Beating the Dow with Dogs, Flyers, Bonds, and Darlings
Michael O'Higgins placed his stamp on the investment world with his 1991 publication of the book "Beating the Dow". In the book he details a strategy he calls the High-Yield 10 which buys the 10 highest yielding Dow Jones Industrial Average Stocks - out of a potential 30 - and rebalances yearly. The strategy was labeled the "Dogs of...
When Congress goes to work, it’s time to sell. . .
Article at The Club For Growth"According to two economists, Mike Ferguson of the University of Cincinnati and Hugh Douglas Witte of the University of Missouri at Columbia (paper link here) , if you had invested $1 in the Dow Jones Industrial Average back in 1897 when the index first started and invested only when Congress was in or out...
Mean Reversion
In 2003, investors in global equities had just experienced 3 brutal years of negative returns. While many were too shell shocked to commit new (or in many cases, any) capital to the stock markets, this was precisely the best time to buy stocks. Baron Phillipe Rothschild once exclaimed that the time to buy was "when there is blood in...
Drawbacks of Simple Momentum
As a number of readers have pointed out, there are various drawbacks to the method/test I have presented here. The big ones are:1. Fixed measurement period. I used a simple one-month and one-year absolute measure, but it is possible that 3, 6, X months would work better (or a combination of measurement periods).2. Fixed holding period. This is the...
Does 1MO Work on Foreign Indices?
I take a look at the top 5 countries in the MSCI EAFE Index - UK, Japan, France, Switzerland, Germany, and Cash.Much better return with similar volatility (resulting in a higher Sharpe), and lower drawdown.No allowances made for commissions, slippage, taxes, etc.Equity Curves, log and non-log. . .
Volatility Gremlins
Readers have been emailing me about the returns of the models I have presented in the last few posts. Rather than respond to all of them individually, I thought I would just post the year by year returns for the S&P500, the 1-Year MO model, the 1-Month MO model, and a combo of the two models. Recall that no...
More Momentum
What about a strategy that is a bit more active? In this follow up to "Simple Cross-Market Momentum", I take a look at a shorter time-frame - 1 month momentum. The strategy selects the market for the following month with the highest absolute return the previous month. As in the previous study, the strategy is examined since 1972 utilizing...
Great Website
Fundadvice.com has a plethora of articles on buy-and-hold investing, as well as market timing.A couple of my favorites:Buy and Hold ArticlesThe Ultimate Buy and Hold PortfolioThe Perfect PortfolioMarket Timing ArticlesAll About Market TimingMarket Timing: The Rest of the StoryDo You Have What it Takes to be a Successful Market Timer?Lots more info on there for retirement, etc. . .
Simple Cross-Market Momentum
Below I will present a simple quantitative method that exploits momentum in relative returns across a wide set of asset classes. The strategy is examined since 1972 in an allocation framework utilizing a combination of diverse and publicly traded asset class indices including US Stocks (S&P 500), Foreign Stocks (MSCI EAFE), Commodities (GSCI), REITs (NAREIT), Cash (90-Day Commercial Paper),...
Goldman Primer
In the Goldman Sachs GTAA primer linked below, they describe some empirical evidence of GTAA using valuation and momentum factors. They form equal weighted portfolios withing each asset class (equities, fixed income, and currencies) based on 1 - Valuation based on Price to Book (P/B) for equities, yield curve for fixed income, and purchasing power parity for currencies, and...
