ivy portfolio

[chesser]

does anyone have experience or thoughts regarding this?
it seems conceptually somewhat of a blend of a standard stock/bond and pp
5 asset classes held proportionally:  us eq, foreign eq, bonds, real estate, and commodities.  it's intended to
be an individual investor's version of endowment funds
the momentum timing part is interesting. right now it would replace foreign stocks and commodities with cash
more info here: http://mebfaber.com/timing-model/
some initial concerns may be costs of higher transactions and taxes, relatively low bond component, and possible failure
of timing method to work

[craigr]

some initial concerns may be costs of higher transactions and taxes, relatively low bond component, and possible failure
of timing method to work

Those really aren't initial concerns, they are ongoing concerns!

I don't think market timing works for a variety of reasons. The biggest ones are as you point out: transaction costs, taxes, and the human involved in making the timing decision.

It's the timing most people underestimate the most. It's one thing to say you're going to sell when indicator X indicates. But then you have to decide when to buy when indicator Y says it's OK. So now you take on a decision that is emotional (selling) and then doubling the pain with another (buying back in). Of course you could sell and see things keep going up so you kick yourself for missing out. Then if you sell, you may miss a market decline, but when you have to buy back in you start doubting that you really hit the bottom. So you wait some and market goes up and up and up. Then before you know it, you've been out of the markets for a year and missed huge gains. This probably happens a lot.

The whole idea really starts to grate on an investor emotionally and I find most people can't hack it. Even people that can hack it, really can't hack it very well. I suspect they suffer a lot of drama internally. Humans aren't computers and you can't eliminate the emotional component of a timing system.

The above doesn't even take into account if the timing method works, which most don't. They invariable have problems as well like whipsaws which give lots of bad sell/buy signals. Timing signals don't look like a problem on a long backwards-looking chart, but when you are living the moment they will cause constant angst:

https://web.archive.org/web/20160324133 ... portfolio/

[rickb]

How is this 'pain' any different than the 4x25 PPer's 'pain' when having to buy more of the stinky asset on a rebalance? And most people here still manage to rebalance early or late because of 'gut feelings' on one asset or the market.

The amount of money is different.  With Ivy, you buy and sell 20% chunks of your portfolio on a monthly signal.  On a PP rebalance (with 15/35 bands) you're dealing with a significantly smaller portion of your total portfolio  For example, if 3 assets stay the same and one really takes off to the upside, the rebalance happens about when your overall portfolio is 15% more than when you started - at which point you sell about 11% of your total portfolio and spread this among the other assets.  There's a big difference between liquidating an entire asset class and selling only a portion.

[craigr]

How is this 'pain' any different than the 4x25 PPer's 'pain' when having to buy more of the stinky asset on a rebalance? And most people here still manage to rebalance early or late because of 'gut feelings' on one asset or the market.

I've found the more an investor is required to go in and tinker with a portfolio, the more likely they are to make bad decisions. So with a timing model you may be evaluating the portfolio very often and needing to buy/sell. The more often this happens, the more likely that investor is to experience regret, pain, excitement, etc. It can play on the nerves of the best.

With a passive portfolio you rebalance maybe once a year at most so instead of needing to make highly emotionally charged decisions many times a year, you are doing it perhaps once at most. This leaves a lot less room for bad influences, gut feelings, etc. to creep into the decisions.

At least, this has been my experience when watching people follow these systems and listening to them ask me questions. They get really tied up in the drama of it all and very quickly they are second guessing a lot of things. And each time they have to do a buy/sell that's one more time a little investing demon/guru can be whispering in their ear to do something that is probably not a good long term decision.

[MachineGhost]

"If you want to be an amazing systematic trader, it is essential to view yourself as an advanced life form from another planet who was sent to Earth to observe and to chronicle systematic human foibles. Quite literally, you have to view people as unfortunate beings who make constant logical and mathematical errors in judgment. Your job is to exploit their systematic mistakes in how they process information.

Lest you think this is too easy, remember that while it is very fashionable for humans to constantly comment upon how illogical, dumb, and predictable other humans are, that most people are unable to profit from the misjudgment, pettiness, and emotionalism they are constantly confronted with. Unfortunately, most humans only suffer from their fellow humans' stupidity, and with grave consequences, ranging from the seriousness of war and peace, to the horrors of genocide and starvation, to the banality of infidelity."

--You're Welcome Planet Earth: Structural Arbitrage

[chesser]

thanks for the replies
would be interesting to see if using 10 mo sma is an effective tool for improving returns (backtesting in portfolio eval)

it's obviously an attractive idea that's being used in the ivy portfolio, but of course may not work,
and the behavioral requirements on the investor are more than what is needed in pp, as many have noted.

broader diversification overall (stocks, commodities, and real estate, although would use either total bonds or 10 yr gov't versus 30 yr) of ivy vs pp. most of research points to diversification benefits of such portfolios, even though correlations can rise during times of crisis.

probably will come down to whether it's diversification and timing work in the future as to success of ivy port.  imo pp has some challenges too

[rickb]

would be interesting to see if using 10 mo sma is an effective tool for improving returns (backtesting in portfolio eval)

There was a thread a few years ago about this: http://gyroscopicinvesting.com/forum/pe ... nstein%29/

The link in the first post of that thread is to an entry on Faber's blog about applying his 10 month SMA technique to the PP.  He compares a monthly rebalanced PP to one using his timing.

[barrett]

imo pp has some challenges too

Not disagreeing with you, chesser, but what do you see as the PP's most serious challenges?

Also, rickb, thanks for digging that thread up!

[MachineGhost]

Trend following would not have worked in the past due to transanction costs.  Even ignoring that, you would need a more sophisticated model than simple moving averages to profit from long-term bonds in a bear market.  It has merit for stocks and gold.  You can see it in action under ticker TBAR as applied to gold.  And applied to a global ETF universe, there is GMOM.

Has someone done a comparison study between moving averages and rebalancing bands?

Moving averages are really nothing more than absolute momentum.

[chesser]

rickb: the link to the previous discussion is a great find, thanks. i'll have to spend some time going though it.  the first link appears to show pp
w/timing method was mildly superior to without. seems the biggest concern discussed here and at that time was the behavioral challenge with timing.

barrett: thanks for asking but i don't have any keen insight, only opinions which are similar to others: stocks and ltt's seem highly valued which portends relatively low returns, cash is yielding nothing, and gld can be a concentrated bet. that said, i'm still using it as my core plan b/c seems to suit my style most compared to alternatives. i'm lately wondering about missing out on global diversification of stocks and bonds though

[tnt]

Chesser, in regards to global diversification, it is overrated.  The figures are from 2010 and increasing but check out this link, http://news.yahoo.com/going-foreign-p-5 ... .html 

This article discusses the increasing percentage of S&P 500 companies earnings coming from other countries.  In 2010 it was 46%, tech companies average 50% and the country percentages were mostly 29% from Europe and 13% from Asia.  This is why the market freaks out when China slows down and Europe does not use stimulus as it wants. So in my case, I have a VPP with 40% S&P 500, 40% Long Bond and 20% Gold so 20% of my portfolio is offshore.  Of course country investing in Government bonds is different technically but the economies are increasingly joined at the hip. That is why I quit slicing and dicing stock funds and stay with one volatile one that is easy to follow, my thoughts, thanks.