we in a new long term trend where that sort of thing is no longer likely)?

Jeff
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Jeff asked:
I'm curious how you chose PIREX as a "safe" place to park money.

Zeelotes previously wrote:
From 1/1/2010 to the present I've held risky stuff like PIREX only 25% of the time.

Interestingly, the primary fund I've used during the Risky periods is PIREX which holds Real Estate

I never wrote that PIREX was held as a safe investment. Rather....

For example, most of this year I've had the account holding PIMCO Real Return Instl (PRRIX).

In fact, for almost all of this year I've just held PRRIX and it has returned 8.96%.

PRRIX is what is held during safe periods when it is selected from the safe options available to this 401k. On Yahoo the summary for this fund reads:

The investment seeks maximum real return, consistent with preservation of capital and prudent investment management. The fund normally invests at least 80% of its net assets in inflation-indexed bonds of varying maturities issued by the U.S. and non-U.S. governments, their agencies or instrumentalities, and corporations, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements. It invests primarily in investment grade securities, but may invest up to 10% of its total assets in high yield securities ("junk bonds") rated B or higher. The fund is non-diversified.

Jeff also wrote:
While it's rise has been gratifying over the past three years, its performance over the previous couple of years was "a bit" bumpy (especially compared to USD).

As to PIREX, I only held it when my signals identified a "good" period to be in riskier investments. Each time I held it the return beat the S&P 500 IIRC.

Was that drawdawn, in your opinion a one shot aberration (or are we in a new long term trend where that sort of thing is no longer likely)?

I don't have any opinions on the future of the stock market. What I do have are indicators that help me invest in a way that hopefully puts the odds in my favor. No more, no less.
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Zee: another 50% comes from identifying the investment vehicle that will produce the greatest gain

I wonder what kind of sorting criteria will produce a better return from the transition point, percentage drop to the current transition point (having high mean reversion) or percentage pop from the previous transition point (having high historic momentum)?
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Ivyvest asked:
I wonder what kind of sorting criteria will produce a better return from the transition point, percentage drop to the current transition point (having high mean reversion) or percentage pop from the previous transition point (having high historic momentum)?

Sorry, but this is probably the most proprietary part of my research that I've never shared with anyone. To use Jim's words, I have "given away the farm" with a number of my best indicators to a select few, but when it comes to this component of my work, I intend to keep that close to home.

Having said this, of the two choices you gave, the former will produce a better return than the latter.
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Sorry Z: Both started with "P" and had an "RIX" in them and I confused PIREX with your safe investment. My bad.

Jeff
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Zee: ... it certainly seems that a KISS approach works well despite the limitations...

Zee: This account is based more upon identifying market bottoms, selecting the investment option that has the greatest potential to pop the most once the intensity switches to bullish, and then holding it a relatively short period of time..


Zee, I am a little confused. Maybe the account you mentioned in your post is not using the KISS approach which looks for the top fund over the previous 10 months.
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Ivyvest asked:
Zee, I am a little confused. Maybe the account you mentioned in your post is not using the KISS approach which looks for the top fund over the previous 10 months.

My answer to your question above was more a general response to the best sorting method for selecting investments off of a bottom, while this particular account does use a KISS approach as you stated.

The problem with an account such as this one is the limited options available. There are much better choices out there for entry after a bottom, but most of these 401k accounts do not have those options available.
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Just a reminder to keep holdings under control is a worthy on

On Returns, the Sell in May in 2009 was a specially impactful one in the negative sense. Though it recovered from the Mar drop.
Any data on what would have happened for a 1/1/2009?

Thanks
SD
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Working on evaluating the various investments that I manage. Here are the results for the last three years for this particular account mentioned in the top post of this thread.

1/1/2010 to 12/31/2012    ROI    CAGR    GSD   Sharpe  Max DD   DDD3
Brother-in-Law's 401k
88.41% 23.48% 12.50 1.70 -11.14% 0.21%

NASDAQ 28.03% 8.62% 22.62 0.52 -18.71% 1.44%
DOW JONES 22.24% 6.95% 18.22 0.51 -16.82% 1.00%
S&P500 23.78% 7.40% 20.34 0.50 -19.39% 1.39%
Russell 2000 29.96% 9.16% 29.53 0.48 -29.56% 3.59%
Index Average 26.00% 8.03% 22.68 0.50 -21.12% 1.86%

Berkshire Hathaway 33.03% 10.02% 23.91 0.56 -23.84% 4.83%
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