Comments for Investing For A Living

The biggest difference I’ve noted is that using the 200 day SMA with the econ triggers gets back into the market quicker once the econ all clear is given. SMAs weight recent prices more than abs momentum does.

Paul

I spent my first 3 years using TAA from a service which sent rebalance notices out after the close. Trying to execute a rebalance based on closing prices during the open is even harder on the psyche than it is on the slippage to the wallet.

When I started building my own TAA models, I determined to model and trade on the close. I have now been using Market On Close orders at Interactive Brokers for 2+ years with zero slippage and no damage to the psyche. There are times when an ETF allocation changes by a handful of shares and I just let the ETF position ride. My annual commission costs run 0.03%+- of account size.

Edited to remove promotional content.

Paul,
I’ve always enjoy these types of “rubber meets the road” articles, thanks for publishing. I have several momentum strategies I’ve implemented for myself and it can be difficult to invest a large lump sum into a new strategy all at once. The adjustment I’ve made that helps me is to dollar cost average into a full position over several timing periods. I’ve read several articles that say lump sum is actually proven to be better, but psychologically I’m bothered by it so I made a compromise that works for me. Encourage Jose to stick with it, he won’t be sorry in the long run, especially the nasty bear comes out of hibernation again.

Great blog!

I have been thinking on a few options on how to handle dividends in a quant strategy like Trending Value. The first one is to reinvest the dividend every time one get them in the same stock that paid it out. The second one is to keep it in cash until it’s time to re-balance the portfolio, normally, once a year.

I have two rolling TV portfolios, holding 10 stock each which are rebalanced 1st of January and 1st of August. Dividends in Sweden are commonly paid out between March and May and I don’t like the idea to reinvest in a stock in May which might be sold in August.. But I don’t like to stay in cash either since I want my TV portfolio to be 100% invested in equities..

How do you handle dividends in your quant portfolio? And do you know how it is handled in the backtests you have presented?

Hey Kristian, I re-invest all my dividends in my quant strategies. It’s done automatically at zero cost. All backtests assume dividends are re-invested in the same stocks.

Paul

Totally agree Stan. Thanks for the comment.

Paul

Paul,
I use mutual funds instead of ETFs in my TAA portfolios. My broker doesn’t offer MOC orders and when I was using ETFs I had to trade them during my lunch break which was not always a good time of the day to execute market orders. So I switched to equivalent mutual funds. Does my mutual fund portfolio also suffer from slippage (or other similar performance drag) that is not obvious to me? Thanks for your articles!

Paul,

I should also mention that the mutual funds I use are no load and have expense ratios that are the same or very close to the equivalent ETFs. I don’t get in trouble with high frequency trading as long as I don’t exchange out of a mutual fund withing the first 30 days of holding it. Thanks again.

Kirk, mutual funds are a good way to go as long as they are no-load, low-fee, and your broker doesn’t charge exorbitant fees to trade them. With mutual funds you always get the closing price. You just need to make sure you enter the trades the same day as the model signals.

Paul

Additionally to the slippage issue you describe, it is also difficult psychologically to adopt a new TAA strategy and implement entirely for an account on one day. In my case, I am considering a combined TAA strategy modeled from Allocate Smartly, which means selling most of my positions and entering new positions. I am now considering whether to begin this at the end of this month or right now. Any advice?

It’s a tough process to go through no matter what. I tend to make those big changes over time even though theoretically it’s better to do it all at once. For example, I went from a 25% quant allocation to 45% over the last 2 years.

Paul

Hi !

I can’t find out how you move in to the market again after a recession. Is it when one of the signals trigger or must they all be green ? and then S&P 500 SMA 200 is crossed ?

Thanks Paul. I really appreciate the info that you put out for us.
Doug

SPY-COMP re-enters the market when the SPY crosses back above it’s 200 day SMA.

On a somewhat related topic: Do you have a metric to screen for O’Shaughnessy’s value composite 2 screen on AAII’s stock screener? Thanks for any help you can give me.

I don’t use AAII stock screener anymore. Haven’t for a few years now.

Paul

Is there a stock screening program that you recommend that can calculate O’Shaughnessy’s value component 2 composite? I’d like to employ it to invest in his staples/utilities portfolio and an allcap and microcap portfolio. Thanks.

Really appreciate you keeping us up to date on these worthwhile indicators. Yes the yield curve is a bit disconcerting. I’d weight it heaviest of the six
Cheers
Bernie
(Currently staying in your Arizona boondocking spots!)

Yes. I have found Portfolio123 to be the best option. Not cheap though.

Your welcome Bernie. The yield curve actually has the worst track record of the six indicators.

Paul

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