Hi Rene,
I suspect Karl was thinking of my system, Rainier, when he asked you about having inverse ETFs in the watchlist. Rainier’s watchlist includes Nasdaq stocks, NYSE stocks, ETFs, and inverse ETFs.
We’re both researching dip-buying techniques, and I think we’re both even using the same software, Wealth-Lab Developer 4. Since most of your systems concentrate on the Nasdaq 100, I think you may have had the same experience that I did - dip-buying systems work best on Nasdaq stocks. Everytime I developed a system for Nasdaq stocks and then applied it to NYSE stocks the results were disappointing. This has always bothered me, so I’ve worked very hard to develop a system that works equally well on almost everything. Backtesting results have been encouraging. I know you’re going to wonder whether I backtested correctly, since there are about 1,000 mistakes that can be made. Well, I think I did it correctly, but time will tell.
Thanks for the hint, Rene.
So, you recommend your systems Topaz and Pear.
Well, Topaz has had max dd = 44%. Most hedge funds, I know, terminate any system with dd > 40%. That leaves Pearl only for a consideration. Yet, Pearl is positively correlated with SP500. Therefore, it remains to be seen how Pearl would perform in the future, when SP500 is less bullish than before ( Pearl has enjoyed a nice SP500 bull market since Pearlâs inception).
Because Topaz, being positively correlated with SP500 as well, had lost 44 % during the 2008 correction. Could Pearl lose 44% or more in a future SP 500 correction just like Topaz did?
As I recall, you recommend to look at all the systems created by the developer. So, you have only one stock system worth looking at, out of six, and it is positively correlated with SP500, and has no track record during the last SP 500 correction.
Do you have any system suggestions other than your own that fit your criteria and are not positively correlated with SP?
Ms Naivete,
just one thing: You wrote "Yet, Pearl is positively correlated with SP500. and you use it as an argument against Pearl.
If I look at Pearl’s system statistics I see:
Correlation w/ S&P: 0.466
This makes me wonder: Do you know how this correlation is defined. How it is calculated? Do you have any idea what a correlation of 0.47 maeans in the financial markets?
To make a long answer short: Of course you want a system that goes up. If you correlate it with the general stock market over any extended period its unavoidable to get a positive correlation (because the globel stock market goes up, usually). You want a positive correlation!
And by the way: 0.47 means “weak”…
(Lets talk again if we see a correlation higher than 0.9)
Thanks. Rene. I do not have an argument against your Pearl. I have used term “positive correlation”, not “weak” or “strong”. Would you agree that 0.47 > 0?
I am looking for a system that is negatively correlated with SP500. I know what I want, thanks again.
By the way, we can’t ignore the fact that your Topaz has about the same correlation with SP500 as your Pearl, and Topaz ended up with the 44% dd during the last stock market correction. I don’t want the “weak correlation of 0.47” to take my portfolio down during an upcoming correction.
Just one more question about your "cautionary tale". How much weight do you assign to the Sharpe ratios in your system evaluation criteria?
Thanks.
Rene,
You have not answered my last question about your criteria as outlined in your "cautionary tale". Any criteria list without a specific weight attached to each criterion is just a "tale" as you call it. It does not offer any quantitative benefits of your scientific thinking.
The question was about any specific weight that you would assign to the Sharpe Ratio (as one of your criteria) in your system evaluation.
Thanks.
Ms
I wrote the “tale” not Rene.
One point I’ll give tips on:
2. Multiple Accounts
Some vendors have multiple accounts. There are legit reasons for this, but one BAD reason is to hide the failed systems.
If you think this is happening 2 two things you can do to check are
a. if vendor posts in her forum look for posts in the new system and old failed system forum that look the same. Maybe ones with just the numbers changed.
b. if both systems are actiuve you can look at at each system and see the last time the vendor logged in. If you see a few cases that the failed vendor logs in and then a minute or so later the new vendor logs in that’s is a good warning sign.
This kind of thing happens more than you think
Thanks, Buster!
Hello Myth Buster,
I’d like to use some of your texts here.
please contact me: Rene.Koch at finantic.de
