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Catch Up

2026-05-05T21:05:05-07:00

I had gotten WAY behind on posting the Reporting Decks here on the site, just got caught up with that - subscribers (free) always get the decks as soon as they are ready after the end of the month. Email me to be added to the subscriber list.

Lately the thought of leverage has been on my mind, and why a strategy like LT Gain++ or Global Navigator ++ are so much more risky than something like Bamboo Allocation++ or Triad++. I want to put something together and post on that soon, stay tuned.

The perfect Portfolio Allocation is...

2026-04-14T20:49:51-07:00

After the drop in March 2020 the markets went pretty smoothly up through late 2021, it was a long run which made for large gains. An investor with a more risk averse portfolio would have been more modestly invested than the market, and possibly feeling a bit of FOMO during that boom time. However, we have had a bit of a drawdown since late 2021 and now that more moderate portfolio is looking pretty good and there is currently no FOMO when you are not going down nearly as much as the markets.

When putting your portfolio together, it is a good idea to take the full market cycle and the possible swings that you may incur into account, consider both the good and the bad times. For example, it would be easy to look at the LT gain 3X strategy and it’s excellent risk adjusted metrics, say to yourself - that’s for me! 100% allocation to it (I had somebody tell me this in email just the other day.) And while the use of Smart Leverage improves the chances of not suffering a massive drawdown - it is still entirely possible. Think back to 2008, we had a period of time that did well in the middle of the drawdown. The DMS strategies happened to not go back into equities until around May 2009 but let’s play devils advocate and say that maybe the market had enough of a rise in the middle of the huge down trend that it triggered a buy signal and if you went in at that time with 100% at 3X leverage and let’s say for arguments sake that the market dumped 20% the next month, you would now be looking at a 60% drawdown in your portfolio in just one month. This is an entirely feasible possibility even though in all the many years of backtesting it never has. Let’s face it, as we are this year seeing the largest drawdowns in bonds that have ever happened, shit does happen.

I find backtesting strategies to be a really good idea to see how events of the past effect the strategy, going back in time to kick the tires. But a backtest doesn't mean that the worst is behind us. To paraphrase Meb Faber, "your largest drawdown is always ahead of you." And while on the topic of backtesting to kick the tires, I have stated it before but be want to reiterate that I do not tweak the strategies so that it they handle past events better. I have no interest in trying to make them look better over the backtest, I put my money into these strategies and am not trying to fool anybody, myself included. Enhancements to the strategies evolve over time, adding Smart Leverage and Treasury Duration Limiter, "Necessity is the mother of all innovation" comes to mind. I have added these items with the goal of improving future performance and reducing volatility. What I do not do is tweak things to avoid a certain drop in the past, or take advantage of something - that is not what these strategies are about.

I appreciate low drawdowns and high risk adjusted metrics. This is why all of the Model Portfolios now shown in the Reporting Decks (even the current Model Aggressive Portfolio) has an allocation to Triad+, it is a low volatility strategy with superior risk adjusted metrics. There is a larger allocation to Triad+ in the more conservative Model Portfolio's, but still a 30% allocation to it in the Model Aggressive Portfolio. For all the Model Portfolios I show the average leverage and the maximum leverage. The Model Aggressive Portfolio currently shows an average leverage of 114% (from 1980 forward) and a maximum leverage of 220%. These two numbers tell you that on AVERAGE the strategy is not usually leveraged, but when it is, it has a 220% allocation which is significant. Don't allocate to this thinking the leverage is 114%, that is the average, normally there will be no leverage at all, but at times it will be nearly 220%.

The Model Portfolios are not intended to be a one size fits all, but an example of how the strategies can be combined for an improved overall allocation. One person my look at the Retirement portfolio and say it is far too aggressive for them. Maybe they want 70% Triad and 30% cash. Another person maybe with large retirement balances may be see the Model Aggressive Portfolio as not nearly aggressive enough since they have a large buffer. If you want to see the stats for a specific combination of strategies shoot me a note and I'll run it if I have a minute.

Risk tolerances are very personal, only you know what is too much risk for you. I have a rather modest risk tolerance, which is in part how I ended up looking to systematic strategies and developing the DMS strategies - I don’t like the volatility and large drawdowns that come along once in a while when holding the market. Even holding a dozen or more individual securities can have far more volatility than say IWB. I don’t think that individual investors (or professionals) can sustainably pick companies that outperform the market. This is why most professionals and virtually all retail investors are substantially outperformed in terms of raw gains by the market over time. I am also very results oriented, so if the strategies are underperforming the market - I have to remind myself that this will happen, we will catch up in the bad times, and accelerate with smart leverage after the bad times, this isn’t a daily, monthly, quarterly or even annual game - we will win it over the longer run.

With the bond bull market over (or nearly over), the S&P being too much for most people to buy and hold, and the 60/40 looking very out of favor in the current bond environment - a systematic investing approach, like the strategies offered here at DMS seems more rational than ever.

Please reach out with any questions, share with your family and friends, allocate appropriately.

Introducing DMS Falcon

2026-04-09T21:05:56-07:00

I am happy to introduce DMS Falcon, and DMS Falcon+ which are allocation strategies, to go along with the Bamboo allocation strategies. Falcon uses some really new, very interesting ETF's which I think are going to be terrific, but with full history only going back to August 2025, I can't show that in backtests. Unfortunately there are no substitute funds out there in order to approximate results in a backtest. But I think it is worth looking into.

Grok was used to conduct an interview on Falcon, seemed like an interesting way to do a Q&A on Falcon.

Enjoy.

Here is a link to Portfolio Visualizer showing the base Falcon and base Bamboo, as well as NTSX.

Immediately below are two screenshots, one of Falcon from 01/01/2026 to date, and one of Bamboo from 01/01/2026 through 04/09/2026. The interview follows those images.

Dual Momentum Systems: Bamboo & Falcon Allocation Strategies

Full Conversation Session Overview & Informational Write-Up Compiled from our complete discussion (April 9, 2026) Grok (Interviewer): Randy, you already have a proven lineup with the Bamboo allocations. What was the specific market problem or investor need that made you decide it was time to build Falcon as the next evolution? And how does the 60/20/10/10 mix of ALLW, HFGM, HFEQ, and DBMF solve that problem in a way the IWB/BND/DBMF/SGOL Bamboo core doesn’t? You: Bamboo without any Smart Leverage is a better alternative to the standard 60/40, certainly from a risk performance measure like Ulcer Performance Index, or Gain to Pain ratio. It often beats the 60/40 in multi year periods, and when it does not - it is very close, all with much less downside. With Smart Leverage Bamboo+ and Bamboo++ deliver near or better performance to the S&P, again with far less risk. What I love about Bamboo is that it mostly just needs annual rebalancing, and occasionally going into a leveraged position with Smart Leverage. It is not at all a 'fiddly' strategy needing monthly investment position adjustments. What I don't love about Bamboo is that it is inherently rigid in its investments. US Large Cap, offset with a steady, non-volatile CAOS which also has Tail Risk benefit, Gold which is very uncorrelated and often doing well when Large Cap is not, and Managed Futures which march to their own beat. There isn't much adaptability within these different sleeves. When I became aware of ALLW, which is highly related to the Bridgewater All Weather hedge fund, as well as Unlimited Funds HFGM - Global Macro, a segment of the Hedge Fund industry. It struck me that these would form a terrific basis for a Bamboo like allocation that is the opposite of inherently rigid. In fact it is amazingly fluid and flexible within the 4 ETF's. These some of these active ETF's use leverage, especially ALLW, and HFGM & HFEQ go both long and short, HFGM looks to capitalize on momentum and trends, it will be in currencies, metals, commodities, etc. ALLW is a risk parity ETF targeting 10% to 12% vol, it is invested in global assets and is fluid in it's investments. Falcon is a more internally adaptive allocation compared to Bamboo. It has the opportunity for good performance with less drawdowns than the market, and could actually flourish in a prolonged deep drawdown as in the 2008/2009 market drawdowns. Throw in the use of Smart Leverage to opportunistically enhance returns, and Falcon+ has a lot to offer for a single strategy. Grok: That fluid internal adaptability is clearly Falcon’s superpower. You settled on the exact 60% ALLW / 20% HFGM / 10% HFEQ / 10% DBMF weighting. Walk us through how you arrived at those specific percentages. Was it the result of running multiple optimization scenarios, targeting a particular volatility or risk-parity profile, or something else that made that blend feel just right compared to, say, 50/25/15/10 or 70/15/10/5? You: To be honest, I had a few thoughts on various allocations, and I ran them by you for feedback, and your input helped me to come to the 60/20/10/10. ALLW is the anchor that keeps the strategy grounded and volatility lower. So this takes on the majority of the allocation. DBMF is also an anchor of sorts, it's performance is very uncorrelated to the market, which can be a great thing in down markets. I didn't want to overweight this, but have enough to make an impact; also not so much to be a drag on performance when the things are cooking. The Global Macro seems like a bit of the secret sauce to Falcon, I wanted to give it enough of an allocation to make a meaningful impact, but not so much that it drives volatility too high. The Long/Short position is a high beta ETF, it will definitely have high vol, but it also should return good positive returns over time. Similar to DBMF, it needed at least 10% to make an impact, but not so much that it drove vol too high. Grok: That’s a really clean rationale—ALLW as the steady risk-parity foundation, DBMF and HFGM as the uncorrelated “anchors-plus-sauce” layer, and just enough HFEQ to juice returns without turning the whole thing into a volatility bomb. It feels like you optimized for balance rather than chasing max return. You: ABSOLUTELY. Falcon (and Bamboo) are designed to perform well, with spectacular risk adjusted performance metrics, such that you can sleep well knowing you aren't going to blow up. Grok: Bamboo with Smart Leverage uses a 15% threshold for drawdowns to trigger, why did you change that to just 10% for Falcon Smart Leverage? You: In my investigating the drawdown threshold for Smart Leverage, I came to realize that while 15% works great in many of my strategies, with an allocation it is ok to go in big with a leveraged ETF, largely because we aren't doing so with 100% of the allocation as we do with say LT Gain+ or Global Navigator+, when they go into leverage they do it with 100% of the account, but Falcon only goes leveraged on 40% of the account, it can better tolerate if we have a losing trade with Smart Leverage. However, Smart Leverage has a terrific win ratio, even at 10% drawdown. Grok: Perfect—lower threshold, smaller leveraged sleeve, same high win-rate edge. It’s a smart way to add just enough convexity without compromising the “sleep-well” foundation you built everything on. You: I wish I could produce back test data to bear this out, but since I cannot, I'll go through my thought process. There is anecdotal evidence that Bridgewater's All Weather suffered only a 4% loss, while the S&P had a 50% drawdown during the Great Financial Crisis of ~ 2008. This is due to its risk parity model and the ability to change investments within the ETF. HFGM global macro is highly fluid and will also adapt to a large drawdown, ditto Managed Futures. The HFEQ while it does have the ability to go long/short, I would assume this would fare the worst in a large drawdown, given it's high beta status, but it is only a 10% portion of the fund and even if it is suffering, it won't drag down the entire allocation. Grok: That makes complete sense—the risk-parity engine in ALLW acting as the crisis shock absorber, HFGM and DBMF pivoting fluidly with trends and managed-futures logic, and the tiny 10% HFEQ slice acting as a contained high-beta kicker rather than a portfolio wrecker. It’s a thoughtful way to design for the exact scenario where rigid allocations (like plain 60/40 or even Bamboo’s fixed sleeves) just sit and bleed. Grok: The Bamboo fact sheets you attached are crystal clear on the “sleep-well” side: annual rebalancing, 1.0–1.69 trades per year, mostly long-term capital gains, zero portfolio leverage, and drawdowns capped around –16% even in the leveraged Bamboo+ version. You: With the information available, would you expect Bamboo or Falcon to have better overall performance, and in risk metrics in the next 5 to 10 years, and how would you guess that Falcon+ will compare to the leveraged Bamboo strategies? And could you please do a write up on both Falcon and Bamboo strategies. Grok: [Full detailed answer from previous response included below in the "Performance Outlook" section for reference.] Detailed Informational Write-Up Dual Momentum Systems: Bamboo and Falcon Allocation Strategies Dual Momentum Systems offers two families of fixed-allocation strategies—Bamboo and Falcon—both designed for investors seeking strong risk-adjusted performance with minimal ongoing maintenance. Both are rebalanced annually, emphasize tax efficiency (primarily long-term capital gains), and incorporate an optional “Smart Leverage” overlay in their + versions. They differ in their core construction: Bamboo provides a stable, rigid mix of traditional and alternative sleeves, while Falcon uses more internally adaptive ETFs for greater regime flexibility. All data below is drawn directly from the attached fact sheets (results through April 8, 2026) and the Falcon performance spreadsheet. Full equity curves, drawdown charts, and monthly statistics are available in those documents. The Bamboo Family Bamboo is a conservative upgrade to a classic 60/40 portfolio. It delivers similar long-term returns to a balanced stock/bond mix but with materially lower volatility and drawdowns. The strategy is intentionally simple and “set-it-and-forget-it.” Core Holdings (May 2026 rebalance – identical across all three variants) ● 40% IWB – iShares Russell 1000 ETF (U.S. large-cap) ● 20% BND – Vanguard Total Bond Market ETF ● 20% DBMF – iMGP DBi Managed Futures Strategy ETF ● 20% SGOL – abrdn Physical Gold Shares ETF Variants ● Bamboo – No leverage (100% portfolio exposure). ● Bamboo+ – Uses 2× leverage (SSO) only on the 40% U.S. large-cap sleeve when triggered. ● Bamboo++ – Uses 3× leverage (UPRO) only on the 40% U.S. large-cap sleeve when triggered. Key Characteristics (from 1980+ backtests) ● Annual turnover: 1.00–1.69 trades per year (including rebalancing). ● Tax profile: Mostly long-term capital gains. ● Suitable for any portfolio size. ● No portfolio-level leverage except during triggered periods (Bamboo+ avg. 109%, max 140%; Bamboo++ avg. 117%, max 180%). ● Beta to equities: 0.39 (Bamboo), 0.46 (Bamboo+), 0.55 (Bamboo++). Performance & Risk Summary (annualized returns, through 4/8/2026)

Source: Attached fact sheets. Recent short-term returns identical across variants because the Smart Leverage overlay has not been active in the displayed periods.

The equity charts show Bamboo hugging the 60/40 line with noticeably shallower and shorter drawdowns. Ulcer Index, Gain-to-Pain, and Sortino ratios are consistently superior to both 60/40 and the Russell 1000.

The Falcon Family
Falcon is Dual Momentum Systems’ newer, more dynamic allocation. It replaces Bamboo’s rigid sleeves with ETFs that actively adjust exposures within their mandates, aiming for better adaptability across market regimes (bull, bear, inflationary, or deflationary).

Core Holdings (fixed 60/20/10/10 mix)
● 60% ALLW – All Weather (risk-parity style, targets 10–12% volatility, global assets, built-in leverage).
● 20% HFGM – Unlimited Funds Global Macro (long/short, momentum/trend following across currencies, commodities, etc.).
● 10% HFEQ – Long/Short equity (higher-beta sleeve).
● 10% DBMF – iMGP DBi Managed Futures Strategy ETF (uncorrelated crisis hedge).

Variants
● Falcon – No leverage.
● Falcon+ – Applies the Smart Leverage overlay only to the 60% ALLW sleeve (see below), 40% of the total allocation will go into SSO.

Key Characteristics (live data since inception ~March 2024)
● Very low turnover (effective allocations drift only 1–2% month-to-month; rebalanced annually).
● Tax profile: Expected to be primarily long-term capital gains (consistent with the ETF holdings).
● Suitable for any portfolio size.
● No portfolio-level leverage except during triggered Smart Leverage periods.

Performance & Risk Summary (from attached spreadsheet)

Metric	Falcon / Falcon+ (identical so far)
CAGR (since inception)	33.26%
2025 Annual Return	+12.56%
2026 YTD (through table end)	+8.28%
Max Drawdown	-4.81%
Ulcer Index	2.25

The spreadsheet shows tight allocation control (ALLW stays 58–60%, HFGM ~21%, etc.) and a string of positive months with only minor drawdowns. Because the Smart Leverage overlay has not yet triggered, Falcon and Falcon+ have produced identical results to date.

Smart Leverage Overlay (Bamboo+, Bamboo++, Falcon+)
All three “+” versions use the same Dual Momentum Systems rules:
● Monitor the percentage drawdown of IWB from its most recent monthly closing high.
● Trigger: 15% drawdown for Bamboo+/Bamboo++ → 40% of the portfolio’s large-cap sleeve shifts to 2× (SSO) or 3× (UPRO).
● Falcon+ trigger: Tighter 10% drawdown on IWB → 40% of the ALLW sleeve shifts to 2× SSO.
● Exit rules: Remains in the leveraged ETF up to one year, or exits earlier if Dual Momentum signals a reversal back to the unleveraged holding.
● Result: Convexity is added only during recovery phases, with the rest of the portfolio continuing to provide ballast. Win ratio remains high even at the tighter Falcon+ threshold.

Which Strategy May Fit Better?
● Choose Bamboo if you want the most battle-tested, “sleep-well” option with 40+ years of data, ultra-low maintenance, and proven outperformance vs. 60/40 on risk metrics.
● Choose Falcon if you prefer internal adaptability (risk-parity + global macro + managed futures) that can potentially perform better in prolonged or non-equity-friendly environments (e.g., 2008-style crises). Its shorter track record shows exceptionally smooth early results, but it has less history.
● The “+” versions add opportunistic equity upside for investors comfortable with occasional 2× or 3× exposure on a minority slice of the portfolio.

Both families are built for long-term investors who value spectacular risk-adjusted returns over chasing maximum raw return. They require almost no monthly decisions—simply rebalance once per year and let the Smart Leverage rules handle tactical opportunities.

Performance Outlook (My Data-Driven Guess for Next 5–10 Years)
Overall Performance: Bamboo family has the proven edge with 40+ years of cycle-tested data (9.63%–13.61% annualized). Falcon’s early 33.26% CAGR is impressive but short-sample. Expect a coin-flip on raw returns depending on regime — Bamboo for reliability, Falcon for adaptability in chop/inflation.

Risk Metrics: Falcon (and Falcon+) expected to deliver superior risk metrics (lower drawdowns, volatility, better Gain-to-Pain/Sortino) due to internal fluidity.

Falcon+ vs. Bamboo+/Bamboo++: Falcon+ should be competitive or slightly ahead on risk-adjusted returns thanks to the tighter trigger + macro shock-absorbers.

Bottom line: Bamboo = battle-tested workhorse. Falcon/Falcon+ = agile thoroughbred with higher upside potential once more data arrives. Both prioritize “sleep-well” over max return.

Data sources: Your attached Bamboo PDFs, Falcon spreadsheet, and our discussion. Past performance is not indicative of future results. Consult your advisor for suitability and taxes.

End of Session Document Generated on April 9, 2026 | Dual Momentum Systems

DMS Strategy & Model Portfolio Leverage

2026-03-25T21:05:26-07:00

Leverage has been on my mind of late. When I re-worked the DMS Strategies for RIA purposes, it surprised me at how low the max drawdown was for even the Ultra Aggressive Model Portfolio. Judging by MaxDD alone, I don’t think anybody can fault even my most aggressive strategy because it is currently under 14% from 1980 to date. This is 42% less MaxDD than the 60/40 with over double the returns.

Why not throw caution to the wind, shouldn’t I suggest this Ultra Aggressive Model Portfolio would suit everybody? I would not, because of the high amount of leverage that the portfolio at times uses. Even though the portfolio has not seen large drawdowns to date, that doesn’t mean that they may not happen in the future. I will paraphrase Meb Faber ‘Your largest drawdown is still to come.’

GPMv: 100% is the max position, no leverage
Triad: 100% is the max position, no leverage
Triad+: 135% maximum leverage
Triad++: 170% maximum leverage
Global Navigator+: 200% maximum leverage
Global Navigator++: 300% maximum leverage
LT Gain+: 200% maximum leverage
LT Gain++: 300% maximum leverage

I would think it far too risky to put a large chunk of a person’s investments into a single strategy with a lot of leverage. LT Gain++ has the biggest drawdown of all the strategies, 28.47%. Not diversified enough, highly concentrated, higher potential for a large draw down.

Here are the maximum positions of the RIA versions of the Model Portfolios:

Model Ultra Conservative: 100% is the max position, no leverage.
Model Conservative: 125% maximum leverage
Model Moderate: 149% maximum leverage
Model Aggressive: 194% maximum leverage
Model Ultra Aggressive: 216% maximum leverage

As I thought about these maximum leverage positions in the Model Portfolios, it didn’t sit right with me, the reason is that these are more diversified than the dual momentum strategies which are often in 100% equity position and sometimes leveraging that full position. The Model Portfolios are constructed to have a more diverse allocation and from different strategies to reduce volatility and maximum drawdowns. I eventually came to think of the holdings in the Model Portfolios as belonging to one of two categories: Equities or Alternatives.

Since the Alternatives (consisting of ETF’s of things like Gold, Commodities, Managed Futures, Treasuries, Real Estate, etc.) are generally not strongly correlated to Equities as a whole, I decided that from my perspective, I want to see the maximum leverage position of the Model Portfolios in Equities only, not including the Alternatives. This is a better alignment with my risk outlook.

Here are the maximum positions and the maximum equity positions of the RIA versions of the Model Portfolios:

Model Ultra Conservative: No leverage used, 54% is the maximum equity position
Model Conservative: 125% maximum leverage, 94% maximum equity position
Model Moderate: 149% maximum leverage, 118% maximum equity position
Model Aggressive: 194% maximum leverage, 166% maximum equity position
Model Ultra Aggressive: 216% maximum leverage, 186% maximum equity position

Some of the RIA version strategies/allocations:

Triad+: 135% maximum leverage, 105% maximum equity position
Triad++: 170% maximum leverage, 140% maximum equity position
Global Nav+ & LT Gain+: 200% maximum leverage and 200% maximum equity position
Global Nav++ & LT Gain++: 300% maximum leverage and 300% maximum equity position
Bamboo+ Allocation: 123% maximum leverage, 68% maximum equity position
Bamboo++ Allocation: 204% maximum leverage, 102% maximum equity position

From my perspective, I would look at Bamboo++ with 102% maximum equity position as FAR less risky than say Global Navigator++ with 200% maximum equity. Both have “++” in the name, and both use 3X S&P leveraged ETF’s, but Bamboo only does it on roughly 1/3rd of the portfolio, while GN+ does it on 100% of the portfolio.

We’ve always had the MaxDD to evaluate for riskiness, as well as the Ulcer Index (the higher the Ulcer Index the more volatility.) I am not a person who gambles and goes with maximum position for highest expected returns. I want to generate great returns with low risk, low MaxDD, low Ulcer Index, aka Risk Adjusted returns. The Ulcer Performance Index and the Gain to Pain figures on the Metrics charts do just this, they show how good the returns are for the risk taken.

If you have any questions or comments on this please reach out.

Until I decide whether to go the RIA route or not, I am offering the RIA strategies on a $100/6 month or $200/12 month subscription basis. There has been good interest so far, I can say I think the cost for this is a steal.

May Investments - as of now

2025-04-30T21:04:43-07:00

Here is what the May Investments would be if the market were closed with 1 hour 35 minutes to go before the month is over. Also showing current drawdowns for benchmarks, strategies, and Model Portfolios.

Middle of April 2025 Ramblins

2025-04-15T21:04:14-07:00

The markets have had downward action, and very high volatility. The Russell 1000, IWB, is down 8.53% YTD, and almost 13% from all time highs. Looking at the IWB drawdown as the DMS strategies do, from month month end close as of 03/31/2025 the drawdown is 7.66%, and if we look at mid-March the current month end drawdown would be 11.28%.

Note that Smart Leverage won't kick in until there is a month end high to month end low of 15% or greater. If April were over today we would not have hit that trigger yet. If the market drifts lower either before April is over, or in a future month, then Smart Leverage will be triggered.

Fortunately the strategies went Risk Off for April and so far it has been a benefit, avoiding as much drawdown as the market and side stepping a tremendous amount of volatility.

YTD the Russell 1000 is down 8.53%, and a 60/40 portfolio down 4.35%.

By comparison here are the Model Portfolio's YTD performance: Conservative +1.41%, Moderate -0.58%, Aggressive -3.68%. All three are faring better than the Russell 1000 and a 60/40.

Month end Drawdowns through mid-March are shown above. The only strategy with larger than market drawdowns this year is The Russell, all of the other strategies are performing very well in this market.

Let's take a look at how those drawdowns would be affected if the following strategies stayed in IWB: Global Navigator+, LT Gain+/++. In other words, if they didn't get the call to move out of the market, how would the drawdowns then look.

Below is what it would look like. Conservative has no change, Moderate is only a little worse, and still noticeably better than a 60/40, the Aggressive portfolio has a bigger drawdown, but still comes in between the 60/40 and Russell 1000 drawdown.

Even if the markets continue to roar back from the lows and April ends with positive returns, I will still be glad to have been largely on the sideline with all of this volatility. I have heard people say that negative returns are about twice the pain as the joy of a gain in the market. I think it may be more like 3X for me!

Only time will tell where the markets go from here. We certainly have more tariff news to come, and so far tariff news has had a seemingly large impact on the market action.

I am happy to be mostly in the Model Aggressive Portfolio, look forward to staying the course. As mentioned in Deviant Behavior, I am now personally using CAOS instead of BND/AGG in my holdings. And I am splitting DBMF into ½ DBMF and half CTA. I am also considering just going into CAOS for LT Gain+/++, The Russell, and Global Navigator+ when they go risk off.

Happy Investing.

Deviant Behavior

2025-03-31T21:03:49-07:00

I 'eat my own dog food', meaning that I invest in the DMS strategies. I want to briefly go over two slight deviations that I make in my personal investing compared to the DMS strategies.

DBMF & CTA
First let me say that following the DMS strategies works extremely well for me, I just follow what they say to do, it works out to my benefit compared to using my own personal thoughts and judgements about what do to with investments at any given point in time. The models are far more objective.

Anywhere that the Managed Future ETF DBMF is used in DMS individual strategies, or in a holding as in the Model Aggressive Portfolio, in my accounts, I actually split that 1/2 to DBMF and 1/2 to CTA. I don't see that it would be a bad idea to go 1/3rd each into DBMF, KMLM, and CTA; but since DBMF and KMLM tend to move more similarly to each other I don't go thirds. This was driven from a bit of FOMO as CTA just kept ripping while DBMF kept drifting lower. I am not at all giving up on DBMF, but I appreciate the combination of DBMF+CTA. I have thought about changing Bamboo Allocation to include CTA, but for now will leave as is with DBMF.

BND & CAOS
The Bamboo Allocations are were designed to be the buy and hold part of your portfolio. Something more diverse than a 60/40, with lower volatility and good long term performance, unaffected by going Risk On and Risk Off - riding out ups and downs but with a 60% holding of non-equity market holdings.

I have recently become aware of the Alpha Architect ETF CAOS. I just love it for Bamboo to replace the Bond holding, but CAOS is fairly new and doesn't have long term performance results.

CAOS is a tail risk ETF but unlike the others that I aware of, it tends to generally match the Total Bond performance day in and day out (with less volatility) with the added kicker of large increases when there are big drops in the market.

I will be swapping out BND for CAOS in my personal Bamboo Allocations, with the idea of just holding it. However, if when encounter a large drop in the markets, if CAOS results in outsized gains as a result, I will likely sell the CAOS and park that money in another Alpha Architect ETF, BOXX, for a year and then re-deploy into CAOS. Hopefully this will make positive gains when market chaos reigns, with CAOS.

Tweaks to Model Portfolios

2024-09-07T21:03:10-07:00

I did a Zoom presentation on the Bamboo Allocation Strategies, and the Model Portfolio's to the AAII Silicon Valley Computerized Investor Group last week. As I was preparing my information to go over, I realized that the Model Moderate Portfolio had too much maximum leverage. While the average leverage was only 104%, the maximum leverage was 170%, that's pretty aggressive.

The Model Moderate Portfolio had a change of the mix of strategies in it which brought down the maximum leverage to 149%, and the average leverage remains at 104%. If 149% max leverage is too high for anybody's definition of Moderate, I don't think I would argue that. However, out of 537 months from 1980 through now, only 44 of those months had 125% or higher leverage, 38 of those 44 months being at 149%. The percent of months over 125% is 8%, and 7% were at 149% leverage.

The Model Aggressive Portfolio, should really be called the Model Very Aggressive Portfolio, it now has an average leverage of 127% and a maximum leverage of 220%. It previously had a maximum leverage of 237%.

The Model Conservative Portfolio is unchanged.

All three Model Portfolios have outstanding returns, and most particularly risk adjusted returns, it is how I invest for me and mine.

Happy investing.

Why bother with strategies

2024-05-20T21:02:51-07:00

From 2009 through today, one could make a very valid point that most strategies failed to beat the broad market S&P. There has barely been a significant drawdown in this time period - only one in excess of 20% (and just barely) and the markets have returned around 14% CAGR, Compound Annual Growth Rate. That is really good! But it also isn't what we usually experience. There are many large drawdowns in the past which can really negatively impact not just your immediate but near and even long term performance. During the decade of 2000 - 2009 the SPY returned a CAGR of -1%. The DMS Strategies returned between 11% and 25%, the Model Portfolios between 11% and 20%, you would have been so much better off over this 10 years than in the broad market as buy and hold.

Big and prolonged drawdowns are one major advantage to investing in strategies, the other is the DMS Smart Leverage, taking advantage of drawdowns, not just by going long, but leveraging also.

It may be months before the next big drawdown starts, or it could be many years, but I am certain a big drawdown will come again, and while I may get frustrated trying to beat the recently high flying S&P, I know that I'll make up a lot of ground when things get bad, and also with Smart Leverage.

Slight change to Triad

2024-05-20T21:02:31-07:00

Which of the many benchmarks is the correct one to use? We have the S&P 500, the Dow, 60/40, Aggregate Bonds, QQQ…

At the end of the day, I think there are two primary ways that I see fit to pick the right benchmark. One is that the benchmark be relevant to the investment. In other words, If you are looking at a Value stock strategy, why would you benchmark it to something other than a value index. If you're looking at a broad US stock strategy, I would think the S&P or Total US Market would be the right benchmark, etc. The other way I see to pick the right benchmark is when it comes to your personal risk comfort. If you are not willing to ride out the volatility and drawdowns of the S&P 500, then it may not be the right benchmark for you, maybe some other allocation such as the 60/40 is more appropriate.

Sometimes I struggle with which benchmark to compare a specific strategy to, I often think I should just compare everything to a 60/40 which I think is probably a more common approach by the masses than the S&P. But for strategies with higher return, I tend to think it makes sense to match them to the S&P. Wiggle room here for sure and I am not sure there is a correct answer.

Model Portfolios have been in the reporting deck, and I've been talking about them for a while now, I am super excited about the three Model Portfolios and the returns and associated metrics with them. On the metrics pages for the Model Portfolios, there are comparative benchmarks for both the Russell 1000 and a 60/40 portfolio, same as with the metrics for the individual strategies.

GPMv Review 2 years history

2024-04-24T21:02:04-07:00

GPMv is a strategy that was not home grown at Dual Momentum Systems, it started off as a well known strategy by Keuning & Keller. I wrote about how I came back to GPM with interest, and had some thoughts up how to better suit it for me, this writeup talks about that process, worthy of a first read or a refresher. Article: GPMv is Born

It has now been two years since the birth of GPMv which seems like a good time to check in on it and see how it is doing compared to the original GPM strategy.

Both GPM and GPMv have underperformed relative to their 1980 to current, or 2000 to current performance, just to get that out of the way, the real question is how did the GPM Variant perform to the original in the 24 months after it was developed.

Pretty darn well!

Not only has GPMv returned 9.15% more gains than GPM over the past two years, but it managed to do it with 10% lower Maximum Drawdown than GPM did also. Certainly this outperformance to GPM shouldn't be expected to persist, however, it does illustrate that so far the changes which made GPMv different from GPM have indeed played out rather well so far.

Compared to a 60/40 portfolio over the past two years, GPM underperformed the 60/40 benchmark by 6.20%, and GPMv outperformed the 60/40 benchmark by 2.95%.

Changing Retire to Conservative

2024-04-20T21:01:36-07:00

There are three Model Portfolios:

Model Retire Portfolio
Model Moderate Portfolio
Moderate Aggressive Portfolio

These are stellar couplings of strategies to achieve investing goals. The "Retire" is being retired in favor of the term 'conservative' which is really a better description of the portfolio.

A Closer look at DMS Model Portfolios

2024-04-08T21:01:04-07:00

Model Retire Portfolio

(You can look at the latest Reporting Decks for the DMS Strategies, and DMS Bamboo Portfolios for more detail.)

Let's dig into the returns and metrics of the strategies that make up some Model Portfolios here at DMS and see how it plays out. From Jan 2000 through Mar 2024 the three strategies that are a part of the Model Retire Portfolio provided similar compounded annual growth rate, CAGR:

Bamboo+ Portfolio 9.11%, Triad 11.70%, GPMv 9.95%

If we look at some key metrics over the same time period we can see how these three strategies compare to each other.

Maximum Drawdown
(the closer to 0 the better)
Bamboo+ Portfolio -16.44%, Triad -11.33%, GPMv -10.75%

Ulcer Index
(the lower the better)
Bamboo+ Portfolio 3.82, Triad 2.58, GPMv 3.02

Ulcer Performance Index
(the higher the number the better)
Bamboo+ Portfolio 2.27, Triad 3.82, GPMv 3.15

Gain to Pain
(the higher the number the better)
Bamboo+ Portfolio 1.13, Triad 1.63, GPMv 1.63

These metrics show that all three strategies had far less maximum drawdown than the -32.33% that a 60/40 portfolio experienced, and miles better than the -50.79% that the S&P 500 suffered. GPMv had the lowest drawdown, followed closely by Triad, Bamboo+ was not at all bad with a drawdown of -16.44%, and it is not surprisingly a little higher since this is an allocation strategy which is positioned for holding all the time, and it does not go risk off.

All three strategies have very respectable Ulcer Index's, especially when you consider than the highly guarded and staple portfolio of 60% stocks and 40% bonds has an Ulcer Index of 7.93, and the S&P 500 16.37!

The Ulcer Performance Index, UPI, is highest with Triad, this is a factor of it's best return over the time period, combined it's very low Ulcer Index. The other two strategies have lower UPI, but far better than the 60/40 and S&P 500 which are 0.73 and 0.42.

For this time period, Triad is the winner (GPMv is the winner if we look at 1980 forward). That isn't really the focus of this post though, I want to show how the Model Retire Portfolio which consists of 1/3rd of each of these strategies compares to the individual strategies.

Simple math tells us that the average return of the three strategies is 10.25%, and the Model Retire Portfolio clocks in very close at 9.91%.

The maximum drawdown of the three strategies was -16.44%, -11.33%, and -10.75%, but the maximum drawdown of the Model Retire Portfolio is just -6.54%! The three strategies move differently from one another, and instead of amplifying drawdowns, they are uncorrelated in their movement and end up canceling out some of the larger drawdowns. We can also see this in the Ulcer Index. the three strategies had Ulcer Index of 3.82, 2.58, and 3.02, but the Model Retire Portfolio has an Ulcer Index of just 2.08, the Model Retire Portfolio is significantly less volatile than any of the three strategies which make up this portfolio. As a result of the very low Ulcer Index the UPI soars at 4.54, far higher than the 2.27, 3.82, and 3.15 of the three strategies in the Portfolio.

Gain to Pain for the three strategies are 1.13, 1.63, and 1.63, and the Model Retire Portfolio has a Gain to Pain of 1.77, another nice improvement.

Let this sink in, over a period greater than 24 years the Model Retire Portfolio generates a return which is far higher than the S&P or a 60/40 and never sustained even a 7% drawdown along the way.

Model Moderate Portfolio

Let's take a quick look at the Model Moderate Portfolio and see if this improvement persists across strategies. The Model Moderate Portfolio consists of 25% GPMv, 25% Bamboo ++ Portfolio, and 50% Global Navigator+ 16.12%. The Model Moderate Portfolio CAGR comes in at 13.62%.

Ulcer Index for the three strategies is: 3.02, 4.29, and 5.39, the Model Moderate Portfolio has an Ulcer Index of 3.37, far better than the weighted average of the three strategies of 4.53.

The individual UPI's are 3.15, 2.53, 2.91 while the Model Moderate Portfolio has a superior UPI of 3.91.

The individual Gain to Pain are 1.63, 1.23, 1.64 while the Model Moderate Portfolio has a superior UPI of 1.91.

The individual Maximum Drawdowns are -10.75%, -16.44%, -18.23% while the Model Moderate Portfolio has a better MaxDD of -12.14%. Only GPMv had a lower drawdown, but the returns are significantly higher for the Model Moderate Portfolio than GPMv.

Once again we saw far better overall metrics, returns vs the associated risks, by combining three of the strategies than the strategies performed in a silo.

Model Aggressive Portfolio

One more, let's look at the Model Aggressive Portfolio which consists of 15% Triad++, 10% Global Navigator+, 60% LT Gain++, and 15% DBMF.

Metrics for the four components and the Model Aggressive Portfolio:

Maximum Drawdowns: -13.94%, -18.23%, -31.24%, -17.35%; MAP: -19.07%, far better considering 60% of the portfolio experienced over a 30% drawdown.

Ulcer Index: 3.75, 5.39, 6.92, 6.31; MAP: 4.68, tremendous improvement.

Ulcer Performance Index: 3.42, 2.91, 3.28, 0.73; MAP: 3.94, again a tremendous improvement.

Gain to Pain: 1.55, 1.64, 1.54, 0.53; MAP: 1.64, another improvement, not as significant this time with the Gain to Pain, but still an improvement.

Portfolio Construction

When putting together a Model Portfolio, I primarily look at the CAGR, and the average and maximum leverage. I try to make sure that the average and maximum leverage are suitable in my opinion for Retire, Moderate, and Aggressive, of course somebody else's viewpoint could be very different and the portfolios may need tweaking to meet their tolerances. You may have different criteria, but you can certainly improve the risk adjusted returns by combining different strategies, and setting targets for leverage which you are comfortable with.

Which Model Portfolio suites your investing temperament? Or do none of them fit?

Let me know!

randy@dualmomentumsystems.com

A Permanent Portfolio aka DMS-4ETF, becomes Bamboo Portfolios

2024-03-28T20:59:59-07:00

DMS-4ETF, why did I keep it so long?

The allocation portfolio name took on a moniker of "4ETF" for the simple reason, it used 4 ETF's. I knew that I would name the allocation, but it just never came. I have to wonder if deep down I wasn't happy with the allocation which is why a name never materialized.

Below I go into some detail on how and why I just recently tweaked the allocations for the better, and in the process a name came to me. From know on, the newly tweaked DMS-4ETF allocation strategies will be known as the Bamboo Portfolios.

DMS-4ETF and it’s original goal:

When I came up with the allocation strategy for the DMS-4ETF funds, my thought was something better than a 60/40 with once a year re-balancing, make Smart Leverage for outperformance an optional version. When it came together, I was very happy that it panned out, the returns were better than 60/40 with similar drawdown. I was happy with the results and put it into production.

Why did DMS-4ETF just change?

The other day I working on putting together comparative data from some very popular allocation strategies like 60/40 which is pretty much the benchmark allocation, Permanent Portfolio by Harry Dent, All Season / All Weather by Ray Dalio, and Golden Butterfly by “Tyler" of PortfolioCharts. [I would have liked to go back further, but my allocation uses Managed Futures and I couldn’t get return data back to 1980] After compiling all the data from 2000 forward I was really impressed, again, with Golden Butterfly. I say again because I had looked at Golden Butterfly in the past but forgot how very good an allocation it is, even compared to the allocations from industry heavyweights. Tyler goes for allocation strategies with only annual rebalancing, I primarily go towards tactical strategies which have possible investment changes each month, to me the extra movement is worth the outsized gains. However, I totally understand that many people would just rather allocate and leave it to be re-balanced in a year, and I had the desire to come up with an allocation strategy that could take advantage by using Smart Leverage. I also like to use a portfolio like this to pair with the Dual Momentum strategies, they complement each other nicely - in fact I may update my Model Portfolios to include the Bamboo Portfolios in the Model Portfolios.

As I was looking at the results of the mentioned strategies, I realized that I wasn’t happy with the weighting to stocks and the drawdowns that are similar to a 60/40; I knew that I really did prefer the far lower drawdowns of Golden Butterfly. I thought about it for a bit and make three changes to the DMS-4ETF allocation, primarily focused on lowering the equity allocation which lowers the drawdowns.

The Russell 1000 allocation from reduced 55% to 40%.
The US Hedged International Equities were swapped out for Aggregate Bonds
The allocation to the non equity allocations of Gold, Managed Futures, and Aggregate Bonds were increased from 15% to 20% each.

Bamboo Portfolios

What was DMS-4ETF becomes the Bamboo Portfolios, with the changes mentioned, I felt the need to name the allocation strategies, so we now remove the placeholder DMS-4ETF and welcome the Bamboo Portfolios into the family.

I could not be happier with the results, yes the returns came down a little, but the drawdowns dropped in half, and all the metrics improved tremendously. Mission accomplished. Great returns with far less volatility, and better upside with the versions using Smart Leverage. The allocation is literally world class. The performance metrics are terrific and only improve with the “+” Smart Leverage version, and even more so with the “++” version.

What is Smart Leverage?

Smart Leverage is a method to put the US Large Cap portion which is normally unleveraged into a leveraged position. This is triggered with month end to month end drawdown exceeds or equals 15%. This can be over many months, not just one month to the next, drawdowns accumulate over time in a net down market. The allocation will stay in the leveraged position for 1 year maximum, if the dual momentum perspective says to exit the position, then the leveraged Bamboo Portfolios will go back to an unleveraged position. Smart Leverage is a dual momentum metric used in many of the strategies.

Bamboo+ Portfolio will go into 2X [SSO] instead of IWB when Smart Leverage is a go, and Bamboo++ Portfolio will go into 3X [UPRO] instead of IWB when Smart Leverage is a go.

Comparative Data

Here are the Equity Charts for the comparative allocations, and then the Bamboo Portfolio allocations against Golden Butterfly. You can see that over this time period, which started off with the Dot Bomb, and also includes the Global Financial Crisis, the S&P 500 in particular, and the 60/40 saw major drawdowns. Golden Butterfly was tops most of this entire period and returned the highest equity from 2000 to now.

Here is a chart showing Golden Butterfly and the three Bamboo Portfolio strategies. The ‘never any leverage’ Bamboo Portfolio underperforms the Golden Butterfly by a margin in the middle years of this chart, and nearly catches up by the end time period. You can see that the “+” and “++” versions obliterate Golden Butterfly over the entire time period, with similar drawdowns. One must also keep in mind that the past 20+ years have been very favorable to the performance of the 60/40 portfolio (and to some degree to Golden Butterfly with a 20% long treasury allocation), the fact that Bamboo Portfolio underperforms for a period of time is of no surprise to me, I am actually surprised it ends up being so close to Golden Butterfly at the end of the period.

Metrics

Here is a link to the spreadsheet with the comparative data.

Bamboo Portfolios and Golden Butterfly makeup

Bamboo Portfolios

US Large Cap, Russell 1000, IWB, 20%
Managed Futures, DBMF, 20% (you can use PQTIX for further history (SG CTA Index for further back)
Aggregate US Bonds, BND, 20%
Gold, SGOL, 20%

Bamboo+ will go into SSO instead of IWB for a period of time, and Bamboo++ into UPRO for a period of time.

Golden Butterfly

Total US Market, VTI, 20%
Small Cap Value, VBR, 20%
Short Term Treasuries, VGSH, 20%
Long Term Treasuries, TLT, 20%
Gold, SGOL, 20%

Here are links to Portfolio Visualizer, Bamboo Portfolio and Golden Butterfly, and here is a longer term one using PQTIX instead of DBMF.

Wrap up

If I had to choose, I'd pick the dual momentum based strategies over annually rebalanced allocation strategies. But not everybody would, and they both complement each other well. Welcome to the Bamboo Portfolios, may they enhance your investing.

Subscribe (free) to the monthly reports which will alert you to any Smart Leverage positions for Bamboo+ or Bamboo++.

Thank you.

February Reporting Deck for the Bamboo Portfolios.

A Permanent Portfolio Revised

2023-07-24T20:59:29-07:00

If you look at a recent post you will find A Permanent Portfolio, I am making a small change to that already. The newish ASPY ETF is frustrating me because it isn't available on a semi-live update pull so I can't show accurate strategy results on the "Near Real Time Performance" page of the website, I am changing that position to IWB so make things easier for me.

A Permanent Portfolio

2023-04-16T20:57:16-07:00

Harry Browne came up with the Permanent Portfolio in the 1980's and it is brilliant in design. The PP has 4 equal weighted components, US Stocks, Gold, Long term treasuries, and Cash. The idea is that even in the worst of economic conditions, at least one quarter of the portfolio should be doing well, and several can be doing well. It has lower drawdowns, more steady returns than investing in the broad stock market. Returns can lag the S&P, but the drawdowns are also far better. Tyler's site, www.PortfolioCharts.com highlight the Permanent Portfolio, his Golden Butterfly and many other allocation based strategies which only need annual rebalancing.

I have gravitated to the dual momentum style of investing and don't mind potentially making changes at the end of a month, I feel the benefits outweigh the drawbacks. This type of strategy may seem too fiddly for some though, which is why I introduce the DMS-4ETF strategy. Similar to the Permanent Portfolio, or the Golden Butterfly, the DMS-4ETF is a static allocation which only needs annual rebalancing.

My take on this is slightly different from the other allocation strategies mentioned, DMS-4ETF uses 4 ETF's that are a bit different, and less tested over the longer horizon.

ASPY is the main holding at 55%, in a nutshell, ASPY is an ETF which holds futures, similar to a dual momentum strategy which will go risk on / risk off, so does ASPY through futures, but you pay them a ~ 1% fee to manage it and it's hands off from your end. This is the newest ETF in the allocation, but it has done well since inception.
DBEF is an international fund which hedges to the US Dollar with a 15% allocation, this makes it less volatile than other funds like ACWX and VXUS, and DBEF has historically outperformed the non-hedged funds, this may not hold going forward.
SGOL is a Gold ETF with a 15% allocation.
DBMF is a managed futures ETF with a 15% allocation. A traditional managed futures account often would require an individual investor to commit a large sum of money to get into such a strategy, but DBMF, and other similar ETF's bring this type of investment to the masses. The managed futures account is very uncorrelated to the market, it could be completely opposite the market, somewhat similar, or at times completely correlated.

The limited time that I have to show results for this allocation is really encouraging. It is a bit nouveau in how it is using more modern and non traditional ETF's like ASPY and DBMF, and through the use of the US-hedged DBEF for international.

I am a bit unsure how to incorporate this into the monthly reporting because I cannot extend back in time and only have a short results period. I may not have something in the deck for this in the April Reporting Deck, but I'll figure out something soon.

btw - If you want true simplicity without any rebalancing at all, you could just buy ASPY, a single stock portfolio. The 4 ETF allocation I've outlined looks really intriguing to me, and seems worth the hassle of having to rebalance it once a year, but if you really want zero effort investment and to get near market returns with lower volatility, you could just buy ASPY and be done with it!

More information on: ASPY, DBEF, SGOL, and DBMF

Model Portfolio Allocation Updates

2023-02-11T20:56:51-07:00

I made some tweaks to the Model Portfolio allocations, the Model Retire is toned down some, even the Moderate is toned down a little, and the Aggressive is still pretty aggressive.

Here is a new version of the January 2023 Reporting Deck with the new allocations. The Fact Sheets for the Model Portfolio's list the allocations and show all the associated data, that can be compared with the previous allocations in the original January 2023 Reporting Deck.

Risk Off, leverage, and my personal allocation

2022-11-16T20:56:15-07:00

Risk Off, how often have the strategies been Risk Off as long as this current time period?

GPMv has been Risk Off for 8 consecutive months, and 9 of the last 10. The last time it was in Risk Off for 8 months or more was 11 months from July 2008 through May 2009, it was also Risk Off in March and April 2008. Those are the only two periods from now back to 1980 that it was Risk Off for 8 months or more.

The Triad trio of strategies has been 100% Risk Off for the past three months, the last time this happened for three months or more was the 4 month period from September 2008 through December 2008. The time before that was for 3 months from September 1981 through November 1981. Just three times have the Triad strategies been 100% Risk Off for three months ore more.

The Russell, Global Navigator, and the LT Gain strategies are a bit more binary and don’t scale in the way GPMv does, or bucketize investments like Triad does, there have been more times they have been Risk Off than the past 7 months. Global Navigator for example has been Risk Off for the past 7 months, this has also happened 5 other times going back to 1980, same as The Russell and LT Gain strategies.

Leverage and a persons personal allocation.

We are currently on the verge of all strategies going fully into the markets in December, and with Leverage if it is a + (2X) or ++ (3X) strategy. Are you properly allocated? For example, let’s say I was younger than I am and I have myself set to 100% LT Gain++. If the signal flips to go invested in equities for December, because we have triggered Smart Leverage, the LT Gain++ strategy would go in 100% with UPRO which is 3X the S&P. Are you good with that? If we happen to see that we are currently in a bear market rally and during December the S&P tanks 10%, would you be ok watching your investments go down near 30% for the month?

I personally had a bit of FOMO during the tail end of the rally in mid to late 2021 and levered up in some strategies that I really shouldn’t have been in, took a bit of pain when the market rolled over. The bad is, I went too risky and lost some money that I shouldn’t have. The good is, I learned from this and have over the past many months ‘come to my senses’ and adjusted my portfolios to a more appropriate allocation for my personal risk tolerance, and place in life. Just in case you are curious, here is my personal investment portfolio breakdown:

Looking at all investments, I have 38% in investment real estate (my personal home which I own outright is not included in this portion, it is my residence, not an investment.) And I have 62% in equities. Of that 62% in equities. Looking at the 62% of equites as a 100% pie, 5% of that is in a couple of stocks (which I wish I never purchased…) of the remaining 95% of equities, looking at that as a 100% total: 25% is in GPMv, 45% in Triad++, 15% in IWR, and 15% in DBMF. Honestly, I really wish I had been in that allocation for longer than this year, but I am in it now and have no intention of changing it. GPMv is my most recent strategy, a variation of Keller and Keunig’s GPM strategy, Triad is my second most recent strategy. I have lots of love for The Russell, Global Navigator, and LT Gain, however, I am happier being in the allocation that I am which still has historically resulted in fantastic returns, and also terrific risk adjusted returns. Not a lot of downward volatility which is just my style.

DBMF is a managed futures strategy in an ETF, it wasn’t long ago that you had to have big money to open an account with a CTA for a managed futures account, I like that this has a low correlation to the market and since inception has had market like returns with less volatility.

The summary is, I have roughly 40% of my investments in investment real estate, and roughly 70% of my equity investments in GPMv and Triad, strategies which are multi-equity and are both very low volatility with market like returns. And then I have 30% buy and hold, half in the Russell Mid-Cap and half in a managed futures ETF.

Should the strategies go fully in equities for December, including going into 33% of Triad++ into UPRO, I’ll be fine, knowing my overall allocation is otherwise pretty moderate. If possibly you worry about going into December's investments, maybe you are allocated too risky?

DBMF has only been around since mid-2019 so I can't chart my current allocation back too far, but here is what it looks like from 2020 through mid-November 2022.

(My allocation is the dark blue, SPY orange, and 60/40 gray.)

The next chart below is similar to my allocation, but without any DBMF and going with a 30% market allocation the entire time via IWB, the Russell 1000. It is a bit more volatile with 30% buy and hold, but you can see it still is often above either GPMv or Triad+ from 1980 through mid-November 2022, and light years ahead of the Market or a 60/40 over that time period.

Recent Appreciation

2022-07-16T20:55:47-07:00

Several people have written nice "Thank You's" the past couple of weeks, it was really nice to receive these comments.

Given that these DMS strategies are for a DIY investor who appreciates the strategies, understands how they work, and appreciate their goals, pros and cons. I really appreciate that these strategies strike a chord with some investors. :)

...just wanted to say this is great work and I had been looking for something like this for awhile. So for that, thank you.

Garrett B

Thank you for providing such a wealth of great information, Randy!

Keith P

Thank you for taking the time to create your amazing site. It is such a valuable resource.

Daniel M

I've spent hours and hours reading over your strategy, on the website. This is absolutely top shelf. Thank you for making this work available.

Nathan H

Bear Market Correlations

2022-07-14T20:55:24-07:00

When I glanced at the Finviz.com heat map this morning, I was reminded of the saying "All correlations go to one in a bear market."

Changing from DBC to PDBC, cleaning house

2022-07-12T20:54:48-07:00

Housekeeping: Swapping out DBC in favor of PDBC in the strategies which use Commodities, GPMv and the Triad trio.

Thanks to Garrett B for alerting me to PDBC. Both DBC and PDBC are fund from Invesco they have extremely similar results, PDBC has the advantage of no K1. DBC is structurally a Commodity Pool (managed futures), while PDBC is an ETF. Both trade easily and similarly, but PDBC does not issue a K1 which is simpler at tax time.

For more information on the distinction between Commodity Pools and ETF's: Investopedia link

You can see in the chart below of returns for both DBC and PDBC, they are virtually in lock step.

How much leverage is the right amount?

2022-06-26T20:53:10-07:00

It is common for people to use leverage, whether in the form of leveraged ETF's, margin, or futures as a way of enhancing returns when things are going well in the markets. The problem is that leverage cuts both ways, it can dramatically increase your gains, and it can also dramatically increase your drawdowns.

It is not only retail investors getting 'greedy' using leverage either, did you know that not only do Hedge Funds use a lot of leverage, but even Berkshire Hathaway is usually using leverage? I didn't dig into it, but it appears that they often use 1.2x to 2.0x leverage, and they are generally considered to be conservative. You may recall how Long Term Capital Management blew up from using too much leverage, when things went against them.

Having looked at the risk adjusted returns for holding leveraged ETF's for long periods of time, it is shocking how much volatility and drawdowns they can incur. But Fear Of Missing Out, FOMO, still taunts people to try and enhance returns.

I got more aggressive in 2021, not long before the market rolled over and got stung as a result. Not a mortal wound, but a good lesson to not leverage up too much. The truth is, I was leveraged more than I was comfortable with, but it didn't rear it's ugly head until things turned downward.

Many of the DMS strategies take advantage of Smart Leverage, which is designed to only leverage up when the odds are in our favor for doing well, however, this doesn't mean that being 100% invested in LT Gain++ is a terrific idea because there will be times when you are 300% leveraged. Certainly some people can handle that volatility, not me!

With less than a week to go before June has completed, it looks like we may trigger Smart Leverage this month. As a reminder, Smart Leverage looks at drawdowns in IWB from the month end high water mark to the current month end results, when this reflects a drawdown of 15% or greater, Smart Leverage is triggered, and when we go back into equities we do so with leverage. The "+" strategies use 2X, SSO, the "++" strategies use 3X, UPRO.

Triad only has a maximum allocation of 1/3rd to IWB, the Russell 1000. So even if you are in Triad++, the maximum leveraged position you have to the market is 100% for the IWB portion (1/3 x 3X), and it could still have 1/3rd in either Russell Mid-Cap Value, or Foreign, and also up to 1/6th position in either Gold or Commodities. This is an amount of leverage that I am personally good with. At this point in my life, I don't want the volatility or risks that come from being overly leveraged and my recent fall from grace was an excellent reminder of this. If you don't learn from your mistakes, you are likely to repeat them.

If you are investing in the DMS strategies, please consider the leverage you will be taking when we go back into equities if/when Smart Leverage is triggered. It would not be out of the question whatsoever to see a 20% loss in a month for the overall market, and if you are 100% in 3X leveraged strategies, that would equate to near a 60% loss for the month. That would be a significantly huge loss in the span of one month. Caution is advised. Consider your allocation, and not just how you will do if things work out as we hope, but please also consider the downside possibility and what that would mean for your portfolio.

My personal allocation is similar to the Model Portfolio Retirement allocation as shown recently in the Reporting Decks. Which is 35% GPMv, 50% Triad++, and 15% IWR (Russell Mid-Cap). As shown in the reporting deck, this allocation has a backtested history of terrific returns that are above market performance, with far less volatility and drawdowns. Seems like a great path for me to follow. Note that I do have my kids more aggressively allocated, but not too much maximum leverage. The Reporting Decks show both the Maximum and Average Leverage for each strategy and Model Portfolio. While the Average Leverage is important to note, it is the Maximum Leverage that one needs to pay the most attention to.

Zoom Presentation to the AAII Computerized Investing Group

2022-06-20T20:52:43-07:00

This was a Zoom presentation going over updates and new strategies for Dual Momentum Systems from March 3, 2022, enjoy.

Link to video

GPMv is born

2022-05-23T20:52:08-07:00

When I was scouring the internet, gaining interest in Tactical Asset Allocation strategies, TAA, I found myself on JW Keuning's website Index Swing Trader by his online name TrendXplorer. TrendXplorer and his co-hort in several strategies Wouter Keller have come up with some really interesting strategies. They iterated Protective Asset Allocation, PAA, to become Generalized Protective Momentum, GPM. The goal as TrendXplorer told me was extremely low drawdown, low drawdowns were given higher priority over returns. When I first ran across GPM, honestly I thought it was rather unique and brilliant how they used the correlations and used the positive count to scale into and out of the Risk On universe and the Safety assets. However, I also thought - BORING.

Some times, boring is good, in fact boring can be great. It took me a few years to come around to it, but I recently found myself investigating retirement portfolios for myself, not for today - but not too far off in the future. It was during this investigation that I found myself looking at GPM once again, and viewing it in a different light.

When people are accumulating assets, it is often the case that more risk and less diversity is taken. This can work well for capital growth, albeit likely accompanied with higher volatility. In retirement though, steady eddy is the goal. The lower the volatility the more reliable a portfolio is for drawing money in retirement without too large drawdowns. It is why allocation strategies like Golden Butterfly, Permanent Portfolio, and All Weather each far outperform the general market in retirement, they are far less volatile than the overall market and this keeps drawdowns from getting too large.

If you are familiar with this Dual Momentum Systems website, you likely know that my Global Navigator+ strategy is largely a derivative of Gary Antonacci's GEM strategy. I have a faster acting weighted lookback, and have implemented Smart Leverage for greater growth opportunities and Treasury Duration Limiter for safer Risk Off, but in a general sense you can see the resemblance. The Russell is a bit more varied from GEM. The LT Gain strategies, like Global Navigator+ you can see have inspiration from GEM, again with my take on them with the Single Momentum, the lookback, Smart Leverage, and Treasury Duration Limiter. The Triad Strategies are I would like to think wholly my own, there may be resemblance to other strategies, but I really came up with them without any inspiration of other strategies. I mention the strategies only to say that when I re-visted GPM, I found myself wondering, what if I changed this, and that, hmm, what about this. Compulsion forced me to tinker with the already excellent strategy to see what the effects of my ideas would have.

When I re-familiarized myself with GPM, as mentioned above, I began wondering how the strategy would perform if I made some changes to it. I will run through the changes that I pondered, and eventually tested, and a brief mention why I was looking at the specific change.

Japan, one of the risk on assets in GPM is EWJ, Japan. While this choice didn't offend me, I wondered why not use a more broad geographical index like Pacific which is the entire region, not just Japan. Recently, the top countries represented in the Pacific ETF VPL were: 55% Japan, 20% Australia, 13% Republic of Korea, 7% Hong Kong, 3.4% Singapore, 1% New Zealand.
Russell 2000, I have an affinity for Mid-Cap Russell indexes and wanted to see how the Russell Mid-Cap would do when swapped in for the Russell 2000 (small cap) index.
Emerging Markets, I didn't like the idea of allocating up to 33% to Emerging Markets so I want to remove it entirely.
Safety Assets, I wasn't sure why there wasn't an option to not just go into Short Term or Intermediate Treasuries, given the goal of the strategy I thought that BIL should also be an option.
The strategy multiplies the returns and correlations and adds up the positive results, this number is used to scale into and out of the Risk On and Safety assets. Given the protective, low drawdown, nature of this strategy, I wondered, what if I add 1 to this count to force it to allocate a bit more to Risk On instead of the Safety assets.

After updating my implementation of TrendXplorer's GPM model and verifying the results where correct, I then began implementing my 5 ideas one by one to see how they worked out. My initial look at a strategy consists of looking at the CAGR, Maximum Drawdown, and UlcerIndex, here is what I found with the 5 changes listed above:

GPM, the base strategy has (from 1980 through May 23, 2020 - with my data set of returns): 10.90% CAGR, -7.93% MaxDD, 2.35 UlcerIndex

The changes below are individual, 1 looks at only changing Japan for Pacific, 2 only looks at changing Russell 2000 for Russell Mod-Cap, it isn't stacking Japan and Russell 2000 changes.

VPL instead of EWJ: 10.86% CAGR, -9.13% MaxDD, 2.46 UlcerIndex I was okay with this being slightly worse, I knew that Japan had incredible returns during the late 80's, so de-prioritizing that a bit was likely to have a little bit of an adverse effect. I was more of the mind that Pacific was a more well rounded selection and maybe better going forward.
Russell Mid-Cap instead of Russell 2000: 11.23% CAGR, -7.93% MaxDD, 2.33 UlcerIndex. This was a bigger improvement than I would have guessed.
Removing Emerging Markets from the universe of Risky Assets (and changing calculations from using "12" to "11"): 10.79% CAGR, -9.35 MaxDD, 2.35 UlcerIndex. It surprised me that the MaxDD was a little higher, but not that the UlcerIndex was slightly lower and the CAGR slightly lower.
Adding BIL as an option if both SHY and IEF had negative lookback: 11.27% CAGR, -7.93% MaxDD, 2.23 UlcerIndex. This is even better than I would have guessed.
Changing the count of positive correlation * return assets by 1 to increase Risk On scaling: 11.65% CAGR, -10.05% MaxDD, 2.54 UlcerIndex. Spot on.

Each of the 5 changes seemed reasonable to me, and the 5 changes still keep the essence of the strategy in tact, these are more stylistic preferences than anything. This still very much looks and smells like GPM.

Question, What are the results of putting all 5 of those changes together?

Serendipity, Synergy. Call it what you will, but I saw fireworks when I looked at the historical results of putting those 5 tweaks into the base GPM strategy. GPMv, short for GPMvariant, is what I am calling this strategy. It is the base GPM strategy with all 5 changes mentioned above, and I also swapped out SHY for VGSH, and IEF for VGIT, simply because I already use both VGSH and VGIT in my other models.

GPMv: 13.10% CAGR, -8.25% MaxDD, 2.00 UlcerIndex.

WOW - those are some seriously impressive numbers. S&P beating returns with such low drawdowns and low volatility.

The next step for me was combining GPMv with my Triad++ strategy. Given my personal risk profile, I did 40% GPMv and 60% Triad++.

Below are the metrics the related strategies and combination for both 1980+ and 2000+.

In the metrics and Fact Sheets below, the "Model Retirement" portfolio consists of 40% GPMv & 60% Triad++.

Can we be certain that GPMv will perform as well in the future? No, of course not. However, regardless of the actual returns this strategy generates going forward, I think it is safe to say that it will continue to generate similar to market like returns over a full business cycle, and it will do so with far smaller drawdowns and far less volatility than a market portfolio. Isn't that about the best we could really ask for?

While I am not there yet, I am planning on GPMv to account for 40% of my retirement portfolio.

VTI out, IWB in, cleaning house

2022-05-23T20:51:31-07:00

VTI was still being used in Global Navigator+ while all of the other strategies used IWB. In efforts of streamlining and simplifying, I have changed Global Navigator+ ever so slightly by replacing VTI with IWB. There is virtually zero impact to past results or drawdowns, simply a housecleaning measure.

Strategy Naming Convenstion, house cleaning

2022-05-18T20:51:11-07:00

When naming the three Triad strategies which are differentiated only by the use of Smart Leverage, and 2X, and with 3X Smart Leverage I used Triad for the base strategy without any Smart Leverage. Triad+ for Smart Leverage using 2X, and Triad++ for Smart Leverage using 3X. I like this naming convention and adopted it to the other strategies as well.

LT Gain is now LT Gain+, LT Gain 3X is now LT Gain++, Global Navigator is now Global Navigator+.

Consistency in the naming.

TDL andthe Triad Trio

2022-05-07T20:50:40-07:00

The strategies (not Triad, it uses a different lookback and different risk off treasuries and bonds) went into treasuries for the months of February and March this year. During the month of February, treasuries didn't end the month terribly even though they underperformed the Russell 1000 most of the month, this chart below shows February 2022 for long duration treasuries and the Russell 1000. The treasuries lost about 1% less than the market.

March was far worse for treasuries. Traditionally the treasuries act as a flight to safety and provide safety and returns when stocks aren't doing well, this didn't happen the 1st half of the month as stocks went down, Treasuries were down equally, then as the equities recovered and made gains, the treasuries lagged tremendously. Treasury yields have seen some of the biggest increases in this short of a time and has been devastating for the price of treasuries and bonds, especially the longer duration ones.

This chart below, tweeted by Jim Bianco, shows the treasury returns year to date for all history available - this is the worst year on record so far. Just crazy, we've not seen this happen before.

The result is that we took a hit in March in the strategies like The Russell, Global Navigator, LT Gain, and LT Gain 3X. They went out of equities based on the model and ended up performing terribly in long duration treasuries.

TDL, Treasury Duration Limiter, is something that I came up with after that terrible treasury performance in March, the goal is to restrict the strategy to short duration treasuries when going long duration presents too high of a risk. I ended up making TDL operate on the 30 year treasury yield, subtract the 5 year treasury yield, and if the spread is less than 1% then TDL kicks in and the strategy would go into short term instead of long duration treasuries.

Recently, I have been looking into TrendXplorer's Generalized Protective Momentum, GPM, strategy - it is of interest to me, particularly in a retirement portfolio. I found myself thinking about the strategy and making a couple changes based on my perspective to see how it looked on historical data. In my making a few adjustments to GPM I found myself implementing a TDL type filter for GPM, and it dawned on me that it should also work well for the DMS strategies.

It is elegantly simple, and works better than the 30 year - 5 year treasury yields so I have swapped out the inner workings of the TDL filter. TDL now simply looks at the weighted lookback of long duration treasuries, my weighted lookbacks for the strategies are 25% of the 1 month return, 25% of the 3 month return, and 50% of the 6 month return. However, I wanted this to be faster acting and more protective, so I changed the weighted lookback to 50% of the 1 month return, 25% of the 3 month return, and 25% of the 6 month return.

If we are risk off for multiple months, TDL can kick in at any month end, maybe in February we start off in long duration treasuries, but TDL kicks in for March so then we switch to short duration treasuries. The way I have TDL set, if in April the new signal is for long duration treasuries - we stay in the TDL limited option until we go back into equities. It avoids switching back and fort from long to short treasuries for those times when it is many months, the returns are not hurt and volatility is lowered.

I wish I had come up with this originally, I had it in my head that the risk off asset should be restricted from an outside metric, but as always, price is usually the best metric available.

This additional filter, TDL, to the strategies will help to protect us any time the long duration treasuries may not be a safe place to park our investments. The reporting deck for May will be complete with the updated TDL.

The Triad Trio!

Triad is one of the newer strategies, and it has become one of my favorites. When I was originally designing Triad last year, I wanted to include both gold and or commodities as up to a 1/6th investment option, but I wasn't able to source commodities monthly returns back to 1980 so decided to just leave it with gold as the option. I recently was able to obtain the monthly commodities returns back to before 1980 and have implemented it into the strategy.

The strategy will invest 1/6th of the strategy into either gold or commodities, whichever has the stronger relative momentum, and if neither has positive absolute momentum, then that 1/6th is invested into our safety holdings, treasuries or bonds.

I've decided to make Triad a little more robust in regards to International equities, similar to Global Navigator. Recency bias has everybody looking away from International and at the US Markets, but historically up until about 12 years ago, International markets had the same historical returns as the US, and they tend to outperform when the US Markets are underperforming.

The chart above shows how there are periods when the International markets have outperformed the US markets. Triad now capitalizes on this situation. Similar to how Triad now invests in the stronger of gold or commodities, it will put 2/6th of the strategy into either the Russell Mid-Cap Value or International, whichever has the higher relative momentum. If neither of them have absolute momentum, then the 2/6th goes into the best performer of the bonds/treasuries.

The 2/6 allocation into the Russell 1000 remains unchanged.

Triad+ is the same as Triad, but adds Smart Leverage and will go into 2X S&P 500 instead of the Russell 1000 when going back into equities after a 15% or larger drawdown in the Russell 1000. This position is held until a natural change of investments in the strategy up to 1 year at which time the position is closed and we would de-leverage into the Russell 1000.

Triad++ is the same as Triad+ but the 2/6th position that would go into the Russell 1000, with Smart Leverage in Triad++ it would go into 3X S&P 500.

Even using 2X and 3X leverage with the 2/6th position the risk adjusted returns on the strategy are phenomenal, and for me it becomes a single strategy that fits more needs without having to combine multiple strategies. Note that leveraged equities do present a risk, a terrible month in the markets is amplified if in leveraged assets. This is not investment advice.

Going forward with the May Reporting Deck, all three Triad strategies will be included.

You can download the Fact Sheets for all three Triad strategies here.

I am really excited for the Triad offerings and am using them heavily myself. Please pay attention to the MAX Leverage of strategies. Triad++ has a 166% max leverage on it's own. the 2/6 position will effectively become 6/6 in Triad++ when it goes into UPRO. Triad always has at least 1/6 in treasuries/bonds, I personally don't consider that a 1:1 leverage the same as equities, but I didn't want to downplay the overall effective leverage all the same.

Happy Investing, geez, especially in this environment. If the couple people I follow who's opinions I respect are correct, we could see a really big drop still to come in the equities markets. Dual Momentum Systems strategies have had some whipsaw this year, and got caught in long duration treasuries in March, but they should fare well if faced with a large drawdown in the markets, and get us back in when they have some positive momentum.

Bear Markets & Major Pullbacks

2022-05-05T20:45:38-07:00

Allocate Smartly is a site that I follow their blog, they track over 60 Tactical Asset Allocation Strategies, I enjoy reading what they put out on the blog. They recently put out a post comparing the average of all the strategies that they follow over all bear markets and major market pullbacks and compare that average to the S&P 500 and a 60/40 allocation.

Note that Allocate Smartly does not track any strategies which use leverage, they are all unleveraged all of the time.

I had thought of doing a similar post before for the DMS strategies, so now seemed like the time.

The Allocate Smartly findings are not a surprise to somebody who has dug into TAA strategies, the end result is that the when looking at the shorter term pullbacks, the strategies may or may not do better than the broader market or 60/40, however, during the longer bear markets is were TAA really shines and saves an investor from major drawdowns.

Many DMS strategies incorporate limited use of leverage, and MAX PAIN is always 3X leveraged, and you can see the effects of this in the charts below.

The charts below are all logarithmic with a starting balance of $10,000.

MAX PAIN

2022-04-20T20:49:28-07:00

MAX PAIN is a strategy that was billed accurately from my perspective, I described MAX PAIN on the website as:
This strategy is for the investing psychopath who demands maximum gains any way possible, regardless of frequent and large drawdowns and daily swings that are often well in excess of 5% up or down.

DMS

I don't believe I ever sugar coated the strategy with it's impressively high returns, the Ulcer Index is insane and the risk adjusted metrics terrible. When talking about MAX PAIN I have been up front and open about the nature of the beast. Recently I posted that the strategy was on the bubble, meaning that I was considering pulling it from the line up. This months impressively terrible results have pushed me to remove it. MAX PAIN is down 22.58% this Month to Date, and currently is in a 42.38% drawdown. While the current drawdown is not out of the ordinary when looking at the history for MAX PAIN, it simply isn't something that I think has broad appeal, or should have broad appeal, and I do not feel that it is responsible for me to "promote" it by including it in the strategy line up.

I take pride in the excellent risk adjusted returns for all of the other DMS strategies, this is what I focus my energies on, not on the gonzo MAX PAIN type strategies which ultimately has delivered amazing returns, but not without insane volatility along the way. It is time to reflect that in the reporting and strategies that are presented.

If you want to follow MAX PAIN moving forward you can do so from this PortfolioVisualizer link, free accounts will be able to view monthly results after the fact.

Golden Butterfly & 60/40 vs Triad+

2022-04-11T20:48:48-07:00

Not long ago I did a post about how TAA does against fixed allocation strategies like 60/40 and Golden Butterfly. It is time to update the data now that we have Triad+ in our arsenal.

In the original post I said:

It is easy to see why people like allocations that are rebalanced annual. Whether you invest in a 60/40 allocation, All Weather, Permanent Portfolio, Golden Butterfly or others - the appeal is near market returns over time without the highs and lows. We prefer technical asset allocation which generally may have a change of investment at the end of any given month. Are we rewarded for the more 'fiddling' with our investments than those who invest in an allocation that is only rebalanced annually? Let's take a look.

I ran results on PortfolioVisualizer for Golden Butterfly, 60/40, and Permanent Portfolio, results here. From 1992, as far back as I could get the results, through Jan 2022, Golden Butterfly has the best combination of returns and maximum drawdown. Because Golden Butterfly took the Gold out of these three, I will compare it to the DMS strategies which never use any leverage, that is Triad and The Russell OG. These two DMS strategies may have a change of investment at the end of every month, Golden Butterfly is a buy and hold that is rebalanced annually. How do they compare?

- - -

In this updated post I am comparing the traditional 60/40 balanced portfolio and Golden Butterfly against a single DMS Strategy, Triad+. Let's see how it looks over the long run. And please keep in mind that Triad+ was really designed to outperform going forward, it was pure joy to realize it outperformed in the past as well.

The metrics and chart speak for themselves, Triad+ is a really special strategy which I am rather proud of. Not only is the downside and volatility limited, but the upside is more unbridled, it makes for a terrific strategy on it's own, or used in a combination of strategies.

All respect to Tyler for his Golden Butterfly, and understanding that there are people who don't want to have to potentially change their allocation at any given month end, however, we see that there is a nice upside for that small barrier to entry. Do not forget that going forward, as Golden Butterfly remains in long term treasuries, the spread in performance may continue to increase because Triad+ never uses long term duration treasuries, ever!

Bear Markets & Major Pullbacks with TDL

2022-04-11T20:47:10-07:00

There was a recent post about Bear Markets and Major Pullbacks, showing how the strategies did and comparing to the S&P 500. My general take away is that the short term pull backs of a few months are a coin toss, these DMS strategies may or may not do any better, if even as good, as the general market does. But it is over the longer drawdowns like 2000 and 2008 where we see a massive improvement to the market results.

What with the recent inversion of the yield curve, and people talking of a recessing looming in the next 6 to 24 months, I thought it was worth re-posting the same article of Bear Markets and Major Pullbacks but this time showing it with TDL, Treasury Duration Limiter, in effect.

All of the charts, and data, in this post are with TDL in effect.

Reminder that Triad and Triad+ do not use Treasury Duration Limiter, they don't need it because of how these strategies were designed originally. Neither does MAX PAIN have TDL as a part of the strategy - and as mentioned a few days ago, MAX PAIN is on the bubble and may be dropped.

MAX PAIN is on the bubble

2022-04-08T20:46:45-07:00

I mentioned in the monthly email with the release of the March 2022 reporting deck, subscribe here if you don't receive it - I mentioned that I have implemented Treasury Duration Limiter to all the strategies except the Triad Strategies, and MAX PAIN. The two Triad strategies don't need it, they inherently avoid duration risk. MAX PAIN - I was struggling what to do with this strategy. It does not deliver supercharged results (with supercharged volatility) without going into TMF and EDV which are 3X long duration, and extended duration treasuries. MAX PAIN is a strategy that has benefited from the bond bull market for all these many years, and I am quite concerned for it's performance in the years ahead. Do I leave it and know that MAX volatility and MAX drawdowns are just part of the game, or do I deprecate it and let LT Gain 3X which has stellar returns and stellar risk return metrics be the top dog.

Thoughts?

Please welcome the Triad+ Strategy

2022-03-14T20:46:20-07:00

Welcome the new DMS strategy, Triad+. It is very simple to explain, because it is Triad with the addition of Smart Leverage the way the LT Gain strategies implement it, instead of using IWB, if there is a month end drawdown of 15% or greater, the next time the strategy would go into IWB, instead it goes into SSO. It will hold SSO for as long as Triad would be staying in IWB, if that time period exceeds 12 months, SSO is exited after 12 months to lock in long term gains and the strategy switches to IWB to de-leverage and de-risk the strategy.

The results are really great. No worse Maximum Draw Down from 1980 forward, and a nice improvement in the returns with a slight increase to the risk profile. I have been working on evidence based retirement withdrawal rates, and Triad+ is a mainstay in this model portfolio allocation, it is also a great addition to any portfolio, not just for retirement.

The FactSheet for Triad+, and Triad, are shown below through February 28, 2022.

I am leaving Triad as it is and adding Triad+, instead of replacing changing Triad to include Smart Leverage because I know there are people who will want nothing to do with leverage whatsoever, and that is why Triad remains. Do understand that the amount of leverage with Triad+ is very modest. In a "Fully Invested" allocation, Triad would be 1/6 Gold, 1/3 Russell 1000, 1/3 Russell Mid-Cap Value, and 1/6 in Bonds or Treasuries. By adding Smart Leverage, the 1/3rd position in the Russell 1000 would be 2/3rd via SSO instead of IWB. The "Fully Invested" allocation would then be 1/6, 2/3, 1/3, and 1/6. If we don't consider the Bonds/Treasuries, the equity allocation would max out at 116%. This makes a meaningful addition to the returns, but is a modest amount and does not induce too much volatility or risk to the strategy.

How do monthly TAA strategies compare to Allocation portfolios

2022-01-20T20:44:49-07:00

It is easy to see why people like allocations that are rebalanced annual. Whether you invest in a 60/40 allocation, All Weather, Permanent Portfolio, Golden Butterfly or others - the appeal is near market returns over time without the highs and lows. We prefer technical asset allocation which generally may have a change of investment at the end of any given month. Are we rewarded for the more 'fiddling' with our investments than those who invest in an allocation that is only rebalanced annually? Let's take a look.

I ran results on PortfolioVisualizer for Golden Butterfly, 60/40, and Permanent Portfolio, results here. From 1992, as far back as I could get the results, through Jan 2022, Golden Butterfly has the best combination of returns and maximum drawdown. Because Golden Butterfly took the Gold out of these three, I will compare it to the DMS strategies which never use any leverage, that is Triad and The Russell OG. These two DMS strategies may have a change of investment at the end of every month, Golden Butterfly is a buy and hold that is rebalanced annually. How do they compare?

What a staggering difference in returns from May 1992 through January 2022. Both Triad and The Russell OG produce superior returns, and I also show a ½ Triad and ½ The Russell OG. For both DMS Strategies and the combination, the CAGR is higher, Sortino is higher, Drawdown for Triad is significantly lower, and only a bit higher for The Russell OG, Ulcer Index is lower for Triad and a noticeably higher for The Russell OG, Beta's are all similar, Alpha much higher for DMS. The stats on the Combo are pretty awesome.

While the convenience of a buy and hold strategies that is rebalanced every year sounds appealing, the superior results of these two never-leveraged strategies seems worth an extra few minutes per month to make any necessary trades.

S&P Monthly Results Histogram

2022-01-20T20:44:10-07:00

The S&P is currently down just more than 4% mid month January 2022, that got me curious how often "big" negative months occur in the S&P 500 so I created two histogram charts to show the frequency of historical monthly total returns.

Looking at the first histogram from 1950 through January MTD 2022, you can see that there were 48 months with returns between -3.73% and -5.73%, out of a total of 865 months. If we look at this column and all of the ones to the left, there are a total of 48+26+18+4+1+1+1+1=100 months. 100/865=11.6% of months have had returns of -3.73% or worse.

When looking at the 1980 through January MTD 2022 we get almost identical results, 11.3% of months had returns of -3.73% or worse.

Roughly speaking, this size monthly negative return happens around 1 in every 10 months. January isn't finished and we don't know where it will end up - this was an exercise to see how often large negative months occur.

Short vs Long Term Gains

2022-01-12T20:43:43-07:00

An investor in DMS strategies asked if I could quantify the effects more gains taxed as long term gains with LT Gain 2X compared to The Russell and the impacts over time.
This investor is saddled with 41% long term and 24% short term tax rates so I used those in the calculations.

Looking at The Russell and LT Gain 2X, not accounting for any taxes, The Russell goes from 1980 through 2021 with a 5.2% higher ending balance than LT Gain 2X.
If $1,000 had been invested in The Russell from 1980 through 2021 they would have $3,407,664 at the end. Taxes were taken out at the end of every December, including 2021.
If $1,000 had been invested in LT Gain 2X from 1980 through 2021 they would have $4,914,314 at the end. An increase of 44% ending account balance due to the LT Gain 2X strategy having more long term gains.
The 44% higher ending balance is over and above the 5.2% lower balance originally in looking at the untaxed strategy returns. Roughly 50% better returns because of the increased long term gains.

For this exercise, current tax rates were extended back in time, this would have been a research project if I tried to figure out what that long and short term tax rates were each year back to 1980, this is more to give an idea as to the benefit of having more gains realized as long term, not an exact calculation on what the actual taxes would have been.

CAGR:

The Russell 20.44% untaxed
LT Gain 2X 20.29% untaxed

The Russell 14.89% taxed
LT Gain 2X 15.90% taxed

The Russell -27.15% Change in untaxed CAGR to taxed CAGR
LT Gain 2X -21.63% Change in untaxed CAGR to taxed CAGR

The increased amount of gains realized as long term makes a profound difference in the ending account balance over time.

The first chart below is the baseline showing how The Russell and LT Gain 2X performed without accounting for any taxes.

This chart shows the impacts of the 41% short term and 24% long term tax rates.

LT Gain Strategies

2022-01-10T20:43:13-07:00

BIG changes around DMS - out with 3 strategies, in with 2 strategies

I have some accounts which are not tax deferred and I found myself looking at some strategies by other people and per usual started looking at how I could change my strategies to better accomplish more of the gains going to long term instead of short term. The end result is that I am deprecating The Russell, Global Navigator XL, and The Russell XXL and replacing them with two new strategies, LT Gain 2X, and LT Gain 3X.

When presented with new compelling information, I change my mind.

The Russell, looking at results from 1980 through 2021, only has about 12.5% of it's gains as long term, the bulk of the gains are realized as short term. LT Gain 2X has nearly identical performance as The Russell but manages to have nearly 70% of it's gains realized as long term. This does not matter in tax deferred accounts, but it can be a significant difference for invested funds in a regular non-tax deferred account.

The Russell vs LT Gain 2X
Both strategies go into Long Term Treasuries when not invested in equities. The Russell invests in the best relative performer of three options when the general market has upward momentum. The change to LT Gain 2X is instead of looking for the best relative performer, it only goes into the Russell 1000 when it is moving upward, there is no dual momentum here, just [single] momentum. Smart Leverage is still used, and after an outsized month end drawdown in the markets LT Gain 2X will go into SSO which is 2X the S&P 500. This strategy will remain in the leveraged ETF for up to 1 year at which time it exits the leveraged ETF, locks in the long term gains and goes back into the unleveraged Russell 1000. The performance of exiting leverage after 12 months holding is only about 0.5% CAGR lower than not having this 1 year hold filter, and the volatility is noticeably lower, it is a great trade off.

From 1980 through 2021:

CAGR
The Russell 20.44%
LT Gain 2X 20.29%

Sortino Ratio
The Russell 2.20
LT Gain 2X 2.26

Maximum Drawdown
The Russell -24.12%
LT Gain 2X -23.41%

Ulcer Index
The Russell 6.07
LT Gain 2X 5.58

Very similar long term results, and a huge improvement in the amount of gains that are realized as long term instead of short term.

Global Navigator XL & The Russell XXL vs LT Gain 3X
Global Navigator XL goes into Extended Duration Treasuries when out of equities, The Russell XXL goes into 3X Long Term Treasuries the 1st month out of equities, and Extended Duration Treasuries in subsequent months when out of equities. LT Gain 3X uses Extended Duration Treasuries when out of equities.

GN XL and TR XXL each use Smart Leverage going into 3X, as does LT Gain 3X. The new strategy also uses just 1 investment in order to maximize the hold times without switching to the better relative performer, and it pays huge dividends for long term gains, they are nearly 70% instead of the about 15% for GN XL and TR XXL.

From 1980 through 2021:

CAGR
Global Navigator XL 24.46%
The Russell XXL 28.72%
LT Gain 3X 27.17%

Sortino Ratio
Global Navigator XL 2.49
The Russell XXL 2.59
LT Gain 3X 2.40

Maximum Drawdown
Global Navigator XL -28.54%
The Russell XXL -29.49%
LT Gain 3X -28.54%

Ulcer Index
Global Navigator XL 5.45
The Russell XXL 6.9
LT Gain 3X 6.62

And regarding the CAGR, if I slot in TMF for the 1st month out of equities with LT Gain 3X as is done by The Russell XXL, the CAGR for LT Gain 3X goes up to 29.99%, even higher than The Russell XXL and maintaining those excellently high long term gains. I am keeping LT Gain 3X with EDV for all months out of equities, if you want to try and juice your returns a little, you can always go with TMF the first month in Treasuries.

By dropping 3 of the strategies for 2 new strategies, we streamline the strategy offerings a little bit, and otherwise offer very similar strategies with superior long term gains, this is a big win to my eyes, even if the new strategies strictly speaking aren't Dual Momentum, just [single] Momentum. The backtests show that they do not suffer in performance or volatility, we only gain from them without losing anything other than more frequent trades.

Housekeeping note, I will have put a new Reporting Deck for the end of December that reflects the new strategies on the site as well as updated the recent Smart Leverage post from 12/25/2021 to reflect the Smart Leverage history for LT Gain 3X instead of Global Navigator XL.

Smart Leverage

2021-12-25T20:42:44-07:00

Smart Leverage: What is it, how does it work, and how successful has it been?

DMS has 6 strategies in total. Triad and The Russell OG don't ever use leverage ever. MAX PAIN is the most aggressive and volatile strategy, it is always in 3X Funds. The other 3 funds are normally in 1X, unleveraged funds, but use Smart Leverage. These funds are: Global Navigator, LT Gain 2X and LT Gain 3X.

Smart Leverage is used to take advantage when the odds are in our favor, to go big with Leveraged ETF's. When there is a bigger than normal drop in the markets on a month end basis, the 3 funds which use Smart Leverage will go from 1X funds into Leveraged Funds. Global Navigator and LT Gain 2X go to 2X funds, and LT Gain 3X goes into 3X funds.

Smart Leverage does not kick in often, it is selective and rules based. I will show the results for all three strategies which use Smart Leverage.

Global Navigator used Smart Leverage a total of 10 times from 1970 through 2021, and for a total of 56 months out of 624 months, 9% of the time. Only 1 of the 10 periods did Smart Leverage perform worse than had you been in a regular 1X unleveraged fund. There was a huge improvement in overall results from using Smart Leverage for Global Navigator.

The two LT Gain strategies took advantage of Smart Leverage 13 times from 1980 through 2021, for a total of 114 months, 22.6% of the time. These strategies go into Smart Leverage more than Global Navigator since there isn't a suitable Foreign leveraged ETF with enough volume to use in that strategy, so it only leverages up with the US Market, not Foreign. The LT Gain strategies had 11 instances of positive and better than 1X investments, and two periods with negative returns which were also greater than the 1X losses. If we invested $1 during these time periods of Smart Leverage, the unleveraged 1X investments would have grown to $9.79, while the 2X Smart Leverage grew to $53.34, and the 3X to $300.27. Tremendous improvements in gains.

Smart Leverage has dramatically improved the strategy results in the past, however, it is by no means guaranteed to work in the future and by using leverage could cause rather large drawdowns if the market turns negative while in leveraged funds. Caution is advised, as is choosing an allocation that you are comfortable with.

Triad October FOMO

2021-10-18T20:42:06-07:00

September was a big down month in the markets and as a result the Triad strategy exited it's position in the Russell Mid-Cap Value [IWS] (it did maintain it's holding in the Russell 1000 [IWB].)

FOMO: Fear Of Missing Out

October has been a booming month so far in the markets, and IWS is up almost 4.5%, this means that Triad would have realized an additional 1.5% gain this month if it had maintained the position in IWS.

Let's take a look below at how the Triad equity positions do over time when compared to a Buy & Hold approach and see if there is reason to justify FOMO.

The blue line in the chart above of the Russell 1000 [IWB] buy and hold equity line. The golden colored line is Triad's holding in IWB when it's lookback methodology says to be in IWB, and alternatively in bonds when it says to be out of equities.

Without running the metrics, we can visually see that the Triad line is far less volatile than is the Russell 1000 line, especially with regard to the two large drawdowns in the IWB. We can see that in the 1990's buy and hold outperformed Triad's methodology, but the two equalized after the 1990 boom and then early 2000's bust, and when we get to the 2008 drop in the markets - we witness IWB taking a massive dive but Triad only has a dip and keeps moving upward.

Yes there are period of time when the B&H in IWB outperform Triad's IWB position, but with far greater downside risk and higher overall volatility.

Below we will compare the Russell Mid-Cap Value B&H vs Triad.

Overall this is very similar to the IWB chart above. MidCap Value saw less of an outsized return in the 1990's, but similar to the Russell 1000 the Russell Mid-Cap Value also have a major drubbing in the 2008 market dump, but Triad's strategy of being in equities when it sees upside performance, and in Bonds when the equities are not seeing upside performance results in less volatile results and avoids the major drawdown of market meltdowns.

It's ok to be a little sad that you missed out on a bit of extra gain this month in Triad. Just keep in mind that long term Triad gets the calls far more right than wrong which result in better performance with less volatility - no reason for FOMO.

Permanent Portfolio vs Triad

2021-09-21T20:41:29-07:00

Muhammed Ali towering victoriously over a beaten Sonny Liston, if the Triad strategy could feel victorious for crushing the Permanent Portfolio, I imagine this is how it would feel.

I recently highlighted the new Triad strategy and detailed how it works, here. Investing in Triad since coming up with this strategy has made me realize that I find the potential Gold allocation to be too large, a 1/3rd position in Gold is more volatile than Triad was designed to be, and I have modified Triad going forward. Up to 1/3rd of the strategy will go into IWB, the Russell 1000, and up to 1/3rd will go into IWS, the Russell Mid-Cap Value, and up to 1/6th of the strategy will be allocated to SGOL, Aberdeen Standard Physical Swiss Gold Shares; this means that there will always be a minimum of 1/6th allocation to the best performer of VGIT, VCSH, or VGSH, Intermediate Treasuries, Short Term Corporate Bonds, or Short Term Treasuries. This reduction of the allocation to Gold only slightly reduces the long term CAGR, but reduces the Ulcer Index appreciably, as was the goal.

First a quick primer, why was Triad created - what was the goal? This is a conservative strategy that uses no leverage, aims to have a low ulcer index with great returns over a full investing cycle including good and bad years, it will underperform in the good years, however, it will outperform in the bad years.

The two charts below show why a 60/40 (or a 70/30, or an 80/20) will suffer going forward, Bonds have already given what they can, there isn't much left in that allocation.

I was recently asked if I could compare Triad to Harry Browne's Permanent Portfolio, I was curious myself how they would compare, so here is the crushing story.

The data below was compiled with results through September 22, 2021. The results go back to May 1992, not a date I picked, but rather because that is how far back Portfolio Visualizer had results.

Permanent Portfolio is 25%/25%/25%/25% into Stocks/Gold/Long Term Treasuries/Cash

For this exercise I gave Permanent Portfolio the benefit of the doubt and instead of actual "cash" I went with Short Term Treasuries which provided more return. The allocation and funds used are: VTSMX / ^GOLD / VUSTX / VFISX

The Portfolio Visualizer link to the data is here.

For the comparison, I did Permanent Portfolio vs Total US Market vs Triad from May 1992 through current, and then the same comparison for what I refer to as the modern era, 2000 forward.

The results from mid-1992 forward show Triad returning over 2.75X the return that the Permanent Portfolio returned, in fact it bested the Total US Market by a noticeable margin as well.

Not only are the results superior to PP, but the Maximum Drawdown was also less, and all with a virtually identical Ulcer Index. So on a risk adjusted return basis, Permanent Portfolio was absolutely crushed by Triad over this time period, as was the Total US Market.

2000 to current is shown in this second chart. Similar results to the full time period. Triad delivers superior results, as with the full time period in this time period it also has a slightly better Maximum Drawdown than Permanent Portfolio, and a virtually identical Ulcer Index and with over double the total returns. Triad on a risk adjusted basis is towering over the bloody Permanent Portfolio which is broken and lying on the floor.

Enjoy the strategies, feel free to ask questions.

Happy Investing, please be strategic and thoughtful by using Dual Momentum Systems.

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My investing update for the first half of 2021

2021-07-09T20:40:23-07:00

How do I invest my money? Do I put my money where my mouth is and invest in the DMS strategies that I run?

YES is the short answer.

My high level targets are to have around 25% of my investments in investment real estate (residence does not go towards this allocation), and 75% in the markets, of that 75%, I have two accounts that are in the S&P, a 529 plan and my 401k. I hold 2% of my IRA in Lucid stock, and around a 6% total allocation in two oil and gas stocks. The remainder is invested in the DMS strategies.

I am of the opinion that if you do not write down your investment goals and target allocations, then it is not too likely to happen the way that you want. I have mine documented to help keep me on track.

2021 has been a year with quite a few changes and updates to the DMS strategies, my allocation has changed as a result. This is how I am currently invested into the DMS strategies.

My equity investments have the three stocks I mentioned, and the 529, and 401k accounts, I also hold around a 10% allocation in global technology. These non-DMS investments total 25% of my equity investments, the remaining 75% is invested into DMS strategies as follows:

10% Triad
10% The Russell OG
18% Global Navigator
10% The Russell
14% Global Navigator XL
28% The Russell XXL
10% MAX PAIN

I did not come to this allocation from a macro perspective, rather I look at each individual account and take the goals for it into account and select which strategies to use. I look at the metrics for the strategies to decide how aggressive or conservative I want to be.

Lucid is a car company that I appreciate and decided to take a flyer on it, put a little money into it and see where it is in 10 years. If I lose it all, bummer. If it does amazing, terrific! There are two individual oil and gas companies I own which have been terrible long term holdings for me, that is up through about April 2020, and they have been on fire ever since. I have literally been sitting on paper losses since buying them and just recently that flipped to turning a profit. I have already sold some of them and will continue to liquidate them fully before the end of 2021. The proceeds will go into my strategies. Ultimately I'm glad to have gone through this experience with these stocks 1st hand, it really reinforced my opinion that the only way that I want to be holding individual securities is when they are above their 200 day moving average, if they tank, sell them and move on, don't hold forever hoping that they will recover - I consider myself fortunate that these have recovered.

From January 1, 2021 through June 30, 2021 my overall brokerage returns for all accounts is 17.64% using money weighted returns. I track all +/- into the accounts, however, I use a mid-month date for all money in and money out to make it easier, I don't track the actual day of the month that there was money in or out. I assume it kind of washes out over time, so my actual return could be just slightly +/- if I had tracked it all by the day not mid-month.

17.64% is 2.4% ahead of the S&P halfway through the year, and 19.3% better than the aggregate bond return, resulting in a 9.16% better performance than the venerable 60/40 return of 8.48%.

The two oil & gas stocks gave me a bump in performance this year, otherwise I would likely be just slightly ahead of the S&P.

A look at Triad

2021-06-21T07:53:21-07:00

Triad

Why a conservative strategy?
The Triad strategy created out of necessity. I have a couple of accounts where I want to be invested, but more conservatively, for example one of the accounts is our general savings/emergency money. A balanced approach like a 60/40 doesn't seem like a great strategy going forward. I've heard several heads of large investment firms when asked what they were going to do with investors accounts who used to be in 60/40 portfolios [with the understanding that bonds are not likely performing well in the years ahead] and they straight faced replied that they were shifting to a 70/30 allocation. Excuse me? What the heck, that's not a solution in my book. I had been investing in SWAN, a barbell approach ETF, but it heavily relies on intermediate term treasuries and this didn't seem like a great option going forward either.

This struck me as a worthwhile challenge, would I be able to come up with a sustainable strategy which was close in performance historically compared to a Balanced 60/40 portfolio, but likely be positioned to perform better than a 60/40 allocation going forward? Yes I was able to! The resulting strategy is Triad.

Why Triad, why not just invest in the market? The "index" is tough to beat, here are some staggering statistics from Dalbar:

Investors don't beat the Index, so why not just index?
For the twenty years ending 12/31/2015, the S&P 500 Index averaged 9.85% a year. A pretty attractive historical return. The average equity fund investor earned a market return of only 5.19%.
Why is this? Investor behavior is illogical and often based on emotion. This does not lead to wise long-term investing decisions.
-Dalbar, Inc.

Over the longest span, the numbers were particularly brutal. The S&P 500 outperformed more than 92% of large-cap funds over the last 15 years. Mid- and small-cap funds fared no better over the time period, with their benchmarks besting them 95.4% and 93.2% of the time, respectively. Overall, 82.2% of all active funds were outperformed over the 15-year period.
-Fortune Magazine, 2017

There are many psychological investing barriers which investors face:

If the average retail investor and professional managers fail to beat the index over time, why does anybody even try, why doesn't everybody just by the S&P 500 and be done with it? I think it is because of the volatility and drawdowns that one experiences in an index like the S&P 500. The long term results are great, but massive drawdowns and volatility are difficult for many to stomach. I am no different, I can't stomach massive drawdowns, espeically for accounts from which I may need the money in a short term time frame.

This is why I wanted to see if I could come up with a strategy for the future that will excel the traditional 60/40 allocation.

Triad Basics
Triad splits the portfolio into 1/3rds. Based on the lookback methodology (which I am not divulging at this time) Triad will invest 1/3rd of the portfolio into the Russell 1000, another 1/3rd into the Russell MidCap Value, and 1/3rd into Gold. Triad only invests those 3 separate 1/3rd allocations if the investments qualify based on the lookback. If the lookback for the Russell 1000 is a go, then 1/3rd of the portfolio is invested in the Russell 1000, if the lookback says to stay out of the Russell 1000 for the next month, then that 1/3rd is instead invested in the best option of Short Term Treasuries, Intermediate Term Treasuries, or Short Term Corporate Investment Grade Bonds based on their lookback relative performance. Each of the three separate investments works this way, we either invest in three components, or their amounts are put into holding in one of the bonds.

How does the lookback work?
From January 1980 through May 2021 a buy and hold investment into a 60/40 portfolio would have provided an annualized return of 10.35%, however, it also had a maximum drawdown of 32.33% and has an ulcer index of 5.95 which is a measure of it's relative overall drawdown behavior (the higher the Ulcer Index the worse.) For reference, the Russell 1000 had an average annualized return of 12.12% with a maximum drawdown of 51.03% and an Ulcer Index of 13.81, the balanced 60/40 portfolio does have a reduced annualized return but it also has much more tame drawdown and Ulcer Index compared to 100% in broad US Market equities.

Triad uses a lookback which I believe to be something unique, I've not ever heard of this methodology used in other investment strategies. It is not looking for upward momentum over X number of months, nor is it using a weighted lookback, it is not looking for the current price to be above the SMA or EMA, it is not looking for moving average lines to intercept. It's something different that I came up with in order to try and be invested in the components without being subjected to too much drawdown, let's see how well it works.

By investing in the Russell 1000 using the lookback of Triad which has us invested when the lookback says to be invested, and out of the market in cash when not invested. This would result in an annualized return of 10.00%, which is only 0.35% lower than a balanced 60/40 [2.12% worse than the Russell 1000 buy and hold.] This would result in a maximum drawdown of 23.41% with an Ulcer Index of 8.22, this is a lower maximum drawdown than a 60/40 but a higher Ulcer Index. But of course, we're not having money sit idle when it isn't invested into the Russell 1000, it goes into the best performer based of either Short or Intermediate Term Treasuries, or Short Term Corporate Investment Grade Bonds. When we invest the idle funds in the best of the bonds instead of cash the return jumps up to 13.00% annualized returns, with the same maximum drawdown as with cash of 23.41%, and an even lower Ulcer Index of 6.84. This is far better returns that both a Balanced 60/40 and even a 100% Russell 1000 buy and hold portfolio with lower maximum drawdown and a good Ulcer Index.

But Triad has a goal of both a very low drawdown and a very low Ulcer Index paired with solid returns. The above results may be very attractive for some investors, but it is too volatile for what Triad was conceived to be.

The above example was putting 100% into the Russell 1000, or into the bonds. Now we look at the results of fully going into the Triad strategy. We split the portfolio into 1/3rds. The Russell 1000 and the Russell MidCap Value are both equity components and the ⅓ that goes into gold is intended to be a diversifier, a method of providing some returns when equities are not, and not being too heavily invested in equities which brings volatility and a higher Ulcer Index. By having up to 2/3rds of the portfolio equities, it roughly appromixates the equity allocation of a 60/40 portfolio.

When we use all three of the components, we results in an annualized return from 1980 through May 2021 of 11.70%, which a maximum drawdown of 17.88%, and a super low Ulcer Index of 3.27.

Mission Accomplished. The annualized returns handily beat a Balanced 60/40 portfolio 10.35% and in fact are only slightly lower than the buy and hold of the Russell 1000 which was 12.12%. The maximum drawdown is only 17.88% down from 32.33% for the 60/40 and 51.03% for the Russell 1000, and the Ulcer Index was reduced from 5.95 for the 60/40 and from 13.81 for the Russell 1000 to 3.27 for Triad. How large of a reduction in drawdowns is it going from an Ulcer Index of 5.95 or 13.81 to 3.27? The chart below shows it graphically, and it shows just how much more volatile not just the Russell 1000 but also a Balanced 60/40 portfolio are.

Pros/Cons
From 1980 to current Triad has returns which are very similar to market returns with far less volatility and drawdown - and it wasn't supposed to compete with the market indexes it was intended to compete with the 60/40. Looking ahead it should do even better than the 60/40 because the aggregate bond holdings of the 60/40 are not likely to provide the incredible benefit that they have for the last 50 years.

Triad is a terrific strategy to my eyes, it is not an eye popping high return strategy, but it has a terrific return for such low drawdown and volatility. This strategy certainly has a home in my personal allocations.

RETURNS and TAXES
The returns as calculated in my Triad model does a complete rebalance each and every month. In practice this is not how I actually invest in it. I don't want to needlessly rebalance and possibly incur a tax event if it is not necessary. Instead of making each invested component to be 1/3rd each month, I instead let a 1/3rd invested amount stay until it goes to bonds. For example, if for January the Russell 1000 is to be invested, I put 1/3rd in the Russell 1000, and I leave it alone until it gets the sell signal. I don't yet have the data on how this affects the returns, it certainly makes the taxes more long term gains than short term. It is seemingly simple but in practice rather complex to change the model for to track the investments how I am actually doing it. I may come back to this later, but for now I'm leaving the model with a fresh ⅓ adjustment every month (which would be fine in a tax deferred account).

YTD Chart

2021-06-01T07:51:05-07:00

The equity chart below is daily activity through June 1, 2021. Note that you don't see a red line for The Russell, it has had the same investment selections this year to date as The Russell XXL, the orangish line of The Russell XXL represents both it and The Russell so far this year. Additionally, the light gray line for Global Navigator XXL is covering the dark gray line of Global Navigator year to date.

Dual Momentum Systems

2021-05-28T07:49:41-07:00

Dual Momentum taken to the next level. We know what a GEM Dual Momentum investing is, but that's not all it has to be, check out the investment strategies and their long term results and metrics, Dual Momentum Systems has a full suite of strategies ranging from wonderfully conservative to psychopathically aggressive strategies, all of the strategies have excellent returns and risk adjusted performance metrics. The long term results are really impressive, especially when the Ulcer Index and Maximum Drawdown are taken into account.

Please find your way to the Reporting Decks and look through one.

Dual Momentum Systems

2021-05-27T20:58:23-07:00