Two Portfolios - One Mechanical System - A Trend-following Diary

[Trendnomics]

Using Esuperfund's nifty reporting features (for SMSF Portfolio):

 

[Wyatt]

Really appreciate you sharing that TN. Over a similar period to what you have graphed my open+closed equity curve is of remarkably similar shape, but went deeper into DD after the July/Aug 2016 high (may have to go looking to see what difference dividends makes though). In fact that DD prompted more work on exits in my weekly systems, which was hopefully robust rather than fitted. Very helpful to see how another trend follower has gone over this longer period - your info gives me more hope those tweaks were reasonable, as the expected improvement was in line with your graphs.

What is your starting date for performance returns off the left of these graphs? From memory and thread it was about 2013 you started?

This sort of specific information tends to be rare on forums. I think you're succeeding in doing what you originally said you'd do - giving back to the ASF community. One of the big questions new traders have is "how much could I earn", and you're showing what is feasible after what was no doubt many years of learning and hard work.

Hi Newt,
Fwiw, I have thrown in a chart of my own. Looks like the trend following systems we are comparing here are similar in their reaction to the vagaries of the market at any particular time. The movement of money collectively into a broad group of stocks, leading to longer term trends, seems occurs at the same time (at least for peeps following the XAO) and hence the similar performance curves, despite variations in portfolio holdings over time. At other times trend following (and mean reversion) performance wallows around aimlessly with no direction, with players torn between following their system and trying to avoid the unseen uppercuts, waiting for the momentum/money to return.

Which of course leads to the question of how best to time when to be in and when to be out of the market, the ultimate indicator if you will. It is not a simple index MA as performance in various sectors
can come at any time. Despite the saying that the best stocks go in your favour straight away, a close stop loss does not seem to improve performance.

Maybe the return of Trendnomics to the forum is such an indicator!

 

[Newt]

Hi Wyatt

Thanks for sharing. I agree what we're almost certainly seeing is similar long only ASX systems (i.e. stocks with new highs or near new highs with strong existing trend?) giving similar equity curves in certain market regimes. I have a preference to staying in All Ords, but often go a bit further out into fully paid ordinary shares as long as those positions are in minority and treated as higher risk.
Peter2 has previously commented in his threads that large, mid and small caps can often be moving differently (including not moving at all). The Oct 15 through Aug 16 period certainly seemed to coincide with the Small Ords and Emerging Companies trending much more strongly than the ASX200.

My reading and experience leads to me to believe it is very difficult to add value with market regime filters. It would be fantastic if we knew when to "go nuts", but the reality is you probably have to stay in the game consistently never knowing when the good and bad periods will be. Again, I've watched Peter2 use his market filter to modulate risk rather than as a "kill switch", which seems to make a lot of sense.

Trendnomics has commented before on his preference to avoid filters that minimise drawdown where that also (generally) reduces long term returns. Everyone probably has their own level of acceptable risk in this regard.

 

[Trendnomics]

Which of course leads to the question of how best to time when to be in and when to be out of the market, the ultimate indicator if you will. It is not a simple index MA as performance in various sectors
can come at any time. Despite the saying that the best stocks go in your favour straight away, a close stop loss does not seem to improve performance.

Maybe the return of Trendnomics to the forum is such an indicator!

"Ultimate" indicator = Holy Grail = Impossible.

Possible =

• Stay invested and churn as much as possible - keep planting the seeds for the future harvest.
  
• Work on your trading psychology, to avoid acting like a chimp when the inevitable draw-downs come (google: "loss aversion").
  
• Enjoy the ride to financial freedom.
• Don't apply The "Trendnomics" indicator .

 

[Trendnomics]

New all time equity highs reached (as at market close 12/10/17):

Private Portfolio: +75.57 % (+13.54 % PA)

SMSF Portfolio: +89.29 % (+16.32 % PA)

 

[Trendnomics]

Returns as at recent close:

Private Portfolio


SMSF Portfolio

 

[Trendnomics]

SMSF portfolio percentage return hit triple figures this week.

SMSF Portfolio: +101.29%

 

[Trendnomics]

Quick update:

Private Portfolio: +122.64 %

SMSF Portfolio: +127.02 %

 

[willy1111]

Hi @Trendnomics,

Appreciate the effort you have made for this thread.

Clearly you are doing well and producing a healthy profit/gain.

Curious to know how you handle the tax side of things for your private portfolio if it is not too personal to share.

Ie do you treat yourself as a share trader or investor for tax purposes? And perhaps just trim a bit off each position when the yearly tax bill is due inorder to pay it or just sell off one or two positions to raise the cash to pay the piper?

 

[Trendnomics]

Hi @Trendnomics,

Appreciate the effort you have made for this thread.

Clearly you are doing well and producing a healthy profit/gain.

Curious to know how you handle the tax side of things for your private portfolio if it is not too personal to share.

Ie do you treat yourself as a share trader or investor for tax purposes? And perhaps just trim a bit off each position when the yearly tax bill is due inorder to pay it or just sell off one or two positions to raise the cash to pay the piper?

Tax is done as a standard investor (CGT discount advantage), with the following mitigations:

1. Tax has always been paid from my savings not the portfolio (specially set aside over the FY) - to avoid compounding reduction;
2. Tax credits from dividends provide some reprieve (10.2% of my profits are from dividends, which are essentially tax free);
3. CGT discount (in general) provides some reprieve;
   
4. CGT discount applied by hedging certain positions (to honour the system's exits - new position capital raised from savings), dependent on: profit %, days till 1 year holding period, current FY profit/loss, short borrow costs, margin requirements, dividend record dates, FY tax rate (I'm a contractor).

Longer term trading is certainly more tax efficient - see your accountant for accurate advice.

 

[willy1111]

I like your way of trading/investing @Trendnomics .

Yes I would have to agree from my own analysis long term investing means gains go unrealised for longer delaying having to pay tax for longer means less drag from tax on the account, whilst you may have used savings to pay tax in the past eventually the portfolio realised gains will be so large you will need to use gains to pay taxes. And of course the CGT discount is brilliant, I guess you won't be voting Labour (nor will I) as they want to reduce the CGT discount to 25%.

It would appear your personal portfolio would generate around 35 trades/cgt events per year, would that be right? Any concerns by you or your Accountant as to the level of trades per year that may tip you from investor to share trader in the eyes of the ato?

 

[Trendnomics]

Quick update (at close today):

Private Portfolio: +124.17 %

SMSF Portfolio: +162.32 %

 

[Trendnomics]

Any concerns by you or your Accountant as to the level of trades per year that may tip you from investor to share trader in the eyes of the ato?

BELOW NOT ADVICE:

Nope. The onus of proof for being a trader is on the taxpayer not the ATO. All relevant case laws (to my knowledge) were related to the taxpayer trying to claim that business share trading activities were conducted (to allow for greater deductions - including income offsets from losses) - not the other way around.

Extract from ATO site: "A person who invests in shares as a shareholder (rather than a share trader) does so with the intention of earning income from dividends and receipts, but is not carrying on business activities." - my intention is to earn income from dividends (I collect a large amount of dividends each year as shown on my tax returns) - capital gains is only a by-product.

 

[Newt]

Hi Trendnomics

Just re-reading your thread. So much of what you've written rings true. Its one of life's ironies that you can be given advice, but never really understand or value it until you've suffered through the same issue (but hopefully recognised it a bit sooner!).

I've been trading a systematic weekly trend following system since late 2015 with some changes along the way. Thinking back I've realised your posts here were often thought provoking and helped me improve some of my entry and exit rules, hopefully still in a robust systematic way.

Do keeping posting and sharing please. There aren't many here that are regularly sharing their TF journey.

 

[Trendnomics]

Hey Newt,

Thanks for your post. Business as usual (still outperforming the index with ease) - graphs per today's open profits:

Private


Super


October was a terrible month, with the worst ever (in % and $$) peak-to-trough draw downs occurring (Private = -27% / Super= -23%). Subsequently, I ended up in 75% cash in December (highest cash ratio ever).

In contrast, 2019 has been very kind to the portfolios, with almost a full draw down recovery.

October's pain did spur me into completing my own custom index (as with all things, including my indicators, I only use my own custom codes).

My index tracks the number of equities (in %) that are exhibiting positive trends:


I'm hoping to apply this index to my system to act as a filter to avoid a repeating "October". In introspection, the push to finalise this index after suffering the worst ever draw downs, is somewhat of an emotional reaction. I believe it was a productive and positive reaction, rather than destructive and negative (common reaction: take system offline in December because it's "broken").

I'm still working on integrating this index, thus far I have not found the best application. What was of interest during back-testing, is the variation in expectancy distribution per trade, as the index oscillated between extremes.

Still no changes to my system in ~6 years - but maybe my index will provide a change - alternatively I'll just keep trading through the draw-downs (acceptance similar to that of ocean tides).

 

[Newt]

Bit of a dilemma for trend followers - how to build in what you learn over the years, without succumbing to constant tinkering. Not sure I have the answer!

Re your comments on last 6 months, Oct through Nov smashed all of my open profits, with the system going to about 70% cash - which hasn't happened in backtesting since 2011.

Not sure I would have had the focus to be fully reinvested through into Feb this year if it wasn't for Skate's thread and comments. Good to see your harvesting the trends this year and near new equity highs, and thanks for the update!

 

[investtrader]

Ahh...constantly tinkering. Yes, this is also my constant struggle to try to remain true to the system. But I look at it like a business, you must continually assess what you are doing, what is working, are there better ideas but always having the same purpose - join established trends and ride them until just after they end.

 

[kid hustlr]

Very nice trend!

can you post performance since the start of journey (2013 I think it was) I just think it gives a more complete picture of return.

You must have big stone to handle that drawdown that fast!

 

[Trendnomics]

Quick update (at close Friday):

Private Portfolio: +183.39 %

SMSF Portfolio: +290.3 %

 

[investtrader]

Trendonomics,
What do you attribute the difference in performance to? Assuming it is the same system.