Can you beat the market with 50% less risk? [Dual Momentum book review]
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- Опубліковано 10 лип 2024
- 📚Gary Antonocci's book, Dual Momentum, makes a pretty big promise. Can it deliver?
0:00 Intro
1:04 Three problems with asset allocation
5:53 The big promise of Dual Momentum
6:05 How?
9:55 The research
15:24 My research
16:45 Is Dual Momentum useful?
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![How to beat the S&P 500... by doing nothing [1935-2022]](/img/n.gif)
I myself started a MOMENTUM fund as an institutional asset manager with a very renowned bank in Europe. I started with extensive research to convince the management and finally the project got green light, but guess when?! In 2007 just ahead of the GFC. Note that the fund did not significantly underperform its benchmark (MSCI World) but the management never felt comfortable with it and after 3 years it got closed because of a big client who complained based on wrongly calculated numbers. Instead of chain linking the returns he came up with simple subtractions. Now I‘m retired and I would anytime start a fund based on this factor because it‘s the only one the encompasses „success breeds success“ and that‘s as close to the core of managing assets as you can get.
Nathan, your channel is such wonderful insight. No clickbait, no emotion, straight information. I love what you bring to the table. MTUM and chill.
Personally I think he needs more flaming thumbnails and air raid sirens but yeah he’s alright.
I love talking about personal finance. One thing that I love to talk about with my friends is having goals. Most of the people who can't stick to a budget and keep the same bad money habits are those who don't have any goals or objectives. Always have goals for your money guys. Love this channel Love the video
You are pointing people In the right direction.. I Will advice traders especially newbies to have orientation of trading before they get involved in it because the Crypto market has been unstable, forget predictions and start making a good profit now because future valuations are all speculations and guesses, when news gets bearish start buying. "Keep it simple" That correction was the best thing that happened me. but all thanks to richard for his amazing skills for help me to earn 62k through trading chart. I believe we are in the spring phase
Are you guys kidding me😒, I've heard over hundred successful Investments with this same Richard Cypher...how good is he?
He is my family's personal Broker and also a personal Broker to many families in the Los Angeles and a FINRA AGENT in the United States. My family got in touch with him he is so awesome that my family is now dept free...
I hope so, I think will also join but right now I can't start with a lot of money I guess £1000 would do a try. hope this works out like you guys said
I just wanted to comment to say that you are one of the most informative finance channels on UA-cam :)
Thanks, Nathan!
Great video. Thanks so much for all your fantastic research and the ease with which you present it.
Thanks! Glad you find it helpful :)
Thank you for the research, curious what was the performance compared to an S&P500 for present day. Curious if it did better with covid and 2022 drops.
Another great video! Thanks for the content! The strategy discussed shows remarkable returns. I would - however - be worried about the stress and work it puts upon onself. It is definitely a more active style of investing. It's more trading than investing now that I think about it. The good results in backtesting also seem to be under the premise of perfect execution. Anyways, the studies about the power of momentum alone are very interesing.
Masterpiece! Thanks a lot you have been the one that breaked momentum to me
Thanks, E C!
@@NathanWinklepleckCFA can I ask... Would it be a profanity to make a comparison between momentum (leave for now aside dual momentum) and more classic MACD analysis?
@@ciaoatutti11111111 What's the MACD analysis you're referring to? Maybe shoot over a link if you have a good example. :)
@@NathanWinklepleckCFA if I understand correctly momentum is an indicator of the price change. Not sure if the actual mathematical formulation but I guess is based on average price variation across different timeframes. MACD is somehow looking at change in behaviour of moving Average as well... So can we look at comparing stocks with MACD over signal line rather than stocks with positive momentum? Would that drastically change the scope of the momentum approach that is finding a stock with positive inertia? Many thanks
Great video as always! As others have noted sounds like a lot of work. I imagine this strategy would be ideal in an ETF.
Also made me think of a topic for a video - so many momentum ETFs out there - how are they different? Are they meaningfully different? What should we pay attention to?
Again - thank you great video.
Thanks, Ivan. Appreciate the suggestion for the video. It would be great as an ETF, but I'm not aware of any that do it so has to be manually implemented.
Hi Nathan, thanks for the video. In your assumptions, what period are you using to calculate momentum, and when are you rebalancing?
Not my assumptions, but author of books. 12 months is time frame.
@@NathanWinklepleckCFA super thx, but is it rebalanced monthly with a 12 month look back? or rebalance only once a year?
Nathan. as usual very solid video with useful info/data. I read the book many years ago and tried it for while with US sectors ETFs. It worked well but the promise of market downturn protection I never tested . For the last 10 years it took a Covid type collapse to test the system, at which time I'd moved back to my (Long hold + Tail hedge), which worked beautiful back then. Given this protracted bear market where Tail Hedge is not that effective, it may be the right time to reopen Antonacci's book.
By the way, your coffee can strategy may be a momentum strategy in disguise (ie. no adjustments necessary)
Again, thanks for the video.
Thanks, Marcos! You're absoultely right abut the coffee can. I've thought of it in the same way. I think market cap ETFs are also momentum ETFs, in disguise. Really, the coffee can is trying to blend both the benefits of momentum and the benefits of access to smaller stocks that have more room-to-run (like an equal weight ETF) but doesn't sell winners to reinvest into losers. It's a fascinating explanation for why it appears to work so well... maybe it's just the momentum factor the whole time!
i didn't quite understand it . The methood is to invest in the best proformer assent in the last 12 mounth and then sell it after 12 mountes , and so on? and what should I do in case that the overall market is in losses , exspet some stock sector like the anergy sector?
Great video. Why wouldn’t an international total market momentum ETF be superior than a domestic only based ETF such as $MTUM ?
I love that average investor return chart! I will definitely be using that in my practice.
QMOM a competing momentum ETF.
What is your practice?
@@NathanWinklepleckCFA I do the 3 bucket method. A divided growth ETF income bucket, SP 500 bucket, and total growth including dividend ETFs & balance growth ETFs.
Great video thanks. Is there a small error at 10:19 with the years, I heard 30 years later, but maybe it's 50 years later? I don't know maybe it's an error on my part. Thanks for your great content.
I’m sure you heard right. 50 s/b right
I’m late to the discussion but as a recent retiree I looked into this (bought book, experimented with it a bit, talked to others who’ve looked into this). I found that performance since the book was published had deteriorated, and the benefits vs a std 60/40 weren’t there. You should reach out to Gary, he is willing to discuss his strategy live, you could make a video out of it! He claims his proprietary models (differing look back periods, more asset classes) perform much better. Can you show the results using allocate smartly from 2010 - 2022 only? I think you’ll see no benefit over the time period since his book was published.
I started investing in 2020, so I’m pretty tired of these huge, unexpected drawdowns. I found a strategy like this that outperformed the market from 1945-2022, but from 2010 on it underperformed by nearly 50%. I was pretty disappointed. It sounds like it should work, but timing the market seems to be a pipe dream.
I don't doubt momentum works but I know momentum investors who loved NVDA at a PE of 80, Adobe at a PE of 50, Visa at a PE of 40 and so on. Can't momentum cause price growth that outpaces earnings growth even on some of the most solid companies that leads to inevitable collapse back to fair value? If so, then this only works by timing the market? Would this not cause the same panic selling that other investors experience when you see prices fall in half or more?
Hi Nathan!!!Is there an ETF that applies the dual momentum strategy?
Not that I'm aware of. If anyone knows otherwise, let me know!
9:50 The dual momentum approach reminds me a bit of the CANSLIM approach of William O'Neil. First he asks if the overall market is rising. If yes, invest. Second, he looks at which sectors are rising most and focuses on the top sectors. Then within those sectors he looks at individual companies and one of the factors in evaluating individual companies is that they should also be rising.
I've oversimplified, but we see that it's 3 layers of momentum.
When you did your piece on the best ETF's you declared MTUM the clear winner over a 17 year period. That is a "momentum-based" ETF. Can you correlate this discussion with your choice of MTUM in any way? I bought MTUM back then and have noticed that it does tend to protect the downside better than a 60/40 split (lately).
That would only be the relative momentum part. The absolute momentum would be missing from the equation
@@NathanWinklepleckCFA So no ETF yet that has this strategy?
@@dakkon74 Not that I'm aware of?
@@NathanWinklepleckCFA Time for you to make one! ;-)
@@dakkon74 LOL too bad an ETF costs like $250k to start!!!! haha Maybe once I hit 1 million subs I'll have enough coin to afford that
Nathan this is fascinating to me … back when I was trading I also followed a momentum type of strategy that was based on money flows … it was excellent and helped keep me out of trouble. Unfortunately the individual that provided this has retired. I’ll put this book on my Christmas list and hopefully I’ll read it soon
Do you know what type of money flows he looked at?
@@NathanWinklepleckCFA He never divulged how he determined the money flow but he used it to rank stocks and ETFs and the overall market. I seem to remember that he grouped stocks together somehow and I guess ETFs were ideal
i studied this as well and whats funny is, that there is also a short term reversal effect for less then 1 month.
so its a two edged sword.
Very interesting, thank you. I am surprised that you are not more positive at the end of the video. All researches you showed confirmed the existence of momentum and all tests on the dual momentum show it did work over the last decades, providing higher returns and MUCH lower drawdowns. I understand that a strategy can not work in every market environment but still. Why wouldn't you be more interested in implementing that strategy ? The covid case is puzzling to me. The drop of the market was so sharp and sudden that with the dual method, you still should have been fully invested all the time, right ? Leading to a 35% drawdown, correct ?
the issue is, that everyone is aware of this factor now.. even we have the opportunity to invest in momentum etfs cheaply.
its gone
I create Machine Learning models and train them on Crypto and Forex data. Noticed the AIs make decisions mainly based on momentum (volume + price). It works on all small timeframes, 1m, 5m and 15m. My best model predicts the direction of the market correctly 94% of the time.
Hi, sounds very interesting. How do the predictions look like? Stock xy will rise xy % until date xy?
Had this book for years, best i go back to it have a look
It's a good one!
question: a paper producing from moskowitz et al 2012 - looking back from 1-48 months with absolute momentum. i just read it, would there be a conformation bias in this paper seeing as 2010-2020 has the biggest bull run in the history of history?
That paper would’ve been looking back before 2012 and thus avoiding the majority of that, yeah?
What exactly did you backtest? Was it the S&P 500 and world ex us? As it’s not made clear in the video what exactly was invested vs the 60/40
I didn't backtest anything; this is a book.
The average investor is plagued by fear. Fear of loss on the downside and eventual capitulation and selling. Fear of missing out on the upside, leading to buying high.
I like the momentum idea, but not convinced it is a durable effect especially if widely adopted.
Good stuff. But Many of the models on Allocate Smartly are way better. Models that aren’t dependent on bonds always being a good risk off asset and negatively correlated with stocks.
But Dual Momentum should still be much better than buy and hold with its lack of risk management, particularly in retirement when thinking you can stomach a 50% drawdown is not realistic.
When you show long term charts, you should normalize them to inflation to show whether there is an actual increase or decrease in value.
Is this not simply buying high, selling low like on the diagram you drew at the beginning?
That is what I thought as well. I'm not sure if I am missing something but it seems like you would be chasing the highs all the time.
Yes, if you have a short and fast event like 2020. If, however, you have an extended bear market, the system tends to work well at getting you out ahead of substantial downside. Where I think you get in trouble as an investor is when you panic down 40% or 50% on a stock or position and sell at or near the absolute bottom right as things flip. This system attempts to mitigate downside, but it's going to end up selling out at 10% or 20% lower... not a perfect system, by any means. But interesting way to psychologically protect yourself and prevent massive losses. But in typical correction, it's going to be a drag.
@@NathanWinklepleckCFA Thank you, interesting take. It seems therefore that there is quite a lot of discretion with this strategy which will likely impact results in reality
What about simple momentum? In order to avoid such a great turnover rate, we can just buy and never sell the different etfs, and just buy the etf that shows momentum. That way we can spend decade investing into one etf with increased returns.
I think it’s Asia, not Africa LOL. I am confused about the timing of this. How often does one examine the portfolio and reallocate. Thanks, nice analysis. I was not aware of this book.
Monthly :)
I'm new to the market and am currently halfway through Gary's book. Could someone please help me calculate absolute momentum? I'm still confused it seems too simple.
Price today + dividends received over last 12 months / price 12 months ago - 1
I don't understand how this works.. this looks a lot like buy high sell low to me.. guess I'll just have to read the book
Good book, I have it, but I don't momentum invest anymore--aside from my 401k, although this market has made me kick myself a few times. lol It's a good strat in my opinion, especially in company 401ks or retirement accounts where you don't have access to the entire market or for me, options strategies.
It's a good option for retirees who don't want as much bond exposure permanently, but still don't want the risk that 100% equities provide. For a long-term time horizon like 30+ years, I don't see how it offers too much of a benefit IF (and it's a big IF) you can just stick with a buy-and-hold long-term.
Allocate smartly link?
allocatesmartly.com/
50% drawdown for a good business is an absolute bargain. I am not comfortable with momentum investing if I don't see a value. Most of the average investors do momentum investing but they are very late in getting in.
True momentum investing would be looking at a shorter time horizon like 6-12 months... where you're finding a good sweet spot are businesses that have been a value AND are starting to show decent short-term momentum. For example, Energy stocks might've fit the bill last year. Deep value and then momentum picks up over a 6 month time period, so you get benefits of both value + momentum.
I see why investing is not so simple this is ridiculous
Hey Nathan, thank you for putting in the work. Would it be possible to simulate your investing style as kind of "timetravel"? lets say you start in 1995, whats stocks would you have bought over the years, which of these stocks would have gone to zero, to which stocks would you have added and which stocks may have been one time purchases (as i understand you dont believe in selling, but just stop buying companies that dont work out anymore?)
For example here is a historical animation of Warren Buffets Portfolio
ua-cam.com/video/MSvbTCQg7bg/v-deo.html
which options are availble in S&P to buy International stocks outside US/CANADA ?? buy some EUROPE AFRICA INDEX ETF??
I'm not sure...
VXUS, VEA, VWO
Honestly I just invest in VT and call it a day lol!
Gosh. Dividend growth investing sounds so much easier to implement and stick to.
Haha yeah you’re right about that!
i would guess the hedge funds profit from the poor average returns of the average investor
Probably...
There are a lot of academics saying that Antonacci hasn't properly back-tested this system and it does not deliver even close to the results he states. Also to have an investor actively involved in making the many-times-per year decision will lead to them screwing it up. Sorry but continually investing in 70%/20%/10% stocks, reits, gold&silver over time will make you rich versus screwing it up.
Do you mind sharing the other research you found, Tom? Would love to read!
@@NathanWinklepleckCFA Traveling this week but I'll try and dig out what i was reading about this 1-2 years ago. I do remember that the group doing the backtest of this strategy said it has underperformed the S&P since 2008 or 2009, and the data Antonucci uses for prior to 2005 was only based on the S&P 500 outperformers and had survivorship bias. Their conclusion was that it lagged big-time during a long bull run, so whatever downside protection it brought didn't equal the underperforming of the bull runs.
So by this metric one should have invested in Bitcoin in the past 10 years???😮😅
12-month returns less than 0%?
@@NathanWinklepleckCFA 10 years return
@@bspiderm Dual Momentum is 12 months
This is a strategy that I don't understand, and unfortunately your video does not describe it in terms an ordinary investor can understand. Furthermore, I don't understand *why* it works. Maybe the book explains it better, but at first glance I would stay away from such a strategy. I like to look at fundamentals and understand why price is going where it is going. The dual momentum strategy looks to me like trying to pick a winner by looking in the rear view mirror at price action. The market tends to go to extreme highs and extreme lows, but you never know when momentum will turn. I don't think it is possible to predict when a trend will change. I would prefer a strategy that looks at valuation relative to some benchmark (e.g. money supply). Keep a small position in times of high valuation and a large position in times of low valuation.
Seems like a lot of work.
Really? Seems pretty simple to me... :)
So it’s simple, outperforms the market and has lower drawdowns, but you’re not sure you will do it. Did I get that right?
@@richardhead2318 you will hear this a lot when looking at investment stuff. “Past performance does not guarantee future results” and “only you can decide your own investment strategy, do your own research” Nathan was simply providing the research, ideas and own research on the topic