The Double-Edged Sword of Trend Following
In this episode of Two Quants and a Financial Planner, we dive deep into the world of trend following investment strategies. We explain what trend following is, discuss the potential benefits such as downside protection during bear markets, and explore some of the challenges involved, including false signals, whipsaw risk, and the difficulty of sticking with the strategy during underperforming periods. We also talk about how trend following can be incorporated as one component of a diversified investment portfolio and why the sizing and blending of strategies is so important.
00:00 Introduction and announcement of PNL for a Purpose charity podcasting event on April 30th
03:37 What is trend following and how is it defined?
07:29 Return profile of trend following vs. buy and hold
11:12 Is trend following a form of market timing?
14:48 Various ways to measure trend (moving averages, death cross, etc.)
18:40 Trend following and commodities
20:37 Challenges of trend following (whipsaw, taxes, momentum crashes)
26:10 Trend following as a form of momentum investing
27:19 Jim O'Shaughnessy's "Two points of failure" framework and what type of investor trend following is suitable for
30:56 Importance of position sizing when implementing trend following
34:27 incorporating trend following into client portfolios
37:09 Blending different trend following methods and risk management techniques
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Пікірлер: 9
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Really good insights in this episode! I never considered the volatility above/below the 200MA might be different
@ExcessReturns
Ай бұрын
Thank you!
Did anyone advocate 60/40 before the 40 year bond trend started in early eighties. It is now in likely 40 year bond down trend. I prefer long/short trend following with futures. There exist blended approaches with managed futures trend following funds alongside long equity. These have outperformed with half the drawdown. Will it work in the future… didn’t work during Globalization QE dampening of period monetary and fiscal inflation stimuli.
@HepCatJack
Ай бұрын
Lynn Alden mentioned the 60/40 stock/bond portfolio in her most recent newsletter. It does not do well in inflationary times.
It’s not about being RIGHT twice. That is overly capricious. It is about being LESS WRONG over time. 200+ years of trend following. Need professional to select when to change system. Successful 70s trend following systems are different than those in 2022 but they are profitable beyond market. They both keep loses small and let profits run.
@IAmTheEggMan111
Ай бұрын
Solid thought
I came here for Rob Arnott, but I was deceived
@ExcessReturns
Ай бұрын
Sorry about that. The covers may have been crossed up for a minute. Here is the Arnott video. kzread.info/dash/bejne/fKJn09FxpKnKkZc.html