Quant Approach to TAA updated for 2009

Update: If you like World Beta, please consider nominating us for the Loeb Awards in blogging and book categories!

I few years ago I wrote and published a paper to avoid taking the CMT Level III Exam.  The timing was fortuitous as it preceded the global meltdown by a few years and illustrated the benefit of diversification as well as using some simple risk management to sit out the simultaneous bear markets.   The real time performance has been far better than the historical numbers, and the system hit new highs at the end of 2009 while the benchmark buy and hold and the S&P500 are still down 30% or so. This is one of the reasons the paper is now in the top 5 in all time downloads on the SSRN. (Had you told me 10 years ago that I would write a popular academic paper, after bursting out laughing, I would have assumed it was in gene therapy…funny where life takes you!)

We tried to expand on the paper a bit in the book, but there are still a lot of common misconceptions about the timing model (it works all the time, it is fail-safe, etc neither of which are true.  Look at January a crappy month for timing model as an example.), but we think it was a simple example of proactive risk management.  We don’t run it remotely like this in-house, but it is a useful description of “how to fish” rather than “where the fish are”.

Below is an updated equity curve and chart of the timing model since 1973.  We are considering writing an update to the model with new additions including a section on global rotation strategies, as well as adding more asset classes (small caps, gold, etc).

The problem is I literally have 7 more papers to write on some really, really cool topics.  So, I’m not sure exactly what will come first.  I thought about posting the 7 topics and letting people vote, but I’m not so sure I want to disclose all of them yet….

Cambria is considering starting a newsletter or perhaps charging for some of the research to:

1.  Give investors an early look at our research, with maybe a 3, 6, or 12 month time lag before we publish the paper publicly for free (it at all).

2.  Update a number of our strategies in depth.  I get dozens of emails every day about people wanting to know specifics, how we manage money (proprietary), and how to update the portfolios.  I had hoped that providing links on the website and publishing a free monthly update would have accomplished this, but it only generates more emails.  Not sure what the solution is here.

3.  Circulate our investment research.

So, if you have any thoughts or suggestions on paper topics, publication methods, etc let me know in the comments.





And the real time results.



real time