Your strategy is rocking it! congratulation!
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Patience Young Grasshopper.
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Just ask anyone who was involved with P123 aka Portfolio123.com
They all crash no. matter how great the backtesting was.
Naive system creators believe they found some holy grail in investing that Goldman Sachs or other hedge funds have never thought before.
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You arenât wrong. This has always been one of my biggest concerns.
So far 2023 has been much much better. Hopefully it stays that way.
and 54% drawdown⌠with trades risking as much as 12% of capital:
| Open Time ET | Side | Qty Open | Symbol | Descrip | Avg Price Open | Qty Closed | Closed Time ET | Avg Price Closed | DD as % |
|---|---|---|---|---|---|---|---|---|---|
| 31/1/2022 15:05 | LONG | 17398 | UPRO | PROSHARES ULTRAPRO S&P 500 | 58.8881 | 17398 | 6/5/2022 15:51 | 57.934 | -11.83 |
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@ManuelBossi3 it has been a while. I know we have had some good conversations before. I take your post to mean you donât like the strategy. I completely understand, but here are some of my thoughts on the topic.
I would say the main takeaway is, a good system with goal of high returns, may have drawdowns of 50%+ and still be ok. Of course itâs better not to, and if someone can avoid that itâs better. But I wouldnât use 50% drawdown as a reason not to look into a system in isolation. What this means is, you have to look at the fact it has a 50% drawdown plus other factors about the system (itâs potential reward, etc). If a system with low expected gains has a 50% drawdown, thatâs a red flag, while, say, even SPY has had two 50% drawdowns in the last 25 years:
Disclaimer: I have systems on C2 with a 50%+ drawdown
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Hi @InteractiveAssets indeed it has been a while :). My post included 2 key risk factors that are objective and factual based on C2 record. Of course DD needs to be interpreted in light of performance (and your Sortino is >1 so well done!). However, future returns are unknown while risk parameters (e.g. risk per trade) can be pre defined. I am well aware you have been inspired by risk parity and have been using leveraged bond positions in your portfolio, in light of historical correlations and asset volatility. However, this entire portfolio construction logic brokedown at the end of 2021 (like all risk parity funds) as inflation spiked and Powell started the fastest rate hike in history. So whatâs the lesson, in my view? Historical correlations, volatility (and related backtests) cannot be safely extrapolated to the future. Risk management and risk parameters can.
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I operate on the belief that while imperfect the past is the best guess we have to extrapolate for the future. Obviously anything new can and eventually likely will happen.
I donât necessarily see 2022 as something that means we have to abandon strategies that have worked for about a century. There are other really bad periods for stocks and bonds combined. When I look at 1973 and 1974 combined I see some similar behavior to 2022 then a bull run for stocks and bonds. Iâm not saying that will happen, but I donât think there is big cause for alarm - yet.
Bonds and stocks are still great to diversify with most of the time just not always is my take away. I do wish I had been more tactical on bonds in 2022, but even if I had I think it would have been a rough year for me.
My strategy has stayed largely the same from 2019 through 2023. Had I abandoned it I would likely not have been off the bottom by about 70% this year. (Still a long way to go for all time highs about another 20% gain).
I really think patience and consistency in good times and bad is key. I am glad that bonds are in a way getting recharged. I am not convinced yet that we have seen a breakdown of hold mostly stocks and bonds. That being said I am staying nearly 100% tactical rather than passive to avoid riding anything all the way down. Of course this increases the risks of whipsaw, but with the signal and portfolio diversity in place, I think that is an appropriate risk to take.
Though I may disagree, I certainly respect your view of it all.
PS: I forgot to say that in my view risk metrics have the same problem as anything else. They arenât great at predicting the future. The US stock market had never dropped 20% in a single day prior to 1987. The market dropped 80% during the Great Depression but hasnât again since.
This is also nothing new to what I said in the summer of 2022 Patience is a Virtue - #155 by InteractiveAssets
Itâs hard to believe my first post about this strategy was back in 2019 when my Roth was at about $40K and now it is worth about $175K from growth. That is just the Roth IRA that this strategy is based on. Back then I had about $132K total invested and now that has grown to about $850K across my accounts mostly from investment gains. I am very very grateful. I know it hasnât been easy (see 2022 results). But I really do think my method is one of the best overall long-term investment methods, though it does require a high risk tolerance, patience, consistency, and acceptance that nothing is guaranteed.
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Congratulations for being able to stick with a process for that long. Very few people are able to do that.
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Agree, congrats! I hope to have your level of dedication to your process (if perhaps not your level of drawdown) in my own strategy management.
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