January wasn’t kind to investors and my momentum models both suffered setbacks that month. That said, both Pure Momentum (ETF model) and Pure Momentum II (US stock model) both rebounded in February and March. The strategies are down 2.7% and 3.7% respectively year-to-date.
PURE MOMENTUM II
Pure Momentum can be followed on Collective2 here and Pure Momentum II can be followed here.
I have become less active here lately as I was invited to join a project that has nothing to with investing but is very interesting from a personal point of view. Another reason for my lack of frequent posts can be understood from an excellent post by Larry Swedroe at ETF.com.
The post discusses how stock investing strategies which have stood the test of time for many decades will have periods of underperformance. We can expect the duration of underperformance to last as much as ten years. This expectation of underperformance is fundamental to understanding why it is so difficult for us investors to stick with a proven strategy – we hate underperformance and are likely to change strategies when a given strategy underperforms for as little as one year never mind ten years.
With January being such a terrible month for most investors, including me, I went on a financial media diet. I intentionally abstained from watching or reading financial media as much as possible. While the markets tossed and turned, I sat on my hands and not once checked on the performance of my strategies. I wanted to see if I could do that for a month as I hadn’t done it before and it wasn’t difficult at all.
I strongly encourage you to read Swedroe’s article. It is one that I plan to read at least annually.
By now you are well aware that 2015 was a tough year for investors and I expect most had a negative performance last year. I like to refer to a global passive portfolio constructed with seven ETF’s as a benchmark. The global portfolio is constructed as per the weights for the ETF’s noted in the table below.
The global passive portfolio declined by 2.1% based on monthly rebalancing in 2015.
As can be seen in the above chart, the global portfolio is essentially unchanged from where it was at the end of 2013. What lays ahead of us for investment returns is anybody’s guess. Despite what you see in the financial media, that’s all it is, a guess. In my opinion, the best you can do as an investor is use one or more of the proven factors such as size, momentum or value in a rules-based trading strategy to your advantage. To that end, I have just initiated a third momentum strategy focusing on small cap US stocks. For my own account, I have allocated funds to each of my three strategies (all Pure Momentum strategies can be found on Collective2) with a goal of outperforming the global passive portfolio in 2016.
If you have your own web site, have you ever tested for broken links? The more broken links a web site has, the lower its Google Ranking will be. I don’t profess to be an expert in this field but I recently ran a test on my site and found that a number of links no longer were valid so I fixed them. If you want to determine whether your site has broken links, you can use a free service at Broken Link Checker.
One other means of improving a site’s Google ranking is to make it mobile friendly. Google provides a free service that checks your site to ensure it is mobile friendly which you can find here.
Of course, there are companies that provide comprehensive site analytics for a price but I thought I would pass this information along for the DIYers.
On October 30, I began trading Pure Momentum II which is a new momentum-based strategy that takes long positions in large cap, high quality U.S. stocks. Holding periods will typically be in the one to two month range.
Positions are currently held in Autodesk, Amazon, Baidu, KLA-Tencor, Microsoft, Nvidia and Sandisk. So far, NVDA is the best performer with an 18.9% gain over the initial purchase price. These are very early days but, for what it is worth, the strategy is outperforming the S&P 500.
This strategy is 100% rule-based. I do not review the news, forecasts, analyst recommendations, etc relating to any of the stocks. Price and only price is used for stock selection. There will be no emotional attachment to stocks – when my strategy determines that a stock is to be sold, it will be sold regardless of how positive the story-of-the-day is for that stock.
For the record, I have allocated a portion of my personal account to this new stock trading strategy and intend to increase the allocation to a maximum of 50% over the coming year. As this is a stock-only strategy, it should not have a 100% allocation. Like all stock trading strategies, we can expect drawdowns and we should base allocations on our own personal tolerance to such drawdowns. That said, I have full confidence that this strategy will provide a better return than buying-and-holding the broad US stock market vis-a-vis SPY.
You can check the performance of the Pure Momentum II trading strategy anytime by going here and reviewing statistics provided by Collective2.