Screenshots from Tactical Backtester

Almost done cobbling together this backtester, aiming to send it out later this week.  A few screenshots below from the current model…


In addition to the regular benefits of subscribing to The Idea Farm, which include 2-3 research reports each week as well as free copies of my new books, we have another cool new feature coming!

I’m going to make a simple asset allocation backtest Excel sheet available to the readers of The Idea Farm.   (Below are some screenshots.) The goal is to have a buy and hold and tactical backtester available that will let you backtest allocations and strategies to the early 1970s. I was going to do it as a website but want to see what sort of interest there is first…so, let me know what you think…probably send it out before Thanksgiving…

So, sign up this week to The Idea Farm so as not to miss out!  

The Investment Brief

It is good to see people tackling our 5 Million Dollar Ideas in FinTech.  Below is one such example, and I’ve talked the founder into letting my readers have a free three month subscription.  See below:


  1. Download The Investment Brief app for free from the Apple app store.
  2. Once downloaded, open up The Investment Brief, where they will see a yellow subscribe button.
  3. Click this button and from the dropdown list select “Current Subscribers”.
  4. Type in 3freebrief and press select.
  5. They will now have complementary access to the magazine for 3 months.

Supply and Demand

Same amount of money chasing reduced supply = PE multiple expansion.

Nice piece from Barron’s this wknd.


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This is a fun video I had never seen before on John Law (HT @ValueWalk)

Some readings at the end…

Learning to Love Investment Bubbles



John Law and the Mississippi Bubble by Richard Condie, National Film Board of Canada

Market Bubbles

Behavioral Psychology and Evolutionary Biology


When Funds Go Out of Business

I used to write a lot about the managed futures space.  I love the strategy, but still think it is ripe for disruption.  Add on the fact that it has been a poor environment for these funds the last few years and HALF of all funds in existence since 2007 are now gone.  Time for the strategy to start outperforming?  (This chart only through 2012, expect worse #s this year.)

Source Altegris, HT @JBoorman  



Why You Should (NOT) Invest in Hedge Funds through 13Fs

I’ve done more articles on 13Fs than I can remember.  But I often get tired of hearing people repeat nonsense about 13Fs with no data to back it up.

Mark Yusko has a great oberservation in the below video, namely, the largest holdings are the WORST to follow.  However, there are a lot of people and funds that track the largest holdings.  Why?  Who knows, but likely they haven’t done the research.

For example, want to follow Baupost?  Great idea, top 10 holdings beat the markets but about 9% a year since 2000.  Want to follow Baupost’s top holding?  BAD IDEA.  Returns -0.9% a year, over 4% a year worse than the S&P.

Want to follow Warren?  About the same difference, 9% a year.

Across 20 of my favorite managers since 2000, investing in the top 1 idea underperforms investing in the top 10 ideas by 4% a year.  Massively bad idea. 70% of the funds top holding clone underperforms the top 10.

Still think the top holding is their high conviction idea?

(Source AlphaClone)


Risk Parity : The Interrogation

Gonna try and listen to this on the plane back to LA.

Webcast Replay

Download Slides


More from Bwater, Salient, and Invesco:

The All Weather Story


Investment Insights – When Yields Rise


Risk Parity in a Rising Rates Regime





Where in the Bitcoin Bubble Are We? Just Starting or About to End?

Investors should love bubbles.  That is where are lot of big money can be made.  Avoiding their destruction can be challenging of course.  A valuation anchor will help you recognize and avoid them, while a trendfollowing approach may help you ride them and get off before you crash and burn.  We published a paper a few years ago titled:  

Learning to Love Investment Bubbles: What if Sir Isaac Newton had been a Trendfollower?

For all my Bitcoin friends, where do you think we are on this chart?  (No position but having fun watching the show.) My guess is right about where “Newton’s friends get rich”.  Chart is in my paper courtesy of my crazy uncle Marc.

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Next Generation of ETFs

I sent this out to The Idea Farm this past weekend, but it is worth sharing.  From PWC

Download here:

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Weekend Reads

Three good reads this weekend from Barron’s and the WSJ.  

First, the Barron’s ETF Roundtable.  

Next, an interview with Ben Inker at GMO, much of which resonates with our thinking:


What’s your current asset-allocation mix?

Our benchmark-free allocation fund is long only and built out of traditional assets, namely stocks, bonds, and cash. Right now, a little bit more than half of our money is in stocks spread across three basic groups: U.S. quality stocks, EAFE [Europe, Australasia, Far East] value stocks, which cover developed countries outside the U.S. and Canada, and emerging-market value stocks. Those are the only equities, when we look around the world, priced to deliver returns commensurate with the risks associated with equities. There is no reason to own international growth stocks or U.S. small-caps. However, figuring out whether we should be 52% in equities or 65% or 35% is a little harder.

How do equity valuations look?

Stocks are all priced more expensively than we’ve seen, on average, in history. So U.S. quality stocks have spent most of history looking more attractive than they do today, and it’s similar for international value stocks. They are still priced to beat cash and bonds. But depending on how quickly you think they are going to revert to historical averages—if you think they are going to revert at all—stocks may be more dangerous than normal.

Your firm, GMO, has been pretty bearish on U.S. stocks, even as they’ve had a big rally. What’s your take on that?

On one level, that is absolutely true—since the fall of 2010, we have forecast that the S&P 500 would have modest returns, and it has obviously done better than that. But we don’t necessarily consider this to be an error, in the sense that we know overvalued markets can get more overvalued before they come back to fair value. At any point where the market winds up overvalued, we will have underestimated the return over that seven-year period. Since our last completed forecast in September 2006, the S&P 500’s real annual return is 3.5%, versus the -0.6% we were forecasting. That difference can be completely explained by the fact that the S&P is trading at a high P/E [price-earnings] ratio on high profit margins. But a market that stays overvalued will outperform our forecast in the shorter run and underperform in the long run.

What are your biggest concerns with the stock market?Our problem is not strictly that it has gone up. Our problem is that the S&P 500 is up this year about 25% or 26% on earnings that are up 3%. So we’ve got a market that is rising because of P/E expansion. That would be OK if the market had started out at eight times earnings, but it didn’t start out there. So we have a market that is trading at an increasingly high P/E at a time when profit margins are already as good as we have ever seen. So the likelihood of strong profit growth from here is pretty dim.  That’s a lousy market if the P/E is too high, profits are unlikely to grow strongly and all you can hope for is that the P/E goes up even more. We don’t like investing on that basis.are unlikely to grow strongly and all you can hope for is that the P/E goes up even more. We don’t like investing on that basis.

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