Market Timing - only 4 trades since 2000

[WERNER]

Marc,
I have been following Geov’s models and contributions for a long time. Including his own website (where he provides more and very successful models OOS) he came across to me as a very fine gentleman, selflessly providing insight, models, proposals and ideas. I have learnt a lot from him and I am cherishing every contribution of his.

I am finding your criticism a bit overdone and not polite and fair.
Nobody should be off limits when it comes to justified critique, when critique is called for, based on facts. Doing so in a polite and gentleman-like fashion should be a cornerstone of this forum. I agree with Marco.
I think you can do better.

Werner

[Schm1347]

If the desire of some for at Portfolio123 is to limit discussion to an approved list of topics, ideas, and content could that list of rules please be posted? I want to be able to know what I need to screen out before I post on this site so I don’t damage the reputation of Portfolio123 and the quantitative investing community.

Should we establish a secondary forum at another website to discuss ideas instead?

Thanks,

Jeff

[brett]

Marc ,
I want to say first that I have appreciated the contributions that both you and Georg have made to P123.
I do not appreciate your insulting and incendiary comments. If you feel the need to berate please do so privately.

[marco]

Marc is older than me . Maybe he’ll listen to someone more senior, but I doubt it.

This time I am more on his side. Anyone promoting/selling their backtests , or their websites, should be scrutinized ! Specially now with Stock Factor Import, you could do whatever you want in a backtest. It’s not even curve fitting anymore, it is perfect a crystal ball. Who knows what’s going on behind the scenes (not implying anything georg, but I’m sure it’s going on)

There’s a reason why money management firms do not show backtest results. It will get them BIG fines. Plus, anyone than can produce the same performance OOS as their backtests would not be selling them.

THere’s 0 value to show backtests, they should only be used within a collegiate discussion, not to promote one’s system.

Maybe it’s time for a policy change? If backtests results are used to promote one’s system we reserve the right to delete the posts? Only OOS performance in a controlled environment can be shown. We’re are studying ways for users to launch models outside of DM that can be used to advertize one’s OOS real, unadulterated performance

Thanks

[geov]

We have diverted from the post’s message, namely that it is not necessary to have many trades to make a decent return by combining the tools of P123 with outside economic data. I have expanded the 4-Trade model to trade more often (38 times since 2000), and it now it shows an 18% annualized return, up from 13.3% for the 4-Trade model.

It uses, apart from three recession indicator series, a custom formula to calculate the max drawdown for USMV and benchmark SPY over 200 days.
P123-Team, if you are listening, please provide a new function for max DD, proposed syntax maxDD(bars [,offset,series]). This function could be used in ranking systems as well, and it does improve simulated returns from what I can tell.

Here are the rules for the model to make it trade more often:

Buy1: Eval( $portsum>=5 ,TICKER(“USMV”),TICKER(“IEF”)), where $portsum is a market timer.

Sell Rules 1 to 4:
Sell1: Eval(close(0,GetSeries(“iM-LLI”))<-2 ,TICKER(“USMV”),TICKER(“ief”)) & nodays > 25
Sell2: Eval(close(0,GetSeries(“iM-SLI”))<4 ,TICKER(“USMV”),TICKER(“IEF”)) & nodays > 25
Sell3: Eval(close(0,GetSeries(“WLI”))<10 & $portsum<2 ,TICKER(“USMV”),TICKER(“IEF”)) & nodays > 25
Sell4: TICKER(“USMV”) & 0.5*$stockDD200 < $benchDD200 & nodays>25

To address Marc’s critique that all the previous models posted here start in 2000, there is also a backtest attached, starting in Jan-2015 which has only 12 Trades. It shows an AR= 16.1%, comfortably out-performing the bench SPY. Sell1 and 2 do nothing in the 2015 model. Sell3 uses the ECRI WLI growth, and is included here because of the many false positives it produces, otherwise Sell4 would only be effective, with limited success.

One can download WLIg for free: https://www.businesscycle.com/
I added 2.6 to the growth rate because this gives the WLIg the best recession capturing characteristics (which are not particularly good, but we don’t care about this because we do not want to signal recessions with it here). The iM-LLI and iM-SLI series will soon be available for free downloading at iMarketSignals.

So this will be my last post on this subject in this view-thread, please note that without the great P123 platform and its tools one could not backtest such a model. Thank you P123-Team.

Finally, I don’t want to use this view-thread to promote the use of recession indicators in models. But nevertheless it is interesting to use the new series upload function for this. BTW I wanted to make my series public, but currently there does not seem to be a way to do it.

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[Jrinne]

Marc is older than me . Maybe he’ll listen to someone more senior, but I doubt it.

This time I am more on his side. Anyone promoting/selling their backtests , or their websites, should be scrutinized ! Specially now with Stock Factor Import, you could do whatever you want in a backtest. It’s not even curve fitting anymore, it is perfect a crystal ball. Who knows what’s going on behind the scenes (not implying anything georg, but I’m sure it’s going on)

There’s a reason why money management firms do not show backtest results. It will get them BIG fines. Plus, anyone than can produce the same performance OOS as their backtests would not be selling them.

THere’s 0 value to show backtests, they should only be used within a collegiate discussion, not to promote one’s system.

Maybe it’s time for a policy change? If backtests results are used to promote one’s system we reserve the right to delete the posts? Only OOS performance in a controlled environment can be shown. We’re are studying ways for users to launch models outside of DM that can be used to advertize one’s OOS real, unadulterated performance

Thanks

Marco,

Nothing here to disagree with.

Speaking of people who are selling things:

I wonder if you could put the model that Yuval has removed from the Designer Models back so that you could address some of the Survivorship bias that P123 is responsible for.

I understand that you may not want to do this with everyone but Yuval does represent P123 and he is definitely selling something. Not just here on the P123 site.

Yuval is not particularly bad at some of this but P123 staff should, perhaps, set an example with this.

-Jim

[WalterW]

Maybe it’s time for a policy change? If backtests results are used to promote one’s system we reserve the right to delete the posts? Only OOS performance in a controlled environment can be shown. We’re are studying ways for users to launch models outside of DM that can be used to advertize one’s OOS real, unadulterated performance

Awhile back, P123 wisely changed DM policy to;

1. increased the DM incubation period to 3 months and
2. separated the simulated results from out-of-sample and
3. make the simulation results available only after 9 months and
4. presents those results in a way that normalizes performance around the launch date.

Forum posts that circumvent those restricts undermine DM integrity and should be stopped. All DM developers should be restricted from publicly posting their DM’s simulation results w/ violators losing their access to the DM marketplace.

That said, I consider Georg’s posts here an illustration of the potential of recession timing and ETF following. Promoting ideas is different than promoting DMs.

As an aside, maybe having the ability to watermark sim results would be helpful for avoid confusion of in/out of sample graphs. Dunno.

Walter

[yuvaltaylor]

I wonder if you could put the model that Yuval has removed from the Designer Models back so that you could address some of the Survivorship bias that P123 is responsible for.

I understand that you may not want to do this with everyone but Yuval does represent P123 and he is definitely selling something. Not just here on the P123 site.

Yuval is not particularly bad at some of this but P123 staff should, perhaps, set an example with this.

-Jim

Once a designer model is gone, it’s gone for good.

I will, however, re-create the model to the best of my ability and let you know how it has performed since launch. Right now, I haven’t a clue. But expect to hear from me soon. It was called “Crazy Returns, Large Caps,” and I lost faith in it not due to its underperformance, which wasn’t major, but due to its use of market timing, which I no longer believe in.

[Jrinne]

Marco,

Maybe that client already knows exactly what he wants but you should let me show you what is possible sometime if he does not.

I can show you an artificial neural net that will knock your client’s socks off.

Probably Marc should be sitting down when I show it to you. Doctor’s advice;-)

-Jim

[Schm1347]

If indicators and series are public and transparent I don’t see why there should be a problem showing backtest history whether they include market timing or not. Personally I don’t put a lot of faith in market timing. I think market timing is the Holy Grail of stock market trading in this age. That being said, users need to make judgements about what they think can succeed and what will not. In the end it is their money. If we are concerned about market timing why not write some articles on case studies rather than trying to censor posts. Portfolio123 puts forward good articles and I at least read them. Counter points can be conveyed in a professional respectful manner without singling out individuals.

[mgerstein]

Marc is older than me .

Don’t forget better looking!

[mgerstein]

Should we establish a secondary forum at another website to discuss ideas instead?

That sounds like an interesting idea.

Perhaps we need not ban or delete posts featuring backtests if we confine them to a separate forum that one can enter only after clicking to accept and agree to understanding that portfolio123 does not support the use of backtesting as an indicator of what might happen in the future and possibly an amendment to our Terms of Use to the effect publication of p123 screen shots showing backtest results be accompanied not just by a credit to p123 and the data provider but also a statement that p123 backtests depict that past and that it cannot be used to infer future performance . . . something like that.

P123 users have the right to work as they wish. But P123 has the right to separate itself from practices we believe cast the company in a negative light. Failure have been diligent about this back when DMs (initially known as Ready to Go) launched caused that very promising business to blow up, possibly beyond repair (by the time we corrected it, the cat was out of the bag, the horse was gone from the barn, and the subscribers were gone from the great i-s/lousy o-o-s models). We can’t afford more mis-steps like that, especially as we seek to attract more professional subscribers (an important area where s&P had been badly blocking us). And individuals want us to succeed in this; it will help us keep your prices affordable. We can’t have pros publishing white papers and reports citing and sourcing to portfolio123 and having clients say “You mean you built your stuff THERE? Good bye. Good luck.”

I hope Georg and other backtest devotees find this a reasonable compromise. We’ve been good to you; and Georg, you have no idea how good we’ve been to you as S&P constantly kept looking at our subscriber list panting and dreaming about how they were going to unmask all these professionals who would be kicked off p123 unless they spent big bucks for S&P data licenses. In fact, a major reason why we’re taking the trouble to switch data providers is so that we don’t have to throw folks like Georg to the hungry wolf. Bottom line: We’ve been damn good to you and went through a lot of behind the scenes ugliness to protect your ability to continue to do your thing on p123 and run your site as you do. Now, it’s time for you to do some good for us, even if you don’t agree with what we ask; to agree to stop posting stuff in ways we believe will hurt our business. I think the suggested compromise is dam good idea, and a lot better for you and others like you than Marco’s thought of simply taking down posts that show backtests.

Frankly Georg, considering the WHOLE picture, there are only two words I want to hear from you (And others who value Georg’s site and and are happy we busted our buts and didn’t let S&P blow it into oblivion): “Thank you.”

And as a professional courtesy, I am asking you to stop posting your backtest results until we can implement some arrangement along the lines discussed here. (If you ignore me and if Marco decides to simply pull down those posts, when he calls me to get my opinion, I won’t argue; I’ll just say “Go ahead, take them down. “)

[geov]

Should we establish a secondary forum at another website to discuss ideas instead?

That sounds like an interesting idea.

I hope Georg and other backtest devotees find this a reasonable compromise.

This sounds perfectly reasonable to me and is a Good Idea. I have always, and will continue like others to say: “Thank You” P123 !!!

In the meantime I will not post any backtests on P123. I do intend to write a Seeking Alpha article, something in the line of: “The Use of Recession Indicators in Stock Market Timing”, which will show how to use the tools on P123 to do this. I will provide you with a preliminary copy for review. The proposed article could bring a lot of potential subscribers to P123 who may want to run models based on the business cycle themselves on the P123 platform.

[WalterW]

If P123 is concerned about sharing sim results (market timing ideas, ML, whatever), maybe taking it off the public forum and into a private Portfolio123 Group would work. As per its description - “Portfolio123 Groups allow you to create smaller groups of members with whom you can collaborate and exchange ideas.”

Walter

[mgerstein]

OK. Looks like we’re in agreement. Thank you for your cooperation.

Don’t know when Marco will see this so I’ll IM him to get his attention.

[sthorson]

If P123 is concerned about sharing sim results (market timing ideas, ML, whatever), maybe taking it off the public forum and into a private Portfolio123 Group would work. As per its description - “Portfolio123 Groups allow you to create smaller groups of members with whom you can collaborate and exchange ideas.”

Walter

I’m with Walter on this one. A private forum for subscribers would allow the exchange of ideas, including backtest results, without the general public being exposed to them. After all, backtesting is at the core of P123. To not allow subscibers to post backtest results, IMO, would stymie collective thought and idea generation.

Most of us, I’m guessing, know intuitively that historical performance rarely repeats and therefore create systems with that in mind.

A private subscriber forum could relieve P123 of some of the liability created by exposing backtests. If you go to “who’s online” at any given time the guests outnumber the subscribers by a very large number…

[mgerstein]

If P123 is concerned about sharing sim results (market timing ideas, ML, whatever), maybe taking it off the public forum and into a private Portfolio123 Group would work. As per its description - “Portfolio123 Groups allow you to create smaller groups of members with whom you can collaborate and exchange ideas.”

Walter

Yes, this would be implicit in the compromise solution to which Georg and I agreed.

[mv388158]

I think everyone is mixing up two very different things.

1. Knowing how to make money
2. Knowing how to produce great break tests.
   These two things have nothing in common. If I am going to invest real money in someone’s Designer models I want to see 5 years OS. At this point in time there are very few models who have beat the S&P over five years and even fewer who have beat the market since 2013. Congratulations Marc and anyone I missed. The odds for professionals are now less than 5% so this is no surprise. In the past I thought 2 years but it’s not good enough. The reason these 2 things have nothing in common is evident.

• Designers models when failing are removed. This kills your credibility and starts the clock over for anyone who wants to invest in your models.
• The designer models that are left the majority are not beating the index.
• If a designer has 1 out of ten designer models that are beating the index but the other 9 are not this makes me think the one that is beating the market is a fluke.

If I were a Designer I would focus on ETF and trying to get a simple edge. I have posted about this before and have not been proven wrong yet. If I had to pick one model that I think will outperform during the next recession it is Georg’s Best(SPY-SH) Gains for Up & Down Markets. It’s an ETF with marketing timing and as he said until there is a recession it probably won’t beat the index.

I think the community has to ask some hard questions and grow some tough skin because you might not like the answers:
Which designer has the most credibility at making money and why?
Would you invest with any designer that does not have a proven track record of at least 5 years?
Would you invest with a designer who has a pile of graveyard models?
Would the designer community like to be publicly evaluated on these questions?

I don’t think the community is ready for these tough questions. Any time someone gets publicly criticized about their OS performance it starts a war of words that solves nothing.

Maybe there should be a forum for those who want to make money and one for those who want to backtest.

Thank you P123 and everyone else who contributes to these forums.

Cheers
Mark V.

[yuvaltaylor]

I wonder if you could put the model that Yuval has removed from the Designer Models back so that you could address some of the Survivorship bias that P123 is responsible for.

I understand that you may not want to do this with everyone but Yuval does represent P123 and he is definitely selling something. Not just here on the P123 site.

Yuval is not particularly bad at some of this but P123 staff should, perhaps, set an example with this.

-Jim

I’ve posted below the out-of-sample results of my delisted designer model Crazy Returns, Large Caps, by Jim’s request.

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[Jrinne]

Thank you Yuval.

And in purely mathematical terms: pretty darn good.

-Jim