Greg Baker

Investor

[Greg Baker @arbseekerguy]

@HML_Compounder @choffstein @SimplifyETFs 100% exposure to large cap US equities is not 75% exposure to a covered call strategy + 25% SPX futures. What is wrong this issuer? No mention of covered calls in the marketing material or prospectus.

[Greg Baker @arbseekerguy]

@EconomPic I’ve found the YouTube videos by Delivrd where he negotiates with dealers incredibly entertaining.

[Greg Baker @arbseekerguy]

@taobanker Cash sweep is 75% of revenue. There’s regulatory risk when claiming to be a fiduciary and collecting a big spread and/or allocating their clients to big cash positions. Still kinda like the stock.

[Darren r-σ²/2 @ReformedTrader]

Trend following provides excellent diversification and a positive Sharpe ratio. Why is it underutilized?

Let's address some of the objections.

HIGH FEES
This one may have been true in the past. As much as two-thirds of the SocGen's Sharpe may be been eaten by fees and other costs, but it's possible to use simple models to recreate the returns with lower fees.

Trend-Following Crisis Alpha: Does it come from beta timing or market selection?
https://t.co/9qtWyDDPf4

Peering Around Corners: How to Replicate Trend Following Managed Futures
https://t.co/RgMcI6Apcy

Dual Momentum – A Craftsman’s Perspective
https://t.co/KiHU6MF85f

DON'T NEED IT
Despite the recent strong performance of U.S. stocks, 60/40 has historically not performed well in other macro regimes. We're familiar with 2000-2003 and 2007-2008, but stocks and bonds have also had negative real returns during periods of extended unexpected inflation. Trend following excels at profiting from regimes.

Best Strategies for Inflationary Times
https://t.co/fCdSryGm83

MY DISCRETIONARY MANAGER IS BETTER
Even George Soros's alpha disappears after accounting for systematic strategies (value, trend, and market beta). Maybe your discretionary manager is better, but unless you have 30 years of trailing return data to evaluate his alpha, I wouldn't count on it.

Superstar Investors
https://t.co/GU7jrfopp2

Robust Beauty of Improper Linear Models in Decision-Making
https://t.co/C0vWhwvClF

HAVE MOMENTUM, SO DON'T NEED TREND
Trend and cross-sectional momentum are different, as trend isn't market-neutral. It works better when it's allowed to take time-varying bets on overall direction in various types of markets.

Trend-Following Crisis Alpha: Does it come from beta timing or market selection?
https://t.co/7tHpJNRrZw

Cross-Sectional and Time-Series Tests of Return Predictability: What Is the Difference?
https://t.co/ZWndx8amzZ

ROLL YIELD GONNA HURT ME
This is a relatively sophisticated and valid objection. Managed futures do perform better after incorporating other strategies, including carry, to add diversification and to address some of the weaknesses trend would otherwise be vulnerable to.

Carry and Time-Series Momentum: A Match Made in Heaven
https://t.co/uf3Z3LqC8Y

SKEWNESS
Trend's famous "smile" is generated using quarterly returns. Unfortunately, when evaluated using monthly data, the skewness is negative. This is something to watch for and perhaps hedge.

Skew and Trend following
https://t.co/RfnIyqdfXy

IT'S OVERFIT
Trend following has worked when examined using out-of-sample data. For example, this paper goes back to 1880:

A Century of Evidence on Trend-Following Investing
https://t.co/QLn2vf9gGl

and this one looks at alternative assets that had not been examined before:

Trends Everywhere
https://t.co/vCJux9xDcM

IT'S CROWDED
Trend is a strategy people resist adding to their portfolios. There are studies that examine whether its capacity is too low, and you can decide for yourself who is right.

Market Environment for Trendfollowing
https://t.co/YiXDNGvMuU

Footprint of Trend-following: Can CTAs really move the market?
https://t.co/cCfZEKxKx4

WHAT HAVE YOU DONE FOR ME RECENTLY?
Trend following went through a lost decade (2011-19) if you count a positive but relatively low Sharpe as "lost."

Trend-Following: Why Now? A Macro Perspective
https://t.co/xwjWaQU6n7

The strategy did its job and diversified into the trends that happened, but markets just didn't trend very well during that period.

You Can't Always Trend When You Want
https://t.co/wMYgorLKA0

Even during during its "lost decade," an allocation to trend following improved the risk-adjusted returns of the 60/40 portfolio. Strategies need to be evaluated by the way they synergize with portfolios rather than as stand-alone line items.

Chasing Your Own Tail (Risk), Revisited
https://t.co/d4gi3RbhcV

CODA
Every time trend has a period of poor performance, I revisit these objections. I read to convince myself as much as anyone else.

A well-constructed portfolio will be diversified enough that fluctuations in any individual strategy will be hard to notice. Read the research, use as many strategies as possible, and ignore the line items. Happy compounding!

How do you maximize compound returns?
https://t.co/XYvkPyXdHo

[Greg Baker @arbseekerguy]

@egr_investor Ha! Nice article btw. I’ll have fun playing with the calculator

[Greg Baker @arbseekerguy]

@SowingAlphaSeed The systematic guys all say you can’t trend follow them because they’d trend follow themselves if it worked. It’s self-serving but I’m inclined to believe them.

[Greg Baker @arbseekerguy]

@cullenroche What is the proper distribution sequence? My simulations haven’t shown much difference between “take from buffer for first X years of retirement” and “take from buffer when equities down”. Best result was “take from buffer when portfolio value < starting value”.

[Greg Baker @arbseekerguy]

@svrnco If income is earned through mental skills, you’d expect IQ to correlate with income. If IQ is heritable, you’d expect rich kids to have higher IQ. If higher income potential is innate, it’s politically uncomfortable. If different populations have different IQ distributions……

[Greg Baker @arbseekerguy]

@GrumpierBTDay Good show Grumpy. What’s your portfolio volatility/ leverage like?

[Greg Baker @arbseekerguy]

@SowingAlphaSeed What do you think about shorting the top holdings of this ETF? Likely reduces your borrow significantly

[Greg Baker @arbseekerguy]

@ptuomov Do you think inflation is accurately priced? E.g 30 year CPI will run at 2.3%?

[Greg Baker @arbseekerguy]

@DadInvest Optimized CLAT. PPLI inside OCLAT is extra over powered.

[Greg Baker @arbseekerguy]

@SowingAlphaSeed @pansareV @systvest I compared BDMIX vs QMNIX. Low correlation ~.25, claim to use different strategies, and principal component analysis from testfolio showed different sources of price movement. Surprisingly not a ton of factor loading either. Same story with QQMNX

[Greg Baker @arbseekerguy]

@Quant_Morales Yes

[Greg Baker @arbseekerguy]

@bdkoepke @TaxAlphaInsider Is there a graceful solution for investors to exit at capital gains or is income distribution + run on the fund inevitable?

[Greg Baker @arbseekerguy]

@SowingAlphaSeed @frothyassets Understood! Running the numbers is brutal but family life > financial optimization.

[Greg Baker @arbseekerguy]

@NBISALLIN @JimChuong Roth conversion ladder, but spread out the conversions. A lot of ways to trip up as an early retiree like healthcare exchange subsidies phasing out if income too high.

[Greg Baker @arbseekerguy]

@Tanner_HL @HML_Compounder The mkt neutral funds have more factors than value. The weightings matter a lot too - sector neutral vs overweight cheap sectors. I’m also surprised the correlation between these mkt neutral funds is so low - idiosyncrasies going on.