The meeting begins at 19:00 PM

Transcription

1 1 The meeting begins at 19:00 PM

2 Wednesday July 8 th 2015 A Review of Various Risk Measures Norman Booth Don t Put Coal in Your Rocket Engine Scott Juds 2

3 Wednesday July 8 th 2015 But First A Short Review of SectorSurfer s Principles 3

4 Quick Review of Basics Trends Exist in Market Data Statistically Proven By Edger Peters Live Portfolio Study in The Economist Peer Reviewed Academic Paper by Jegadeesh and Titman 4

5 Quick Review of Basics Trends are Important and Messy Trends Reveal the Road Ahead Which Trend is Your Friend? Period Week? Month? Quarter? Year? Algorithm MACD? SMA? EMA? DEMA? 5

6 Quick Review of Basics True Sector Rotation True Sector Rotation Serial Diversification Own One at a Time 6

7 Quick Review of Basics Forward-Walk Progressive-Tuning Tuned Only With Past Data Now Use Next 125 Days 7

8 Layered Diversification 8

9 Wednesday July 8 th 2015 A Review of Various Risk Measures Norman Booth 9

10 Sharpe Ratio Sharpe Ratio = (Fund Average Return - Money Market Return) / (Fund Standard Deviation)?? 10

11 Sortino Ratio Sortino Ratio = (Fund Average Return - Money Market Return) / (Downside Deviation) 11

12 Probability of Loss Risk is like Sortino Ratio Average of Downside Variation 12

13 Quarterly Return Probability Distribution 13

14 Max Drawdown (1) the Absolute maximum decline in value from a prior high that occurred anytime, (2) the maximum Realized decline in value from a prior high measured only on Strategy trading dates when gains or losses of a trade are actually realized. (3) the maximum Quarterly Realized decline in a portfolio's value from a prior high measured only from calendar quarter to quarter. Note: The primary shortcoming of the Max Drawdown measurement is that there is no consideration for the duration of a decline or the duration of the prior high - it could be days or years. 14

15 Relative Price What is the Max Drawdown? 10 Max Drawdown Analysis 1 Up Spike Down Spike Oscillator Drag Queen It s 33% for All of Them Market Days

16 New Risk Chart Proposal 16

17 Wednesday July 8 th 2015 Don t Put Coal in Your Rocket Engine Scott Juds 17

18 Don t Put Coal in Your Rocket Engine 18

19 Strategies Have An Engine Noise Filtered, Differential, Trend Following Engine 19

20 What Best Fuels Our Engine? 1. At Least One Candidate is Always Having a Power Stroke. 2. Candidates Can Reliably Pass Leadership To One Another. 20

21 Why do I Want Forward-Walk? Turn On FWPT, Discover Flaw. Eliminate Culprit, Fix the Problem. 21

22 Does The Chaos Affect the Fastest Route? You Can Eliminate Chronically Chaotic Roads 22

23 SPDR Sectors All 9 Trouble Walking Forward 23

24 Differential Noise of Sector Funds and Typical 401k Funds Differential Noise - Sector Funds FSELX FSDCX FSPHX FSHCX FDLSX FBMPX FSAVX FSVLX FSLBX FSRPX FRESX FSAGX AVE-- Std. Dev. of Daily Return (Noise) 2.00% 1.69% 1.13% 1.29% 1.18% 1.31% 1.43% 1.45% 1.62% 1.30% 1.52% 1.92% 1.14% Daily Corell. of Return to Ave.Return Std. Deviation of Differential Noise 1.32% 0.99% 0.78% 0.95% 0.52% 0.61% 0.74% 0.86% 0.79% 0.71% 1.04% 1.86% 0.00% Differential Noise Reduction 34% 42% 30% 26% 56% 53% 49% 41% 51% 45% 32% 3% 100% Differential Noise - Typical 401k Funds FMAGX FCNTX FBALX FBGRX FDGFX FDVLX FEQIX FWWFX FRESX CRBI- FBNDX FSLXX SP-DA Std. Dev. of Daily Return (Noise) 1.20% 0.98% 0.68% 1.19% 1.14% 1.16% 1.10% 1.01% 1.52% 0.74% 0.27% 0.01% 1.13% Daily Corell. of Return to S&P Return Std. Deviation of Differential Noise 0.32% 0.44% 0.55% 0.32% 0.46% 0.51% 0.35% 0.60% 1.18% 1.24% 1.17% 1.13% 0.00% Differential Noise Reduction 73% 55% 19% 73% 60% 56% 68% 41% 23% -66% -336% % 100% 24

25 Strategy Performance with Sinusoidal Funds 25

26 Strategy Performance with Square Wave & Saw Tooth Funds 26

27 Why Stock Strategy Died in 2014 A Financial Advisor Stocks Selected in Hindsight for Having had Long Trends. 27

28 Why Stock Strategy Died in 2014 Highest of the Trend Signals 28

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30 This is a disturbing strategy. From 2010 SectorSurfer seems to be doing everything wrong... ( from a Power User) Stocks Selected in Hindsight for Having had Long Trends. 30

31 This is a disturbing strategy. From 2010 SectorSurfer seems to be doing everything wrong... ( from a Power User) 31

32 Better Ways to Select Stocks Individual Performance Skills Needed by Team Plays Well With Others 32

33 Trend Quality & 3Yr Excess Returns Examples 33

34 Try Selecting Stocks by Sector? Why Select Stocks Within a Sector? They May Have Common Mode Noise, and Leadership Transfer May be More Reliable. 34

35 Biotech Selection by Market Cap 35

36 Biotechnology - Selected by Market Cap SPY and IEF included as Backstop funds. 36

37 Healthcare Plans - Selected by Market Cap 37

38 Medical Equipment - Selected by Market Cap 38

39 Medical Supplies - Selected by Market Cap 39

40 Healthcare Sectors Portfolio 40

41 TipTop Sectors Which ETF in a Sector is Best? 41

42 TipTop Sectors Portfolio 42

43 43