Templeton Update

Stockcharts now has the 10-month SMA for free (Hat Tip: GK).

Go to the tab above for timing updates!

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Swensen transcript from WealthTrack

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How to read the WSJ for free.

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I saw Tim Melvin chatting about Templeton and thought I would update this post from March where we screened for stocks trading below $1 on the New York and American stock exchanges. 

It returned about 300 stocks from a list of 2500, and we then sorted the stocks by # of insider buys.  Since then the list had an average performance of 110% vs. around 50% for the microcap index. 

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Make your own Nutella

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Awesome graphics from GOOD magazine (via Kottke)

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Cooper’s Hill Cheese Rolling – I think there are some risk management lessons in here somewhere.  Reminds me of the Us Dollar lately.

 

Links

Lots of markets trending up.

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AlphaClone video from a recent conference.

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From FlavorWire, maybe I should be doing this?

FP: I read over on Galleycat that you’re doing this strange pass along thing with review copies of your upcoming book, The Adderall Diaries. What inspired that?

SE: I’m letting people who request an advance copy of my new book borrow it. They get it for a week and I send them the address of the next person they’re supposed to send it to. What inspired that is that I want people to read my book. Some people have said that I might sell fewer books if I let people read it for free. But I don’t think that’s true, and I don’t care anyway. I write books to be read. I’m 37 years old, I’ve written seven books and I share a one bedroom apartment with a 27-year-old hipster. Obviously I’ve made choices in my life that weren’t about getting rich. Whenever I speak at a school or a creative writing class people ask me about making a living as a writer and I tell them only a crazy person would go into creative writing to make a living.

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Boston magazine article on Harvard.  Also, Gross chimes in.  I see it as more of a philosophical question:  "Should the endowments be investing in risky assets at all, or just governement bonds?".  [This also starts another question - are US Bonds risk free?]

Gotta take some risk to get that return….the below chart takes the average of Harvard and Yale yearly returns, and assumes a -30% decline for fiscal year ending June 30th (and assumes 10% bond return for 2009.)

 

 

Long Bond Pain

What do the years 1920, 1973/74, 1980/1, 2009 have in common?

Routs in the long bond, which is currently in the largest drawdown I can find since 1900.  Zeros are doing even worse. . .

Source: Global Financial Data

 

Currencies

I have no idea why someone doesn’t launch currency value (PPP) and momentum ETFs/ETNs in addition to the carry strategy.

Nice papers:

The Revenge of Purchasing Power Parity on Carry Trades during Crisises

Currency Benchmarks for Investors

Do Professional Currency Managers Beat the Benchmarks?

Ira Sohn Recap

I wrote a really long post on this topic then managed to delete it.  Instead of recreating it, here are some summary links:

Will Hedge Stars Strike Out Again? (Barron’s, average pick did 10% worse than S&P including some really terrible picks down 80%+.)

Summaries from Zero Hedge, and First Adopter:

Peter Thiel, Clarium Capital: fade recovery, commodity inflation, deflation of owned assets

Joseph Healey, HealthCor Partners: Long Valeant Pharmaceuticals (VRX), Long Hologic (HOLX), Long Life Technologies (LIFE)

Mark Kindgon, Kingdon Capital: Long Bank of America (BAC)

Steve Mandel, Lone Pine Capital: Long Strayer Education (STRA)

Jim Chanos, Kynikos Associates: Short for-profit education companies, Short high margin health-care companies like Lincare Holdings (LNCR)

Lee Hobson, Highside Capital: Long Millicon International (MICC), Short Ritchie Bros. (RBA)

David Einhorn, Greenlight Capital: Short Moody’s (MCO)

 

 

Hedge Fund Masters

All the 13Fs are in and the rebal has taken place for AlphaClone. I started tracking a "Hedge Fund Masters" Clone in Jan 2007 that in backtests showed historical outperformance of about 6-12% per year.  (I did those tests by hand and it took me an entire month.)

The ten most popular stocks from ten of my favorite hedge fund managers are beating the market by a whopping 27% YTD and 17% a year since 2000. That is astonishing to me.  (This even includes one fund imploding, and at the end of 2008 year we replaced Okumus with Appaloosa.  Appaloosa clone is absolutely destroying the market this year. )

Below are the 10 managers I track, as well as their current holdings.  The portfolio is beating the market by over 40% since I started tracking it in 2007.  (Note: I started out tracking the top 2 holdings from each fund as well, and while it outperforms the market by a nice 8% per year, I don’t think it is the best way to track these funds.  But I’ve said enough already, go get your hands dirty with the software and come up with your own alpha findings.  PS check out the recent Goldman Trend Monitor for some tidbits as well.)

FUNDS

Baupost

Berkshire

Blue Ridge

Eminence

Greenlight

Lone Pine

Maverick

Appaloosa (formerly Okumus, switched beginning of 2009)

Private

Tiger

 

Top Ten Most Popular Stocks

Qualcomm, QCOM

Visa, V

Google, GOOG

Apple, APPL

Mastercard, MA

Priceline, PCLN

Health Management, HMA

Strayer Ed, STRA

Coca Cola, KO

Union Pacific, UNP

 

Linkfest

Some nice Memorial Day Pics.

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The End Draws Nigh

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Selecting active mutual fund managers.

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This is completely unrelated to the markets but I think a really cool project!

One of my good friends in producing the documentary film, "The 100 Years Project".  If you are interested consider visiting the website and donating a little coin…(the director and producer are both Emmy award winners so it should be a great film).

About the film:

"100 years ago we were just one generation out of slavery.  There were no cars on the road, no planes in the sky, no computers on our desks.  Since then the world, and our country, have changed in immeasurable ways.  We have lived through two world wars, the introduction of the radio, television, segregation, the birth of Civil rights, race riots, a walk on the moon, the beginning of the Information Age and now, the election of American’s first black president.  Can you imagine living through all this in one lifetime?  What can we learn from remembering the past directly through the eyes of someone who has been there to see it all?  How can we celebrate where we are today, and where we will be tomorrow – especially in this unique moment in history?

100 YEARS is a project that aims to shed light on some of these questions.  The project begins with a documentary that will recount out country’s past through the eyes of five African Americans over the age of 100 who have lived through all of these changes.  The film will look at our country’s racial history the past 100 years through the eyes of these unique individuals –and of the contributions and sacrifices that have been made by all African Americans —  and will celebrate how far we have come while recognizing how far we still must go."

 

Everything She Does is Magic

It’s rebalance week for AlphaClone and all the 13Fs are in.  Do my long time readers remember the World Beta Hedge Fund Masters Clone we started tracking in Jan 2007?  We found historical outperformance of about 6-12% per year in backtests I did by hand.  I shudder thinking about how long that took me.

The ten most popular stocks from those ten managers are beating the market by a whopping 25% YTD.  I’ll update the holdings this wknd.

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Canada and the US

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Call it The Rooster, Hot Cock, or just Sriracha, but everyone loves it.  I would say Sriracha, Chalula, Lizano, and Texas Pete are my four favorite hot sauces. . .

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I have no idea what substance he is on in this clip, but CNBC would certainly be more interesting if they required all the commentators to be on it.

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I haven’t read much lately of great interest (send me some links!), so here is a little diversion from I Liked This :

 

When to Buy? When to Sell?

Will be in Phoenix/Scottsdale the rest of the week.

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Ha!  Meb Fabor….I guess that is not as bad as Melanie Faber when I first published the GTAA article. . .

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People often ask me if buy and hold is dead (or make comments about my model "disproving" buy and hold).  Look, I have no problem with buying and holding asset classes – being long risk has proven to be a great strategy for a long, long time. 

I see the issue as more of a personality issue.  With a diversified portfolio of world asset classes (or a 60/40 portfolio) I think you need to be able to accept a 50%+ drawdown.  With a single asset class or security you need to be able to accept an 80%+ drawdown.  I think using risk management via a trendfollowing method fits me personally.  While historical drawdowns have been low for the timing model, I can certainly see scenarios where they could be higher.

The tactical model is meant to only be broadly represenative of a risk management strategy.  It is not the Holy Grail by any means.  One of the main difficulties people have is in doing wholesale shifts in asset classes.  ie "I’m in stocks", or, "I’m out of stocks".

A potentially better option for many investors would be to scale in their investments.  So, instead of using just the 10-month SMA for each asset class, divide the capital into two buckets.  Time half with the 3 to 6-month SMA and half with the 9 to 12-month SMA (take your pick, 50 and 200-day SMA could be similar).  That way you avoid all of the personal stress of "missing rallies" and "sitting in bear markets".  And yes, fyi, I expect there to be no difference in the long run to performance either way.  But for a lot of people it might fit their disposition better.

I have received a ton of emails asking if it is possible to combine the rotation and timing models.  More in a follow up post if I can get around to it. . .

 

 

Mean Reversion (also 500th post!)

I have written a lot of posts on mean reversion in the past.  Here is a post from September that is a good summary post including links.  Summary:

In one study I examined asset class performance after a really bad month.

The take-aways from this study were:

- It does not pay to buy an asset class after a really bad month for the following 1 month.

- 12 Months later the return is not much different than average.

- 3 and 6 month returns, however, are stronger. You pick up on average about 3-4% abnormal returns buying after a terrible month.

A simple strategy would be:

After an asset class has a terrible month, wait a month then take a 2 month position.

It looks like a good “trigger” for equity like asset classes is around -8%, and for 10 yr bonds around -3%.

Note that this does not work for the commodity index, and one could speculate that is due to differing risk premiums and sources of return to that asset class.

How did this perform in 2008 and 2009? 

Instances when the five asset classes had <-8% returns (-3% for bonds).   

The below will show when the system would have triggered and the resulting return for sitting out a month, then long for a two month hold.

I’m not really sure what sort of benchmark to compare this system to, other than buy and hold of the asset class over the period.  This system may prove to be a nice complement to the GTAA timing model.  The stats show the date the system triggered, then the resulting "wait a month then invest for two months performance". 

S&P500 triggered on, performance:

6/30/08: -7.6%

9/30/08: -6.2%

10/30/08: -7.6%

1/30/09: 19.17%

2/30/09: TBD (9.57% so far)

Average return excluding 2/30 is -0.55%.  [Beating buy and hold by about 25% July/08 through April.]

 

10 Yr Bonds triggered on, performance:

1/31/09: -0.59%

[Beating buy and hold by about 1% Feb through April.]

 

 

MSCI EAFE triggered on, performance:

1/31/08:  4.5%

6/30/08:  -17.87%

9/30/08: 0.34%

10/30/08:  -4.37%

1/30/09: 20.18%

2/30/09: TBD (12.96% so far)

Average return excluding 2/30 is 0.56%. [Beating buy and hold by about 38% Feb/08 through April.]

 

NAREIT triggered on, performance:

6/30/08:  1.67%

10/30/08:  -3.24%

11/30/08:  -32.77%

1/30/09: 33.61%

2/30/09: TBD (27.97% so far)

Average return excluding 2/30 is 3.89%. [Beating buy and hold by about 28% July/08 through April.] 

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