Studies of Life

Learning by doing.

Strategy Test 2015 – 5: April 30

04 May 2015 by Jim

This is the 4th completed month of testing a few different portfolio strategies as explained in this post. Time for a new update! 

 The beginning of the year looks very good so far. One interesting aspect is that the different portfolio strategies do not diverge by a lot from each other, which is surprising to me. There is no big loser here, and no crystal clear winner.

What does that mean? As they say, ‘a rising tide lifts all boats’, and if stocks in general are booming it’s hard to find a stock strategy that doesn’t work well. The devil is in the details.

A 1% difference in 1 month will add up to huge differences after 1 year, and even bigger differences after 2, etc. 

Looking at total return, the best strategies are currently X (my portfolio), 60/40 stocks/bonds and Trending Value. The worst performer is risk parity.

 As for Sharpe, the best strategies are my portfolio (by a wide margin) followed by 60/40 and Trending Value. The worst Sharpe can be seen with the Dual Momentum strategy. 

 Conclusions

So far, stock-heavy strategies outperform because of the strength of the stockmarkets. The three best strategies until now all have at least 60% stocks. As for risk in terms of Sharpe, my own portfolio wins by a wide margin, so diversifying a bit from stocks is not bad either.

If you recall, my portfolio is basically this:

  • 65% Trending Value stocks
  • 25% bonds (whichever 2 or 3 bond ETFs are strongest)
  • 5% gold
  • 5% cash

The results are encouraging for my own strategy so far. I feel like it gives me the highest quality stocks along with a good chunk of safety, which reduces volatility of course and, as you can see, improves Sharpe & return significantly compared to the pure Trending Value setup.

The most interesting update will be the last one this year of course, because the more data we have the more reliable the results are, and the better the signal-to-noise ratio is. 

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