Well, not only is Spencer Pratt following me on Twitter (along with 12k other people), but his last post is “I hope you bought Gold when I told you!”.

After I finished vomiting in my mouth and blocking him, I shuddered at the thought of being in gold alongside him.

Glad I have a quant stop in place, wonder what his exit strategy is??

Below I continue my series of posts highlighting some of the more interesting blogs in my last three years of writing.  The below is a nice prelude to the new paper I’m writing, so stay tuned!

Here is the post that announces the publication of my “A Quantitative Approach To Tactical Asset Allocation” paper way back in Feb 2007.

As a somewhat amusing aside, below is a review Victor Niederhoffer gave my paper back in September 2006.  Note that before I get a ton of hatemail, realize I am a huge fan of his published writings.  He is the author of The Education of a Speculator and Practical Speculation.     (verbatim, no edits, my bolding):

VN:  “(your paper) is based on 100 year old data, doesnt take account of the higher returns of
stocks, and doesnt use real prices and suffers from the law of small numbers in
chooinsg periods and marketst that beat stocks alone with or without leverage. a
very ad hoc and worthless article that will lead many to stay out of stocks
when they shouldnt. v”

MF: (my reply which was not responded to)

“A couple notes:

The portfolio is invested in each asset class roughly 70% of the time.  So, it is in effect “in” stocks the vast majority of the time.

Also, the portfolio is allocated 40% to stocks (foreign and domestic). [Note: technically that is a 60% equity allocation with REITs] That is pretty much in line with the Harvard and Yale endowments.  But this figure was arbitrary to showcase the effects of diversification as well the timing system working in many varied markets.

The main point of the article (which I may have not done a good job of conveying) is that a simple timing system (in this case a moving average) does NOT improve returns but simply reduces risk.  However, with leverage, returns can be improved.

Siegel’s results in his book confirm these results (as do many others)

Thanks again for your time!!

Regards,

Mebane

I don’t take any joy in people blowing up their funds like Vic did (twice) (also here- The Blow Up Artist) -, but I am proud of how the timing model has performed since publication (and it is the #1 most read academic paper in the world over the past year).  Real time performance since publication is outperformance of over 20% with massive reductions in volatility and drawdown.

Looking at the ETF version, the model is mostly invested for the first time in a long,  long time.

TIMING UPDATES here

Some good related quotes from the chapter “A Tail of Two Worlds: Fat Tails and Investing”  in the book More Than You Know by Mauboussin (I love the last quote!!):

“[Victor Niederhoffer] looked at markets as a casino where people act as gamblers and where
their behavior can be understood by studying gamblers. He regularly made small amounts of
money trading on that theory. There was a flaw in his approach, however. If there is a…tide…he
can be seriously hurt because he doesn’t have a proper fail-safe mechanism.”
George Soros
Soros on Soros (1995)

“In statistical terms, I figure I have traded about 2 million contracts…with an average profit of
$70 per contract. This average profit is approximately 700 standard deviations away from
randomness, a departure that that would occur by chance alone about as frequently as the
spare parts in an automotive salvage lot might spontaneously assemble themselves into a
McDonald’s restaurant.”
Victor Niederhoffer
The Education of a Speculator (1997)

“On Wednesday Niederhoffer told investors in three hedge funds he runs that their stakes had
been ‘wiped out’ Monday by losses that culminated from three days of falling stock prices and
big hits earlier this year in Thailand.”
David Henry
USA Today (October 30, 1997)

“Much of the real world is controlled as much by the ‘tails’ of distributions as by means or
averages: by the exceptional, not the mean; by the catastrophe, not the steady drip; by the very
rich, not the ‘middle class.’ We need to free ourselves from ‘average’ thinking.”
Philip Anderson
Nobel Prize Recipient, Physics
Some Thoughts About Distribution in Economics

When is the time to buy the homebuilders? “2009 is looking great”…ITB is the homebuilder ETF

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Probably my two favorite posts that highlight my biotech background:

Correlation or Causation?

If I Were a Woman

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I’ll update the “Five Ideas for 2009” at year end…

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Gold hasn’t exactly whoosed up to $1500, but it certainly is stairstepping there.  All three approaches should be doing well (buying call options, call spreads, or using the timing model on gold).

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Volatility Clustering sure did rear it’s head the following Fall!

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Optimizing on happiness – how many people followed this advice?

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Forbes moves into the blog aggregator space with a terrible business plan, and more amazingly, still has it.

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A little old school TA – HA look at those RSI divergences!

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Here is a nice post I did on how little people were being compensated for owning risk.

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I am still a firm believer in buying new highs.

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Badonkadonk

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Closed-end funds are still one of the least efficient areas of the market.

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I long ago gave up the prospect of hedge funds getting listed in the US.

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Time to Hedge Your House?

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One more reminder why I’m not an equity analyst.

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I still think a book taking a look at all the progeny of The Turtles, the Tiger Cubs, Rubin’s desk, and Commodities Corp would be super interesting…

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I really miss Kurt Vonnegut.

From Galapagos, circa 1985:

The thing was, though: When James Wait got there, a worldwide financial crisis, a sudden revision of human opinions as to the value of money and stocks and bonds and mortgages and so on, bits of paper, had ruined the tourist business not only in Ecuador, but practically everywhere…Ecuador, after all, like the Galapagos Islands, was mostly lava and ash, and so could not begin to feed its nine million people. It was bankrupt, and so could no longer buy food from countries with plenty of topsoil, so the seaport of Guayaquil was idle, and the people were beginning to starve to death…Neighboring Peru and Columbia were bankrupt, too…Mexico and Chile and Brazil and Argentina were likewise bankrupt – and Indonesia and the Philippines and Pakistan and India and Thailand and and Italy and Ireland and Belgium and Turkey. Whole nations were suddenly in the same situation as the San Mateo, unable to buy with their paper money and coins, or their written promises to pay later, even the barest essentials. ..They were suddenly saying to people with nothing but paper representations of wealth, “Wake up, you idiots! Whatever made you think paper was so valuable?”

The financial crisis, was simply the latest in a series of murderous twentieth century catastrophes which had originated entirely in human brains. From the violence people were doing to themselves and each other, and to all other living things, for that matter, a visitor from another planet might have assumed that the environment had gone haywire, and that people were in such a frenzy because Nature was about to kill them all.

But the planet a million years ago was as moist and nourishing as it is today – and unique, in that respect, in the entire Milky Way. All that had changed was people’s opinion of the place.

I just unsubscribed everyone from the old email system – if you want to keep up via RSS or email click the links to the right.

I’m headed to Charelston and Raleigh/Chapel Hill, NC for Friday the 6th to Thursday the 12th.  Drop me a line if you’re around.

I just realized we passed my third blogiversary.  I thought I would spend a few posts over the next month highlighting some of the odd 600 posts to look at what I consider to be important topics.  Of course, we’ll take a look at some of the more idiotic, as well as insightful ideas on here.

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We started the blog chatting about some topics of true diversification as well as risk parity.  A couple of good reads here:

“Engineering Targeted Returns and Risks” – Bwater

“The Biggest Mistake In Investing” – Bwater

“Risk Parity Portfolios” – PanAgora

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A reader emailed it asking about an old “Is it Time to do a Templeton” article and thought I would update this post from March 8th 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 244% vs. around 55% for the microcap index.  The list of names is below, and there was only one loser of -10%, and multiple 500% plus gains… :

ADK

CFW

DRJ

END

ETM

FOH

GLA

GMO

GSB

GTF

GTN

HH

IHR

NTN

OMN

OPK

ROX

RPI

TCX

XFN