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I recently posted on the forum (thank you for the responses) about getting out of the market, but that wasn’t the full story….
We’ve been invested 100% in stocks for a number of years and have reaped the rewards, however, general anxiety and market fluctuations don’t mix. I hated giving up the gains by migrating to a 60/40 (I am a victim to recency bias) and after reading Gary Antonacci’s Dual Momentum, I thought I had found the solution to my quandary.
DM strategy told me to sell the stocks in March or perhaps April, but I didn’t get back in since the strategy calls for reviewing annual returns monthly and the market had climbed dramatically. In that time, I’ve realized that DM has not cooled my emotions one bit.
My question to all you erudite investors who have read Antonacci’s Dual Momentum strategy, “What are your thoughts?” I’ll sheepishly admit that I was unable to backtest the strategy and there is minimal research.
Sounds suspiciously like market timing to me…but to each their own.
As Jack Bogle famously said, “I can’t time the market. I don’t know anyone who can time the market. I don’t know anyone who knows anyone who can time the market.”
IF you are not using your invested portfolio for income and you have more than adequate income from guaranteed sources, and you have 12-18 months of cash to cover 100% of your retirement expenses, 100% equities are the way to go, IMHO.
Ah yes, billionaire Gary Antonacci….
Momentum investment strategies have been studied extensively and proved to yield highest risk adjusted return but also highest risk of momentum crashes, making this strategy unsuitable for investors with strong loss aversion. The risk of loss could be reduced when this strategy is balanced with value investing strategy.
Factor investing, like momentum investing, is the alternative to passive index investing. Passive index investing is accepting the market for what it is: the market giveth and the market taketh, investors have no say. Factor investing is maximizing investment return using a few factors that proved to deliver the premium.
Interested in learning which market factors drive the investment return? check out the summary of finance publications on this subject in the book “Your Complete Guide to Factor-Based Investing”, an easy read filled with explanations and historical market data.
Amazon.com: Your Complete Guide to Factor-Based Investing: The Way Smart Money Invests Today: 9780692783658: Berkin, Andrew L, Swedroe, Larry E: Books
Coincidentally, I am actually rereading this book at this moment. In fact, I’m on their chapter about momentum.
Examples of real-life application of factor-based investing (Dimensional Fund Advisors) beating market cap weighted index investing (Vanguard) for the past 25 years were illustrated in Ben Felix’s video (a Canadian Fund manager for PWL Capital) – FYI only, NOT an investing advice or recommendation.
link below
https://www.youtube.com/watch?v=JfknibBat2A
I’ve read about this approach which involves trading equities including ETFs using recent performance data.
Another straightforward method with ETFs is to use moving averages to determine when to enter or exit from equities.
I’m not a fan of trading. However, I have used moving averages from time to time to see if it is a good entry point for certain ETFs. Some people use them to determine when to hold cash.
To reduce risk you might consider a 75/25 portfolio.
I realize you aren’t indicating concern about bond rates per se. However, some of the anxiety we experience in recent years has been because of stock volatility amplified by the uncertainty and losses sustained by bond ETFs. To address anxiety both of these have to be recognized.
Morningstar has posted articles about the returns and volatilities of portfolios comprised of differing percentages of equities, from 100% down to 20%, as I recall. There have been links here at HD. Peter Bernstein wrote “How True Are the Tried Principles?” in the Investment Management Review way, way back in the 1980s.
Over at “A wealth of common sense” Ben Carlson revisited this in 2022 and wrote “Is 75/25 the new 60/40?”. His focus was on cash versus bonds in a rising rate environment. He stated the obvious that “A 75/25 portfolio is not a perfect solution but the perfect solution doesn’t exist right now.” As if one ever did!
Haven’t read the book, technical trading is a very tough business, requires massive hours of work to succeed. Only people that can really sever the emotions out have a real chance long term. I suspect that eliminates 80-90 percent of all people right off the top.
Very tough field, burns out the majority of people that can do it.
Obvious to all is buy and hold till near retirement to avoid sorr at all costs
Timimg is the fools game as are individual stocks History has proven that
Investing strategies can be complicated and costly. I have not read the book but have found a simple low cost strategy of buy and hold works better than 90% of the active strategies. Why gamble on the 10% of active strategies that might beat the market? Investing can be simple, but it is never easy due to our emotions. The answer is to learn to control your emotions with education and experience. Good luck to you.
Ales, I was not familiar with this book. I know folks who have followed some form of momentum trading, and some who followed “Sell in May”.
Alex, I am not familiar with this strategy, but hope someone can speak to it. My only thought was that if it is not a simple strategy, you may want to do something else. Chris