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Value Investing Strategy (Strategy Overview)

Allocations for August 2020 (Final)
Cash TLT LQD SPY

Momentum Investing Strategy (Strategy Overview)

Allocations for August 2020 (Final)
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Gurus Test

January 3, 2020 • Posted in

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152 Research Articles

Warren Buffett on Investing

Does Warren Buffett consistently keep Berkshire Hathaway in market-beating form? If so, how does he do it? In his annual letters to stockholders, he includes company performance and benchmark data and describes in general terms how he goes about investing. He sometimes shares his thoughts on the current state of and prospects for the U.S…. Keep Reading

Wisdom from the Essays of Warren Buffett

What advice does Warren Buffett offer investors? In his December 2019 paper entitled “Introduction to the Essays of Warren Buffett: Lessons for Corporate America”, Lawrence Cunningham summarizes main themes of the 5th edition of the essay collection (letters to shareholders), including those related to investing. Based on the advice in these letters, he concludes that:

Jim Cramer Using the S&P Oscillator

A reader asked about the usefulness of the S&P Short-range Oscillator as sometimes used by Jim Cramer to forecast U.S. stock market returns. The self-reported “Performance” of the oscillator, relying on in-sample visual inspection with snooped thresholds, is of small use. Since continuous historical values of the indicator are not publicly available, we conduct an… Keep Reading

Sunspot Cycle and Stock Market Returns

A reader asked whether Charles Nenner, self-described as “the talk of Wall Street since accurately predicting some of the biggest moves in the Markets over the past few years,” accurately forecasts equity and commodity markets. We consider the following: In his July 2007 discussion of the “Nenner Methodology at the Bloomberg Studio”, Charles Nenner cites sunspot… Keep Reading

Explaining Warren Buffett’s Performance

Is Warren Buffett’s track record explicable and replicable? In the June 2018 update of their paper entitled “Buffett’s Alpha”, Andrea Frazzini, David Kabiller and Lasse Pedersen model Warren Buffett’s exceptional investing performance based on replicating exposures of Berkshire Hathaway overall and of its publicly traded holdings to six factors. Four of the factors are those conventionally used to… Keep Reading

Guru Re-grades

What happens to the rankings of Guru Grades after weighting each forecast by forecast horizon and specificity? In their March 2017 paper entitled “Evaluation and Ranking of Market Forecasters”, David Bailey, Jonathan Borwein, Amir Salehipour and Marcos Lopez de Prado re-evaluate and re-rank market forecasters covered in Guru Grades after weighting each forecast by these two parameters. They employ… Keep Reading

Twisting Buffett’s Preferred Stocks-bonds Allocation Internationally

As summarized in “Twisting Buffett’s Preferred Stocks-bonds Allocation”: (1) Warren Buffett’s preferred fixed asset allocation of 90% stocks and 10% short‐term government bonds (90-10), rebalanced annually, is sensible for U.S. markets; and, (2) investors may be able to beat this allocation modestly by adding simple annual dynamics. Are findings similar internationally? In his July 2016 paper entitled “Global Asset Allocation in Retirement:… Keep Reading

Forbes Evaluates Ken Fisher’s Stock Picking

Each year, Forbes calculates the performance of columnist recommendations assuming: (1) equal initial investments in each stock pick when published; (2) 1% trading friction for each purchase; and, (3) matching benchmark investments in the S&P 500 Index for each pick with no trading friction. Because matching benchmark investments are spread across the year, the benchmark… Keep Reading

Twisting Buffett’s Preferred Stocks-bonds Allocation

What is Warren Buffett’s preferred fixed asset allocation, and how does it perform? In his October 2015 paper entitled “Buffett’s Asset Allocation Advice: Take It … With a Twist”, Javier Estrada examines Warren Buffett’s 2013 implied endorsement of a fixed allocation of 90% stocks and 10% short‐term bonds (90/10). Specifically, he tests the performance of eight fixed asset allocations ranging from 100/0 to 30/70…. Keep Reading

Accuracy of Robert Taylor’s Xyber9 Trend Forecasts

…Robert Taylor’s accuracy rate probably derives not from forecasting ability but from defining targets that are very hard to miss. The accuracy rate seems high only if one ignores the peculiar way he defines trends.

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Stock Market Holidays: How Do Your Investments Perform?

March 20, 2019 • Posted in

How much of an impact do the holidays have on the stock market? Will the Christmas break result in a temporary change in performance? Every year, CXO analyses the holiday effect on the stock market. We look at the stock market trading days before and after each holiday to see whether or not there are noticeable changes in market returns.

2019 Stock Market Holidays

Below is a list of the 2019 trading holidays and when the stock market will be closed.

January 1, 2019 New Year’s Day (Observed) Closed
January 21, 2019 Martin Luther King, Jr. Day Closed
February 18, 2019 President’s Day – U.S. Closed
April 19, 2019 Good Friday Closed
May 27, 2019 Memorial Day – U.S. Closed
July 3, 2019 Early Close – U.S. 1:00 p.m.
July 4, 2019 Independence Day – U.S. Closed
September 2, 2019 Labor Day – U.S. Closed
November 28, 2019 Thanksgiving Day – U.S. Closed
November 29, 2019 Early Close – U.S. 1:00 p.m.
December 24, 2019 Christmas Eve Early Close – U.S. 1:00 p.m.
December 25, 2019 Christmas Day Closed

Stock Market Holiday Effects

Will the stock market go up or down after a major holiday. Take a look at our stock marketing holiday analyses to see what, if any, impacts will occur on your trading strategies.

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January 30, 2019 • Posted in

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Combined Value-Momentum Strategy (SACEVS-SACEMS)

January 1, 2018 • Posted in

The Simple Asset Class ETF Value Strategy (SACEVS) seeks diversification across a small set of asset class exchange-traded funds (ETF) plus a monthly  tactical edge from timing term, credit and equity risk premiums. The two versions of SACEVS are: (1) most undervalued premium (Best Value) ; and, (2) weighting all undervalued premiums according to respective degree of undervaluation (Weighted).

The Simple Asset Class ETF Momentum Strategy (SACEMS) seeks diversification across asset classes via ETFs plus a monthly tactical edge from intermediate-term momentum. The three versions of SACEMS, all based on total ETF returns over recent months, are: (1) top one of nine ETFs (Top 1); (2) equally weighted top two (EW Top 2); and, (3) equally weighted top three (EW Top 3).

This combined strategy, seeking diversification across asset classes and two widely accepted anomalies, holds SACEVS Best Value and SACEMS EW Top 3 portfolio with equal weights (50-50) and end-of-month rebalancing coincident with SACEVS and SACEMS portfolio reformations.

Supporting research includes (items may at times be unavailable for a few days during updates):

Some additional relevant but less directly applicable research is in the last list of items in “What Works Best?“.

Some investors may want to follow the combined strategy. Others may want to modify the strategy with other than equal weights for SACEVS and SACEMS. Something to keep in mind is that adjusting weights based on sensitivity tests adds data snooping bias.

Cumulative Performance

The following chart tracks since the end of June 2006 (when all ETF series are first available) gross cumulative values of $100,000 initial investments in each of:

  • Combined SACEVS Best Value-SACEMS EW Top 3 (50-50).
  • SACEVS Best Value
  • SACEMS EW Top 3
  • SPDR S&P 500 (SPY).
  • A simple timing strategy that holds SPY (Cash) when the S&P 500 Index is above (below) its 10-month simple moving average (SPY:SMA10).

For perspective, we look at an array of performance metrics.

Performance Statistics

The next table summarizes annual/annualized returns for these strategies over different intervals commonly used to describe performance of funds. The annualized returns are compound annual growth rates. Maximum drawdown is the deepest peak-to-trough drawdown  for these strategies based on monthly measurements over the available sample period. For Sharpe ratio, to calculate excess annual return, we use average monthly yield on 3-month Treasury bills during a year as the risk-free rate for that year.

Based on available data, 50-50 SACEVS-SACEMS suppresses volatility compared to its component strategies, thereby boosting risk-adjusted performance.

Portfolio performance calculations are based on assumptions as summarized in Value Strategy and Momentum Strategy.

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