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Anybody read: The Ivy Portfolio?
Old 04-23-2009, 10:09 AM   #1
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Anybody read: The Ivy Portfolio?

Main points seem to be:

1. Diversify into many different asset classes (not just equities, bonds and cash). This is nothing new.
2. Use market timing/technical analysis to rebalance these assets to get out of classes when they are overvalued. This idea seems to be gaining ground after all asset classes (other than cash) pretty much crashed in 2008.

Thoughts? Anyone already doing something like this?

http://seekingalpha.com/article/1307...r-buy-buy-hold

http://www.theivyportfolio.com/timing-updates/

http://papers.ssrn.com/sol3/papers.c...ract_id=962461
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Old 04-23-2009, 10:24 AM   #2
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Well - they seem to be more classy than the 1960's, 70's and making it easier to write them a check.

How I miss:

freeze dryed food (technically out of date now)
bags of used silver coins
LLC of single malt scotch in storage
timberland partnerships
collectible guns
rental RE partnerships
gold bars/coins

I sure many I've forgotten.

heh heh heh -
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Old 04-23-2009, 10:24 AM   #3
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Is this the latest flavor-of-the-month scheme ?

I glanced over the first link thinking the 200 day metric sounds reasonable. Who knows though so ask me in 20 years if this is a good place to keep your stash.
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Old 04-23-2009, 11:52 AM   #4
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They “smell like carnies”!? Dad taught me that carnies are con men. We haven’t seen a discussion of plumbers since, forget it, that’s political. I haven’t read the book but yes, that’s a pretty entertaining article, Cardude.

Of course I think this way.

Diversify: ionic, doric, etc.
Timing: If you had bought 20 shares of doric at it's IPO ... and if you sold just before corinthian took over the world....

Look, up in the sky:
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Old 04-23-2009, 12:18 PM   #5
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Cuppa, you win the prize for subtlety.

Ha
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Old 04-23-2009, 12:25 PM   #6
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I most certainly admire your pillars, Cuppa!
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Old 04-23-2009, 12:39 PM   #7
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I most certainly admire your pillars, Cuppa!
Thanks, I've been looking for an excuse to post them for ages. They're at the Getty Villa in Malabu.
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Old 04-23-2009, 03:23 PM   #8
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Thanks, I've been looking for an excuse to post them for ages. They're at the Getty Villa in Malabu.
You've been looking to post your pillars?
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Old 04-23-2009, 06:31 PM   #9
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You've been looking to post your pillars?
Yeah. My seven pillars of Rome.

--------


I took a glance at the first few pages of "The Ivy Portfolio" and had a “huh?” moment in the second paragraph of the Preface: “...virtually every asset class faced large losses in 2008. Stocks, real estate, commodities, and even many hedge funds saw their values decline by 30% or more....”

I see now that Cardude covers that somewhat in post #1 but I still find that wording a deceptive book opener. I'm a holder of two bond funds that did not lose any value in 2008 so that obviously skews my thinking. Any thoughts?

From Investopedia:

Quote:
What Does Asset Class Mean?
A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. The three main asset classes are equities (stocks), fixed-income (bonds) and cash*equivalents (money market instruments).
Asset Class
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Old 04-24-2009, 04:09 AM   #10
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The problem with the 200 day moving average is knowing what to do when the market is whipsawing around the crossing. I've seen graphs where the market goes above and below the 200 day moving average 20 or more times in a month. If you transact as close as possible to the crossings you'll lose lots of bid/ask spead money. If you transact with some kind of delay then you'll lose however much the market changed during that delay, each time you have to do the transaction. Death by a thousand cuts.
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Old 04-24-2009, 11:53 AM   #11
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The problem with the 200 day moving average is knowing what to do when the market is whipsawing around the crossing. I've seen graphs where the market goes above and below the 200 day moving average 20 or more times in a month. If you transact as close as possible to the crossings you'll lose lots of bid/ask spead money. If you transact with some kind of delay then you'll lose however much the market changed during that delay, each time you have to do the transaction. Death by a thousand cuts.
Yeah, I looked at a 200 moving day average for 2008 and there would have been like 8 buy/sells on just one asset class alone, so possibly 40 transactions per year if you had 5 different asset classes.

I think more of a valuation model for each asset class (P/E or something) would make more sense than this simple mechanical method.
It can't be that simple and mindless, or it just won't work all the time IMO.
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Old 08-04-2009, 08:38 PM   #12
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I have been using a modified form of his ideas for a few months, with good success. I use etfs only, and primarily commodity, bond, currency and real estate etfs--not too many stock etfs, other than those that are commodity based. Stocks do not trend as nicely as other assets. Look at forty or fifty charts of different types of etfs and some stocks and indices and I think you will see what I mean. My rule to enter is that the etf must cross the 200 day and also be above the 50 day, and the 50 day must be increasing. I exit when the 50 day starts decreasing or the etf falls below the 200 day. I do the opposite for shorts: sell when the etf crosses the 200 day and the 50 day is falling (note that this is not the mirror image of my long entry method; here I do not require that the etf be below the 50 day). Buy in the short when the etf crosses back above the 200 day or the 50 day starts to rise. So I am only initiating a trade at the 200 day sometimes: when the 50 day tells me to. And I am not waiting for the 200 day to tell me to get out, I'm using the 50 day for that. Where did I get these rules? I made them up after looking at many charts going back several years. They seemed to me to be a reasonable balance between whipsawing and holding too long. Using the 50 day rule cuts down substantially on the whipsawing. (A similar 100 day rule works almost as well.) There is still some whipsawing, so I don't go 'all in' on the first day. I buy and sell over a two or three day period of time. Occasionally there is a reversal and I never end up taking a full position, or even end up exiting everything within a few days. In addition, I use a deep discount broker who charges one dollar for 100 shares. Generally speaking, almost anything trends better than stocks. Some the etfs I've worked with are IYR, XLE, DBC, DBA, MOO, CUT, KOL, DBB, FXY, FXA, FXB, FXF, IEF. I check my positions as well as other etfs I'm interested in each evening and make a plan for the following morning's open. After some honing and practice, I can look through my list of about 70 etfs in about 10 minutes. I think you could just as well check the list once a week or once a month, as long whatever time frame is used is consistent. While my results are good, I think it is important to keep in mind that the market is in a hell of a trend, and also that at the present time, nearly everything is trending upward, that is, nearly everything is correlated. Things will not always be so trendy or so correlated. I can see from charts that for any etf, there will sometimes be entire years that consist mostly of whipsawing. Needless to say, nothing works all the time. Another problem is that some of the less liquid etfs do not lend themselves to shorting. For example, I tried to short DBB at one point, but the broker was unable to borrow the shares. Therefore, one would need to either stick to larger etfs to short, or else forget about shorting and hold cash when conditions so dictate. I can't comment on the advisability of shorting versus holding cash, as Faber does. I have only been doing this since April and there has not been much to short! I have made 9.2% using this method since April and have spent 0.6% in commissions. While this is substantially less than the stock markets have returned, I have done this with considerably less risk.
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Old 08-04-2009, 09:12 PM   #13
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One big key for me is to find assets that have roughly the same long term gain expectations while behaving differently in the short term. I can't see keeping 10% cash, for example, as a permanent portfolio position. That's just dead weight in the long term.
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Old 08-05-2009, 09:56 PM   #14
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Dr Cha, thanks for posting your strategy; you seem to have given this much more thought than most.

Quote:
Originally Posted by drcha View Post
My rule to enter is that the etf must cross the 200 day and also be above the 50 day, and the 50 day must be increasing. I exit when the 50 day starts decreasing or the etf falls below the 200 day.
I'm not sure how you define "decreasing", but it sounds like your "entrance" trigger would fire much less often than the "exit" trigger because it has more conditions. I'd be worried about missing out on market upticks because you're out of the market.

Quote:
There is still some whipsawing, so I don't go 'all in' on the first day. I buy and sell over a two or three day period of time.
Yikes, so when the market is going up you delay your purchase until it has risen more, and when the market is going down you delay your sell so you get a lower price? Seems like a recipe for losing money to me, but if it buys you the feeling of security then more power to you. I never could come up with a strategy to avoid whipsawing that didn't also significantly lower returns and performance to an unacceptable (to me) degree.

Quote:
I have made 9.2% using this method since April and have spent 0.6% in commissions. While this is substantially less than the stock markets have returned, I have done this with considerably less risk.
It's hard to assess risk, but I think your risk of underperforming the market is very high.

Thanks again for adding to this debate.
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Old 08-05-2009, 10:03 PM   #15
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Originally Posted by CuppaJoe View Post
I'm a holder of two bond funds that did not lose any value in 2008 so that obviously skews my thinking. Any thoughts?
Obviously not all bond funds are the same! I think a lot of us found that out in 2008. So while there may be a general asset class "bonds", you should understand how the underlying different types of bonds behave under various market conditions - treasuries, mortgage-backed, high-grade corporate debt, high-yield/junk, etc. Treasuries held their own, even appreciated in 2008. Everything else was taken out and shot. This doesn't happen very often, but in a state of extreme financial crisis, this is what happens.

There are also the various durations - these also behave differently with respect to each other under various interest rate rising/falling scenarios.

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Old 08-06-2009, 11:48 AM   #16
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Hi free4now,

Thanks for your post.

By "decreasing" I mean that the slope of the 50-day, at this moment, is negative, as opposed to positive or flat.

Yes, you do miss a few entries, but most of the missed ones tend to be those did not yield much for you anyway.

Yes, I expect the system to underperform the S&P 500 in bull markets and to outperform it in bear markets. I'm doing this with a moderately conservative portion of my portfolio: sort of a substitute for a 60% stock/40% bond fund, which will also have the same underperform/outperform characteristics. From my backtesting, I think that I should be able to beat a 60/40 fund's returns.
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Old 08-06-2009, 01:12 PM   #17
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Hi free4now,

Thanks for your post.

By "decreasing" I mean that the slope of the 50-day, at this moment, is negative, as opposed to positive or flat.

Yes, you do miss a few entries, but most of the missed ones tend to be those did not yield much for you anyway.

Yes, I expect the system to underperform the S&P 500 in bull markets and to outperform it in bear markets. I'm doing this with a moderately conservative portion of my portfolio: sort of a substitute for a 60% stock/40% bond fund, which will also have the same underperform/outperform characteristics. From my backtesting, I think that I should be able to beat a 60/40 fund's returns.
Yes but to do so you are taking much greater risk. Additionally for those of us with mostly taxable accounts the costs/taxes will quickly add up.

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Old 08-06-2009, 02:34 PM   #18
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I'm not sure that it is greater risk, since I have exit rules. After I have been trying it for a year, I will post a comparison of my results versus my Vanguard Wellesley fund, taking taxes and commissions into account.
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Old 05-25-2010, 09:33 PM   #19
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Ok, I promised to come back after using this method for a year and compare it to Vanguard Wellesley. After taxes and commissions, I have made 21.3%. It looks like Vanguard Wellesley has returned about 16.1% after taxes and commissions. I am assuming an average tax rate of 20%.

I still strongly disagree with the statment above that this is riskier than a 60/40 fund. My results look pretty much like what Mebane Faber says: about half the trades are winners, the winners end up being held much longer than the losers, and the average winner is about 10 times the size of the average loser. My expectation is that this methodology will underperform a raging bull market most of the time, but will vastly outperform in a true bear market.

I'll carry on for another year and report back, if anyone seems interested.
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Old 05-25-2010, 09:46 PM   #20
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Thanks for the update, Dr Cha.
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