Dear TuringTrader member,
It’s been a while since the last newsletter. However, this doesn’t mean that I abandoned the site or our members. Quite to the contrary: I’ve been busy analyzing 2024, getting an understanding of what made the year special, researching how strategies can better react to this setup, and developing prototypes to prove my point.
As it turns out, this was much more complicated than I thought it would be. It was hard to find any prior art I could lean on, including indicators to measure the investing climate, and good ways to visualize the findings. But if you followed my work, you know that I always aim to understand how things work, and how they break – especially when money is involved.
Review 2024
The first part of this effort is the 2024 performance review. With this analysis I wanted to go beyond the simple performance numbers. Instead, I wanted to zoom out, and drill into more fundamental questions. Are the strategies working within their expected range? How do the strategies fare against their stated objective? Is there reason to believe that things stopped working?
To answer these questions, I developed a novel chart, which draws recent backtested returns along with the expected range of returns, over the same period, from our Monte Carlo simulation. In other words, this chart compares out-of-sample performance with in-sample expectations. A priceless tool to have.
The next part of is a detailed analysis of what made 2024 special. Here, I was particularly interested in why some strategies struggled to identify the strongest assets, and how to identify such time frames.
It took me a while, but ultimately, I came up with actionable insights. In a nutshell, momentum occasionally breaks down, such that ranking assets by past momentum has little or no predictive power for future returns.
Hokey Pokey
The last part is the synthesis of the findings above. Here, I prototyped a novel sector rotation strategy, which uses momentum whenever possible, but falls back to trend-following in times of uncertainty: Say hello to Hokey Pokey! I am still performing some finishing touches on the strategy, before I will roll it into some (but not all) of our All-Stars Portfolios. One limiting factor here is that Hokey Pokey requires daily trading, and with that is not a drop-in replacement for Round Robin.
As always, I want to thank everybody who reached out over the past month with questions, comments, and suggestions. It is an honor to have you on our site. If you like what we do, support our growth by sharing with your friends how TuringTrader adds value for your investing.
Stay tuned for further updates,
All the best
Felix
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Felix Bertram
Founder of TuringTrader.com