Is anybody familiar with Mebane Faber's trend following method of investing? Have read his white paper on the method....sounds like it's a better method than buy and hold. Evidently his book "the ivy portfolio" demontrates how the average person can set up a model using ETFs. Looking for opinions, ideas, etc.
Trend following
- Thread starter mac
- Start date
you should follow the spy, it really is the market along with its derivatives, its all about the efficient frontier.
http://www.macroaxis.com/
correlation, alpha and beta are key concepts with risk avoidance
first and foremost. What are you trying to manage $ wise, once you know how much you are managing, then you have to decide how hot/risky you want your portfolio to be. If you are limited by portfolio constraints, for example you can protect yourself by buying vxx which models the vix (sp volatility). The great equalizer in all of this is that no one really knows the future so even the best manager is guessing, that said the larger ones have access to a lot of things the avg retail investor doesn't. you may want to focus on sector analysis if you have mutual fund type trading constraints.
http://en.wikipedia.org/wiki/Modern_portfolio_theory
http://www.macroaxis.com/
correlation, alpha and beta are key concepts with risk avoidance
first and foremost. What are you trying to manage $ wise, once you know how much you are managing, then you have to decide how hot/risky you want your portfolio to be. If you are limited by portfolio constraints, for example you can protect yourself by buying vxx which models the vix (sp volatility). The great equalizer in all of this is that no one really knows the future so even the best manager is guessing, that said the larger ones have access to a lot of things the avg retail investor doesn't. you may want to focus on sector analysis if you have mutual fund type trading constraints.
http://en.wikipedia.org/wiki/Modern_portfolio_theory
Yes, I am familiar with his work, and have been using his ideas for almost exactly a year. I have to admit that I tweaked them somewhat to produce a slightly faster system with more trades. I have made about 15-20% on that part of my portfolio over the year. I am looking forward to seeing how the method will fare over this downturn. Currently I am long UUP, TLT, IYR and I am short MOO, DBA, USO, SGG. Some of these are probably a bit redundant.
Faber states somewhere on his site that about half the trades are winners and that the average winner is much larger than the average loser. This has been exactly my experience. I have made about 20-25 trades, and three, all of which I held for a long time, were big winners. About half my trades are losers; I rarely lose more than 4%. There is a fair bit of whipsawing; I bounce in and out of things frequently until I catch a wave. One time I made 6-7% on FXY and ended up giving it all up. So this is like all trend following systems in that you need to be able to endure some rock and roll. In addition, signals tend to come in groups. I can sit around doing nothing for weeks and then get five or six signals at the same time.
I have backtested this with my own adjustments on several vehicles and it is my impression that commodity etfs will trend better than stock etfs. I do not think this works very well with broad based stock indices (with the notable exception of emerging markets). Stocks are too volatile relative to their price changes and I think you would get whipsawed too much. As for bonds, I think they trend well also. Some have certainly had a great run this past year, but I did not trade any of those, since I got to the party too late.
Let me know if you have any other questions or want to hear about my tweaks.
Faber states somewhere on his site that about half the trades are winners and that the average winner is much larger than the average loser. This has been exactly my experience. I have made about 20-25 trades, and three, all of which I held for a long time, were big winners. About half my trades are losers; I rarely lose more than 4%. There is a fair bit of whipsawing; I bounce in and out of things frequently until I catch a wave. One time I made 6-7% on FXY and ended up giving it all up. So this is like all trend following systems in that you need to be able to endure some rock and roll. In addition, signals tend to come in groups. I can sit around doing nothing for weeks and then get five or six signals at the same time.
I have backtested this with my own adjustments on several vehicles and it is my impression that commodity etfs will trend better than stock etfs. I do not think this works very well with broad based stock indices (with the notable exception of emerging markets). Stocks are too volatile relative to their price changes and I think you would get whipsawed too much. As for bonds, I think they trend well also. Some have certainly had a great run this past year, but I did not trade any of those, since I got to the party too late.
Let me know if you have any other questions or want to hear about my tweaks.
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Dont know his work, but ;
Aim for more than 50% winners.
Broad or Average index doesn't trend as well as top trending stocks, or top trending stock sectors, silver, real estate...
An average , by definition may be average...........................
vehicle[ETF...] may be just as important as anything.
WTF?
