Please find performance below for applying 10 mo simple moving average (SMA) method to two classic funds Dodge and Cox Income DODIX and Stock DODGX, instead of the exchange traded funds in the original post
Flack's SMA Method.
I was reluctant to try this approach for classic mutual funds because when you trade say at Schwab, there is a one-day settling period on funds and usually redemption fees for trading in under 60 or even 90 days. But if you own an account directly with D&C, like I do, you can literally exchange D&C mutual funds on-line (simultaneously selling and buying) at the day's closing NAV. Furthermore, D&C charges no trading fee, nor is there a redemption fee. So, game on.
Since these funds have a history longer than exchange traded funds, the analysis also addresses Investor's request to look back further in time.
Again, if DODGX is above its 10 mo SMA at month's end, then the method is all-in DODGX the next month. If DODGX is under its 10 mo SMA, then all-in DODIX instead the next month.
Here are timing plots and portfolio growth performance, as well as a look at running draw down:
Corresponding life-time performance::
And finally, performance over 218 5-yr rolling periods and 242 3-yer rolling periods:
The lifetime absolute return is extraordinary. But what continues to impress me the most is protection against downside risk that the method offers, in addition to the simplicity of implementation. Note that it may not beat the fixed portfolios every single period, but it sure seems to help avoid losing money.
I have always been told that you can't time the market and beat it. That may be true. But if your goal is to minimize downside risk while still being in the game for some potential upside, I'm becoming more convinced that dynamic risk parity approaches like Flack suggested are the way to go.
Comments
What database did you use for this analysis?
Thanks.
I am just playing a role of devil's advocate; my first reaction was that I should implement this strategy immediately, my second reaction was that I would not like to do it in my taxable account, and then I decided to ask the questions formulated above.
A bit more here...Clifford Asness at AQR Funds is also a champion of momentum, especially when coupled with value (Ref: Value and Momentum Everywhere). I'm in middle of assessment, but suspect one reason Flack's SMA method works so well for DODGX is because D&C is a value house. So, it may be benefiting from both value and momentum effects, or essentially a combined value and momentum strategy.
Here are the monthlies used:
Month DODIX DODGX
12/12 1.00145 1.02713
11/12 0.99928 1.00756
10/12 1.00874 0.99384
09/12 1.00660 1.03007
08/12 1.00368 1.02898
07/12 1.01494 1.01914
06/12 1.00450 1.05551
05/12 1.00075 0.92970
04/12 1.00756 0.98781
03/12 0.99924 1.02574
02/12 1.00915 1.04498
01/12 1.02103 1.05695
12/11 1.01422 1.01123
11/11 0.98752 0.98721
10/11 1.01184 1.11373
09/11 0.99529 0.90878
08/11 0.99531 0.92889
07/11 1.01187 0.96161
06/11 0.99606 0.97628
05/11 1.00955 0.99005
04/11 1.01208 1.03797
03/11 1.00161 0.99173
02/11 1.00813 1.03652
01/11 1.00326 1.03073
12/10 1.00000 1.07861
11/10 0.99594 0.98894
10/10 1.00654 1.04228
09/10 1.00658 1.09993
08/10 1.00746 0.94027
07/10 1.01090 1.07183
06/10 1.01359 0.94098
05/10 0.99830 0.90643
04/10 1.00855 1.01226
03/10 1.00863 1.06647
02/10 1.00086 1.01989
01/10 1.01224 0.98060
12/09 0.99913 1.02342
11/09 1.01148 1.05111
10/09 1.00712 0.97130
09/09 1.01627 1.05035
08/09 1.01189 1.04330
07/09 1.02919 1.09391
06/09 1.01530 0.99986
05/09 1.02348 1.07481
04/09 1.03441 1.14552
03/09 1.01022 1.08873
02/09 0.98291 0.86721
01/09 1.01015 0.90197
12/08 1.06028 1.03037
11/08 1.00541 0.90960
10/08 0.96957 0.81790
09/08 0.96165 0.86481
08/08 1.00507 1.00678
07/08 0.99495 1.00945
06/08 0.99001 0.89053
05/08 0.99602 1.00971
04/08 1.01107 1.06225
03/08 0.99499 0.96783
02/08 0.99900 0.96210
01/08 1.01215 0.94552
12/07 1.00000 0.97564
11/07 1.00611 0.97201
10/07 1.00615 1.00401
09/07 1.01140 1.02185
08/07 1.00941 0.99576
07/07 1.00105 0.96396
06/07 0.99583 0.98464
05/07 0.99585 1.03535
04/07 1.00522 1.03400
03/07 1.00000 1.01351
02/07 1.01268 0.98392
01/07 1.00212 1.02014
12/06 0.99789 1.02207
11/06 1.01285 1.01252
10/06 1.00647 1.02932
09/06 1.00979 1.02883
08/06 1.01323 1.01243
07/06 1.01115 1.00635
06/06 1.00000 1.00045
05/06 1.00000 0.98288
04/06 1.00000 1.02523
03/06 0.99556 1.01654
02/06 1.00222 0.99611
01/06 1.00223 1.03984
12/05 1.00561 1.01713
11/05 1.00225 1.03109
10/05 0.99776 0.98225
09/05 0.99221 1.01022
08/05 1.00785 1.00757
07/05 0.99776 1.03607
06/05 1.00562 1.00631
05/05 1.00794 1.02579
04/05 1.00800 0.97414
03/05 0.99206 0.99456
02/05 0.99887 1.03005
01/05 1.00455 0.97727
12/04 1.00803 1.03950
11/04 0.99771 1.05885
10/04 1.00575 1.02348
09/04 1.00346 1.02929
08/04 1.01643 0.99902
07/04 1.00709 0.96996
06/04 1.00356 1.02572
05/04 0.99410 1.00745
04/04 0.98148 0.97801
03/04 1.00465 0.99041
02/04 1.00703 1.01955
01/04 1.00708 1.03952
12/03 1.01073 1.06068
11/03 1.00479 1.01691
10/03 0.99523 1.05602
09/03 1.02068 0.98968
08/03 1.00859 1.02553
07/03 0.97605 1.03684
06/03 1.00000 1.00895
05/03 1.01458 1.07925
04/03 1.01355 1.07065
03/03 1.00123 0.99947
02/03 1.00996 0.97656
01/03 1.00250 0.97044
12/02 1.02561 0.96677
11/02 1.00644 1.07880
10/02 0.99360 1.03607
09/02 1.01693 0.90280
08/02 1.01319 1.02338
07/02 1.00664 0.91090
06/02 1.03010 0.95349
05/02 1.00967 1.01357
04/02 1.01685 0.96834
03/02 0.99441 1.04258
02/02 1.00845 1.00802
01/02 1.00709 0.99822
12/01 0.99436 1.02820
11/01 0.99579 1.08162
10/01 1.01569 1.01100
09/01 1.00863 0.90729
08/01 1.01164 0.98130
07/01 1.02232 1.00823
06/01 1.00149 0.98049
05/01 1.01054 1.03054
04/01 1.00000 1.06198
03/01 1.00606 0.98638
02/01 1.00917 1.00238
01/01 1.02347 1.02091
12/00 1.01752 1.08799
11/00 1.01618 0.99701
10/00 1.00651 1.03174
09/00 1.00327 0.99567
08/00 1.01325 1.04828
07/00 1.01173 1.01733
06/00 1.02401 0.93499
05/00 0.99488 1.02134
04/00 0.99322 1.02450
03/00 1.01201 1.11141
02/00 1.01215 0.94968
01/00 0.99827 0.95029
12/99 0.99655 1.04710
11/99 1.00000 1.01445
10/99 1.00347 1.01384
09/99 1.01051 0.95584
08/99 0.99651 0.98581
07/99 0.99652 0.97222
06/99 0.99653 1.04542
05/99 0.99141 0.99883
04/99 1.00345 1.11701
03/99 1.00520 1.05750
02/99 0.98296 0.98908
01/99 1.00859 0.99977
12/98 1.00518 1.00114
11/98 1.01224 1.05047
10/98 0.99133 1.07786
09/98 1.01943 1.04612
08/98 1.01071 0.86413
07/98 1.00179 0.94808
06/98 1.00721 1.00177
05/98 1.01093 0.97329
04/98 1.00549 1.01487
03/98 1.00183 1.04764
02/98 1.00184 1.05281
01/98 1.00928 0.99472
12/97 1.01316 1.01091
11/97 1.00377 1.01551
10/97 1.01533 0.96027
09/97 1.01556 1.04678
08/97 0.98656 0.97443
07/97 1.03373 1.08081
06/97 1.01408 1.04267
05/97 1.00811 1.06607
04/97 1.01440 1.03821
03/97 0.98780 0.98111
02/97 1.00204 1.00743
01/97 1.00204 1.03636
12/96 0.98990 0.98662
11/96 1.01852 1.08620
10/96 1.02532 1.01611
09/96 1.01935 1.03114
08/96 0.99785 1.03584
07/96 1.00215 0.95778
06/96 1.01330 0.98746
05/96 0.99739 1.01235
04/96 0.99396 1.03333
03/96 0.99339 1.02248
02/96 0.98096 1.01472
01/96 1.00499 1.02450
12/95 1.01342 1.01725
11/95 1.01763 1.05161
10/95 1.01190 0.96951
09/95 1.01100 1.02320
08/95 1.01371 1.01461
07/95 0.99573 1.04010
06/95 1.00760 1.01067
05/95 1.04694 1.04317
04/95 1.01438 1.02979
03/95 1.00706 1.03217
02/95 1.02740 1.04344
01/95 1.01955 1.01860
12/94 1.01020 1.01273
11/94 0.99816 0.96180
10/94 0.99724 1.02407
09/94 0.98219 0.97126
08/94 1.00178 1.04691
07/94 1.02089 1.03647
06/94 0.99713 0.97526
05/94 0.99822 1.01837
04/94 0.98945 1.01384
03/94 0.97948 0.96162
02/94 0.98096 0.97749
01/94 1.01598 1.05711
12/93 1.00495 1.01557
11/93 0.99025 0.98937
10/93 1.00326 1.00749
09/93 1.00003 0.99256
08/93 1.02299 1.04208
07/93 1.00828 1.00000
06/93 1.02350 1.00613
05/93 1.00083 1.02983
04/93 1.00756 1.01161
03/93 1.00243 1.02377
02/93 1.02202 1.03442
01/93 1.02251 1.01815
12/92 1.02171 1.01267
11/92 0.99914 1.04021
10/92 0.97975 1.00730
09/92 1.01087 1.02519
08/92 1.00760 0.96139
07/92 1.02867 1.03104
06/92 1.01840 0.97757
05/92 1.02041 1.00932
04/92 1.00625 1.03018
03/92 0.99405 0.97590
02/92 1.00968 1.03248
01/92 0.98016 1.00347
12/91 1.03890 1.09160
11/91 1.00885 0.93688
10/91 1.00893 1.01075
09/91 1.02257 0.98517
08/91 1.02294 1.01871
07/91 1.01584 1.03654
06/91 0.99826 0.93515
05/91 1.00551 1.06065
04/91 1.01208 1.00745
03/91 1.01128 1.00374
02/91 1.01214 1.06619
01/91 1.00943 1.05644
12/90 1.01503 1.03487
11/90 1.02500 1.08515
10/90 1.01069 0.98052
09/90 1.00778 0.94231
08/90 0.98395 0.90150
07/90 1.01050 0.98755
06/90 1.01731 0.98619
05/90 1.03143 1.09220
04/90 0.98643 0.96992
03/90 1.00183 1.01990
02/90 1.00095 1.01858
01/90 0.98221 0.94644
12/89 0.99987 1.02878
11/89 1.00646 1.01757
10/89 1.02654 0.97951
09/89 1.00555 0.98229
08/89 0.98162 1.02985
07/89 1.01968 1.08453
06/89 1.03161 0.98932
05/89 1.02734 1.03499
04/89 1.01789 1.04223
03/89 1.00708 1.01362
02/89 0.98729 0.96981
For ANY set of existing set of data one may invent a strategy which would produce enormous results (back testing). The question is whether this strategy is going to work in the future.
I understand that a combination of value and momentum may beat the market, but usually the outperformance is very small, it accumulates over many years. Here the main effect is due to a one-time lucky decision during the market crash. This strategy underperformed DODGX during almost 20 years before the crash of 2008, though admittedly it provided a smooth ride. But using it in a taxable account could lead to a substantial after-tax underperformance. Nevertheless, it would be interesting to try something like that - and I guess funds like ARIVX or FPACX are using their own home made rules which tell them when to have 50% in cash and when to buy.
I actually believe I've come up with a telling graphic that will help all of us better assess potential benefit of this method. Stay tuned...
Thanks a lot for this intriguing post. Unfortunately I am new to this discussion, but I see that it goes back in time for quite a while, e.g. http://www.mutualfundobserver.com/discussions-3/#/discussion/5580/flack039s-sma-method-
In that discussion Investor gave the same argument that I did: The main conclusions seem to be related to the catastrophic event of 2008, and the possibility to avoid this event by proper timing. If you consider any 5 year interval involving 2008, the same method would work. In different circumstances, it might not. For example, it was not very efficient and steady in the long interval form 1989 to 2001 as compared to 60/40, right?
In these discussions Flack's SMA Method and the name of Mebane Faber appears quite a lot (I am honestly trying to educate myself). Publications of Mebane Faber look very convincing, so much so that when I have read them about a month ago I started looking whether I can invest in accordance with his ideas. Just like scott, I discovered his ETF, AdvisorShares Cambria Global Tactical ETF (GTAA). What a sobering experience! It exists for more than 2 years, and during this time he managed to lose about 1%, whereas the general stock market (VTI) during the same time gained 30%.
It does not prove anything, but it suggests that interesting ideas which look great when backtested may or may not help their proponents to make money. In fact, it is mathematically inevitable that some strategies must make a lot of money to some people by pure chance. This is an old debate, I do hope that a silver bullet can be found. I wonder, however, why GTAA behaves so poorly if Mebane Faber is such a great market timer?
What I said does not necessarily apply to your amazing observation and Flack's SMA Method. I am just trying to understand whether the statistical evidence is strong enough, and I do not know the answer.
Thank you
Andrei
I haven't posted in a while...helping renovate my 90 year old mom's family apartment...lucky for me it's in Hawaii.
Thanks for all your research, tables and graphs.
I believe integrating an "income" fund and an "equity" fund is a prudent way to invest. Whether its with a 200 day moving average strategy, an asset rebalancing strategy, or something else. These kinds of thoughts lead me to invest in PONDX over the last few years and share its performance with this board.
You're onto something here...keep up the great work. Love reading your threads.
Thanks for the information!
Of course, you have to be ok with being chopped up during certain periods. In order for a moving average system to do it's intended job, you have to stay committed during times when it's under-performing the B&H market.
First, thank you for all of your efforts with data and charts.
I'm arse high deep in a project(s) and have had too really filter my time allotment to "other" areas of life; although I must continue to read through MFO posts and monitor news/data relative to our investments to stay in the investments thinking loop.
As many here at MFO are aware, there are more methods available to perform techinical measurements than at least I have the time and/or apptitude to study and learn. My observations (limited study) of the technical areas always bring me back to thinking/study relationships with reading books about any given subject. If I select 10 authors on a given subject, it is likely that 1 author will write and offer the text/data in such a fashion that really hits my "sweet spot" for understanding. Not unlike folks who many of us may encounter who are brilliant in a given field; and may be teachers/writers, but who do not have the ability to properly pass along their knowledge and/or way of viewing or thinking about the subject matter.
'Course there are all of the other added circumstances that relate to investing, too.
1. one knowing and understanding their own limitations.
a. I know and understand when I have hit a wall of perception to grasp a particular concept. I have discovered this numerous times, especially studying methods used in technical areas of investing. I discover and read about a method to find that apparently I do not have the brain power to fully grasp the particular methodology.
2. liberal "arts" knowledge. This is a tough area to define, as it is different for everyone. Generally accepted I suppose, aside from one's own area of skill(s); is what do you think you know and understand about everything else in the world. Any knowledge should be of value at some point in the future, which starts with the very next day of investing.
3. fundamental aspects of investing. Well, there exist pure fundamentals here and there; but the current culture of this area has become and remains a most perverted area since December of 2008. Currently, the main perversion modifiers are central bank actions and machine trades. The revised and new normal would include both of these.
4. one's emotion and passion towards the preservation of their money. Emotional investing sure may get in the way of clear thinking, especially when blending with the passion side.
5. the machines, the competition. The machine trades ( reportedly about 70% of market(s) activity) are a most serious consideration, too. There is not a clear and concise way to deal with this aspect. One must also consider that there is little love lose among the big houses who battle and fight in this machine area to beat the other guy for bragging rights. Individual investors may well, at times; be standing on the sidelines wondering when do they get their turn in the musical chairs.
6. talking heads and credibility. This area includes all talking heads, be they screamers on the television channels, internet blogs or the figure heads of central banks and states, et al (including me!). First, they make their case for this or that. The tough part of this for an individual investor is too attempt to understand the motivation of the person; as much of the talk becomes aspects of marketing an idea without giving away the secrets and unknown data available to that person or persons. Too much of the time we do not and never will have the real truths behind actions.
7. the individual. One's habits are also a very powerful part of investing. Habits can be protective and positive. Habits may also be or place road blocks into one's pathway of change for the better. I offer that one's habits may be the most powerful force involved with investing; and one of the most challenging areas with which to adjust and/or change.
8. It is about the money, eh? If this house was sitting upon a $5 million portfolio, our direction of investment travel would be different. If we threw (invested) a large portion of this money, knowing that 20% of the value may go bye-bye; we would still happily survive on the remaining $4 million. 'Course this is not our position here, nor our mindset. This is the area of what one has today, how much to invest going forward (during the working years) and how much risk/reward to put in place within various investment sectors. Our house knew from day one that there would not be any provided health plan if retiring prior to age 65, and that the available pensions would be very modest. We understood that we had to do "other things" to provide for our monetary futures via common sense household budgets and investing. Thirty five years later the plan is functioning as expected.
I've wandered every direction with this, sideways related to technical analysis.
I have no conflict with Flack's method or other's methods that have been noted over the years. Attempting to mix all of the above personal considerations finds me leaning today towards more influence from the technical side. But, the technical must still be and have influence from the above factors. A 10 month or 200 day SMA is of benefit, IMO; but likely must be tempered and measured from shorter time frames, too. Many so inclined in this area start with 10, 50, 100 and then 200 day averages to attempt to find a continued trend in a given area. Relative strength indicators (RSI's at 21, 14 and 7 day periods) are also part of this; although oversold and overbought indicators can remain in place longer than one would "guess" .
I do not believe that long SMA's would have been of any value during the short term crash in Oct., 1987. This short period was a strange bird event. This linked chart FCNTX, March 2007-March 2009 is for one of our holdings during part of this period. If there is a period with which to "fiddle" with for outcomes (using tickers of your choice), this would be my choice. Some of this period found very large swings; as well as the majority of the "pros" still noting buy points and that all was well; which lends the best of techinical indicators and "talk" for one's decision making. I chose FCNTX, as at the time; this fund remained the "best" of our bunch for "holding" gains. The other 11 equity funds we held at the time were not doing as well, except PTTRX (10% of the portfolio). Our portfolio obtained its full value on Halloween Day, 2007. It was beat and ripped every whichway for the next 9 months. June 15 of 2008 found 87% of the equity portfolio sold and monies moved to either MM or stable value funds within various accts. Small amounts of FCNTX and VPMCX remained and were ridden through the "train wreck" to be sold in mid-2009, with the monies placed into HY bond funds.
Technicals and many of the above noted factors all played into this "luck"; if to call it that. My father had been diagnosed with terminal cancer early in 2008 and passed away the day Lehman Bros. crashed and burned. I was obviously very consumed by my father's status; and the technical triggers "again" (June shorter term, 50 day; other factors) tripped our house's sale of eqiuity positions. You may note that the 200 day on the chart looks backward relative to the 50 & 100 day; and would have eventually set a trigger point.
FCNTX, a few reference points: I will note too, that I watch CEF and GDX for reference to the precious metals. Using many technical looks, especially GDX has been beat to death. So, is this a deep value play today; or is more value coming? Not unlike the "value" that continued through much of 2008 and became a real value on March 6, 2009.
An aside from a few days ago: I saw that the French market moved +2.4% on one day. I don't think this has anything to do with French economic fundamentals, but with big, hot money making a buck. Europe still has its economic butt in a thin sling.
A vast amount of presentations regarding many technical aspects/training await you at "YouTube". Any number of suitable search wording will find many areas of study.
Lastly, I submit that investing one's own money to sustain a positive forward movement via limiting losses and the value of long term compounding resulting from capital preservation, is one of the most challenging areas one may encounter in a lifetime.
Thank you again for your time and efforts here, at MFO. I must be away; as the "to-do" awaits me, and hopefully you were able to tolerate and understand my jibber-jabber.
Regards,
Catch
A thank you to you, too; for your thoughts and notations regarding technical aspects of investing and how they trigger and/or affect your choices.
Take care,
Catch
When the proofs, the figures, were ranged in columns before me;
When I was shown the charts and the diagrams, to add, divide, and measure them;
When I, sitting, heard the astronomer, where he lectured with much applause in the lecture-room,
How soon, unaccountable, I became tired and sick;
Till rising and gliding out, I wander’d off by myself,
In the mystical moist night-air, and from time to time,
Look’d up in perfect silence at the stars.
Title: "When I Heard the Learn'd Astronomer"
From: Leaves of Grass - by Walt Whitmn
Thanks Catch! Very much appreciate the advice you are sharing. Miss your frequent posts and insight on the board. And look forward to when you've completed more of the to-dos. I did check-out some of the YouTube videos, but only ones I found seem like pitches from used-car salesman. (Like many fund advisors I suppose.) I've yet to assess the other indices, but I've read Paul Merriman's stuff recently which looks at interest rate and market breath. These would be a bit more complicated than Flack's KIS approach. I like the FCNTX tale. M* gives this silver star, $89B AUM fund "low risk" even now. Yet, it has experienced four drawdowns of 30% or more since 1972 (the year I met my high school sweetheart), including a 46% drop during last crisis. To those that could manage to put it in a closet for 40 years, it has returned 12.2% APR. Unlike say DODGX, it has returned to all-time high. Really liked the comments about the power of habits!
Bee, miss your posts too and good to hear about your amazing mom. I've never been to Hawaii, but during these brutal 50 deg days here in central cost lately
Mindy, I grew up an amateur astronomer so really liked the poem!
I'm just about finished with action items Andrei and Investor gave me...will post results separately. Thanks again.
I found quick summary for June 2013 at link below which includes iShares Barclays 7-10 Year Treasury (IEF) and the PowerShares DB Commodity Index Tracking (DBC), and Vanguard FTSE All-World ex-US (VEU) which are all signaling cash.
http://www.advisorperspectives.com/dshort/updates/Monthly-Moving-Averages-Preview.php
Nuff said.
I think it may be over for PONDX. Its success over the past many years was almost solely because Ivasyn had the foresight to purchase mortgage bonds, especially non agencies at ridiculously low prices at the height of the 2008/09
panic. I can't think of what he can do for an encore.
Edit: One of my pet peeves about mutual fund investing is sooooo much time and effort is spent on what funds to buy while almost no effort is spent on when to exit. I think every investor should have an exit strategy in place whenever they purchase a fund.