2020 - Ultimate portfolio

I do like that @Mr.HdLR is thinking here out of the box and is kind enough to share it with us. And usually the first running through a wall gets a bloody nose anyway. So don’t worry about the skepticism. If you have additional information or an update about your theory/idea, I am more than happy to listen carefully.

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check out the last simulation, it seems to be worthed… I’ll try to simulate more numbers.

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I see there is strong dogma of you will never outperform SPX on this forum.

In crudest form, your backtest seems to be most basic form of momentum tilt factor. And that is one of two factors that just work.

https://www.msci.com/documents/10199/904e031c-94e4-4dbc-a314-7c373446dffa

Mom has tendency to crash, but mostly in short leg, and since your portfolio is long only it’s not going to be as bad.

It’s good for not so big wallets, no way I’d put a lot of monies into 5 companies, then you need more to diversify.

Possible improvements:

  • try to rebalance every 6 and 3 months. Might not bring any improvement, you need to see for yourself if any pattern is visible.
  • what will definitely help is volatility scaling, very easy to do with constant vol scaling, basically you underweight volatile, and overweight more stable. Easy to calculate too.

In general mom works better on less liquid, small cap, less efficient markets, but even for big cap as you see from MSCI World Mom it’s fine.

And what are top 2 constituents? AAPL MSFT which you also have.

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Sure you can by loading more risk with factor investing. You can also take on some idiosyncratic risk by not diversifying and win.

You can look up the etfs that try to track the momentum index, they don’t have the performance of the index. The proposed portfolio might sometimes capture the momentum or it might not. It is also important to mention that the momentum factor is a factor that is not really understood. So we don’t really know what happens when funds begin to track the factor.

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What do you mean by “not understood”? The criteria are defined: “the index consists of titles that have experienced price increases over the past 6 and past 12 months with the assumption that increases will continue in the future.”

There are many ETFs following this strategy

MSCI World Momentum Index suggests it’s also a good long term strategy
https://www.msci.com/documents/10199/904e031c-94e4-4dbc-a314-7c373446dffa

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It has only a behavioral explanation and no risk based explanation. A risk based explanation is robuster because we don’t have to assume non-efficient capital markets.

As calculated by MSCI, the Sharpe ratio of the Momentum style is also higher, which makes for a better risk adjusted return. Quite counterintuitive, as this style is most likely to inflate valuation bubbles.

Buy SSO if you want to outperform the SPY.

Did not know what SSO means, but googled it and this is crazy.
https://www.proshares.com/funds/sso.html

Thanks for bringing this up @Cortana

Check out UPRO and TQQQ. Over 30% and 40% CAGR in the last 10 years! But the potential drawdowns are massive. There is a lot of discussion on bogleheads concerning buy and hold investments with leveraged ETFs, for example:

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=294807

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=272007

Even if you have 2 big recessions, this strategy works well.

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Including TQQQ seems also interesting. Nasdaq has a huge potential.

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Invest in companies that start with a “A” (Amazon, Apple, Alphabet (Google)…) they outperformed the market in last 10 years!

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Hi @Mr.HdLR - how would your portfolio performed YTD through this dip? I would be curious to see the results :slight_smile:

Quite well probably, given that AMZN is at an all time high (additionally +5% today LOL), and MSFT and AAPL weren’t as hit as others.

Time flies!!
Here you go!



Of course… you need to stomach this…

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So big question, did you implement the strategy yourself?