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marco
Shoutout to our Model Designers and mechanical, “boring” market beating investing

With the recent melt-down of growth (sexy) stocks, a discretionary stock picking approach has never been more stressful. I for one was managing about ⅔ of my portfolios using a combination of screening, back of the envelope analysis, and whether “I liked” the products being produced. It has been a disaster compared to my other ⅓ mechanical approach where I know very little about what I’m buying. The difference is probably 2-3 Million had I just done mechanical investing. See images below.

So, are boring, mechanical approaches to investing finally showing their merits? It’s never too late to re-evaluate your approach. Here are the top 15 mechanical designer models ranked by a combination of metrics I like.

The link to this post in a google doc is here

Share this tweet if you agree


MS

Attachment 11.05.2022_10.04.24_REC.png (240316 bytes) (Download count: 163)


Attachment 11.05.2022_10.04.39_REC.png (203933 bytes) (Download count: 158)


Portfolio123 Staff.

May 11, 2022 10:07:13 AM       
Edit 5 times, last edit by marco at May 11, 2022 10:24:52 AM
Jrinne
Re: Shoutout to our Model Designers and mechanical, “boring” market beating investing

Marco,

I don't have a clear opinion about your specific question. But I know your interests are broad include developing some machine learning at P123.

Broadening your discussion a bit I have been looking at reinforcement learning.

Sometimes there is no real difference between machine learning and reinforcement learning. Reinforcement learning is sometimes just the cool new thing. But also reinforcement learning can have "policy" methods and value methods. The polices can be truly different than value methods at times (and therefore different from machine learning's value methods).

Policy methods CAN get around the problem of changing market regimes or the very serious "non-stationary" problems of machine learning data (using machine learning jargon). That and the related mathematical topic of "prediction with expert advice" can deal with the problem of changing market regimes.

Anyway, not to bore anyone with my particular policy methods, I am having success in this market using "policies" intended to work in many market regimes.

That having been said, I would be the first to say how a policy method differs from a value method for stock investing is not well defined (anywhere as far as I can tell).

Perhaps not related to what you are doing, but my present take on machine learning and beyond (including reinforcement learning and prediction with expert advice). And specifically methods of addressing changing market regimes (or "non-stationary" data).

BTW, Fidelity's StarMine method could be called "Prediction with Expert Advice" and attempts to mitigate the problem of changing market regimes. First, by using a type of prediction with expert advice but also by looking back only 2 years. So I am not alone in exploring/using this.

It is an open question as to whether Fidelity's method should be called a "policy," a value method or something else, however.

Best,

Jim

Great theory, "and yet it moves."
-Quote attributed to Galileo Galilei (1564-1642) gets my personal award for the best real-world use of an indirect proof or reductio ad absurdum.
`

May 11, 2022 10:27:49 AM       
Edit 12 times, last edit by Jrinne at May 11, 2022 2:08:31 PM
InspectorSector
Re: Shoutout to our Model Designers and mechanical, “boring” market beating investing

Marco - the boring mechanical approach is great so long as you are not chasing past results that are cherry-picked, and are prepared to underperform for years without switching strategies. That is difficult to do.

The biggest problem with discretionary trading (and I'm going to throw in the discretionary choice of trading systems) is fighting your own demons. One demon is chasing what worked in the past instead of what will likely work in the future. Another is knowing when to quit. In 2000 and 2008, I didn't stop when I should have and lost significantly more money than I made in previous runups. It is like Las Vegas. Casinos invite winners back because they know they will eventually lose all their money :-)

This time around, I learned my lesson. I stopped more than a year ago because I realized that growth was not sustainable in the current economic conditions. TipRanks has its issues (manipulation, etc) but shows what can be accomplished with market timing and a little bit of luck. https://www.tipranks.com/experts/bloggers/steve-auger

May 11, 2022 8:20:13 PM       
marco
Re: Shoutout to our Model Designers and mechanical, “boring” market beating investing

Sure, curve-fitting , cherry picking, survivorship bias, are all problems with mechanical strategies. Only long out-of-sample performance proves a mechanical system's worth. I'm starting to feel like Designer Models are finally showing their worth now that many have decent out of sample periods. We put a lot of effort in the DM platform, some was misguided, and frankly it seemed doomed. But it just takes time; and DMs being powered by a machine just kept going.

As far as helping people succeed with sticking to a strategy, the only way I see this possible is for us to fully automate the rebalancing. It's something we really want to do , but we needed a strong DM marketplace for it to succeed. So things are falling into place, we'll see. (it won't be fully automated because of regs, but maybe just pushing a single button in a phone app to rebalance will suffice)

BTW congrats on your great cherry picking stats. Only problem with following a real person is 1) finding one 2) people change! ;)

Portfolio123 Staff.

May 11, 2022 9:06:29 PM       
Edit 1 times, last edit by marco at May 11, 2022 9:07:02 PM
InspectorSector
Re: Shoutout to our Model Designers and mechanical, “boring” market beating investing

Only problem with following a real person is 1) finding one 2) people change! ;)


I don't think that following someone else works. I hope I wasn't implying that. I'm also not sure that following mechanical systems that someone else designed works in general either. Chances are, all or most of the systems you listed will eventually go through a downturn, and quite possibly at the same time if their past success is a result of similar system properties. If they are well diversified from each other then you have a shot at slowing growing your capital.

May 11, 2022 9:52:05 PM       
nisser
Re: Shoutout to our Model Designers and mechanical, “boring” market beating investing

Kumar isn't on there. Just saying.

May 11, 2022 10:11:12 PM       
Jrinne
Re: Shoutout to our Model Designers and mechanical, “boring” market beating investing

Kumar isn't on there. Just saying.


I assume this means there may be some survivorship bias.

Just to be clear, P123 technically maintains control/owns the models even if they are removed by the designer? You don't happen to have the data on all of the designer models without survivorship bias do you?

If so can we see that?

BTW, I fund a port. We will see how it does out-of-sample. But I think there may be some value at P123.

My point is that, taking my surviving ports that are on auto, sorting them to show the best ones that I am still running would not be very good proof that I can make a good model.

It would not be proof that I cannot make a good model either. Actually, it would not show much of anything.

Taking the results of all of one one's models that are funded (as Marco does for his ports here) is good evidence, however. Not proof perhaps but evidence that he might be able to make good models. And I would certainly hope that would be the case.

Thank you for sharing that Marco.

Can we get some more solid evidence? See my comments above about the possibility of getting data with no survivorship bias (somehow).

Maybe start a good sample of models from Yuval Dan and Marco that are never removed if P123 will not show us designer models with no survivorship bias?

BTW, Yuval's designer models have little survivorship bias and he has removed zero models recently. But also he is just one model designer and there is a bit if a multiple comparison problem if you just look at his models. Still, there is some evidence for the value of P123 in Yuval's results.

P123 does have ways to prove there is value in its ports (assuming there is value there). And to even quantitate that value in a rigorous way.

BTW, to be balanced (with Yuval's generally good results) and to see the multiple comparison problem as well as the problem of looking at just the last 2 years, has anyone looked at Marc's results recently? Alert: Serious survivorship bias there.

Jim

Great theory, "and yet it moves."
-Quote attributed to Galileo Galilei (1564-1642) gets my personal award for the best real-world use of an indirect proof or reductio ad absurdum.
`

May 12, 2022 4:50:28 AM       
Edit 14 times, last edit by Jrinne at May 12, 2022 5:20:03 AM
RTNL
Re: Shoutout to our Model Designers and mechanical, “boring” market beating investing

One of the issues with many designer models is that many are extremely high turnover. Not really feasible in a taxable account IMO.

May 12, 2022 8:15:21 AM       
marco
Re: Shoutout to our Model Designers and mechanical, “boring” market beating investing

One of the issues with many designer models is that many are extremely high turnover. Not really feasible in a taxable account IMO.


That's what I used to think too. I hated paying taxes , and disregarded signals to sell winners.

If you are paying taxes on a high turnover model then you (very likely) made money overall for the year. How is that a bad thing?

The other advantage of high turnover is a constantly fresh set of holdings. It's very hard to anticipate sector rotations until it's too late. Nobody wants to leave a great party early, then the cops show up. Not talking about real investors who constantly watch/read things and apply their experience. Just regular investors with short term horizon who think they know better bc of past success (like me).

This was a brutal crash. Likely near the bottom now. It's the third time for me: 2000, 2008. But I always forget the lessons. Investing is hard. 97% of the people should not be trading. Regular folks are throwing in the towel now and hedge funds are starting to buy. It's terrible. P123 needs to come up with automated products that send orders to accounts with boring, machine driven strategies.

Portfolio123 Staff.

May 12, 2022 9:52:12 AM       
RTNL
Re: Shoutout to our Model Designers and mechanical, “boring” market beating investing

Thanks for responding, Marco. Assume my hurdle is VOO on a long term hold. Short term gains means that you are only getting about 60-70% of the net gain. If the SP returns 10% annualized, then I have a 5.38X on my money on the VOO on a 20 year hold. i may have more if I do not liquidate. To get equivalent returns with a high turn portfolio I should get 15-18% annualized over 20 years. I would love to find such a portfolio, but am not sure that it exists and has the same volatility or less.

PS - you forgot 2020, but that was a quick recovery :)

May 12, 2022 7:20:37 PM       
Edit 1 times, last edit by RTNL at May 12, 2022 8:45:10 PM
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