Asymmetry™ Global Tactical Rotation portfolios now available to wealth managers on Schwab Institutional, TD Ameritrade Institutional, Fidelity Institutional Wealth Services, Pershing Advisor Solutions

Posted by Mike Shell on April 18, 2012

With one of the strongest and longest running actual track records applying systems that pursue asymmetric returns, we have had a lot of interest from independent wealth managers. We have made our programs available on the institutional platforms used by wealth managers and are in the process of hiring advisers across the country that will work with wealth managers. 

We are pleased to announce that our Asymmetry™ managed accounts are now available to wealth managers who are independent registered investment advisors and custody accounts with:

  • Schwab Institutional + Schwab Advisor Services™
  • Fidelity Institutional Wealth Services®
  • TD Ameritrade Institutional
  • Pershing Advisor Solutions®

The Asymmetry Investment Program™ global tactical rotation and systematic trend following models are offered at different objectives and risk levels. 

Asymmetry™ R15

Asymmetry™ Global Tactical Rotation GTR 10

Asymmetry™ U.S. Sector Rotation 

Asymmetry™ U.S. Equity Trend Following

Asymmetry™ International Country Tactical ETF 

Asymmetry™ Global Trend Following

All agreements and compensation arrangements are negotiated entirely between the wealth management firm and Shell Capital Management, LLC.

For more details about the Asymmetry Investment Program™ managed accounts contact us. 

 

 

Directional Price Trends

Posted by Mike Shell on November 11, 2011

I think this is a good example that "a picture speaks a thousand words". While the human mind likes to hear the stories, which seem more exciting, we never really know if the story is accurate unless we have evidence afterwards. But if we define a upward trend in some simple way like higher highs and higher lows and a downtrend as lower highs and lower lows, then we can be pretty clear about defining the state of a thing. With that definition, I suppose you may be able to look at the chart below and determine a trend has been going on for some time. We don't need to have some theory why: It just is. In this case, it's the spread between diferent bonds rather than price, but it's still a trend.

click for PIIGS 10 year government bond spread .gif

 

Naturally, you may see this chart and what to know "why" the trends are what they are. Notice that I haven't told you what I believe the trends are- I believe we may all get the answer right if we've defined trend direction in a quantitative way. The creator of the chart, Chart of the Day, offers the following as an explanation of what may be causing the trend. They actually printed the explanation below first, then the chart showed the chart. I've presented it the opposite way to make my point. In fact, I haven't even read what's below because I don't feel I need to know the theory behind it all - I just know it is a trend and I prefer to be positioned in its direction and I wish to avoid being on the wrong side of it for too long. I can define all of those things quantitatively, so there is no need for qualitative subjective opinion about it that could be wrong. We can be pretty sure the chart above is objective and speaks for itself. 

All the European austerity and bailout plans have not managed to stem the European debt crisis. In fact, the severity of the crisis has only increased over time with Italy, the world's eighth largest and the euro zone's third largest economy, now becoming the latest European nation to likely require a bailout. Today's chart helps illustrate the risk of European debt by plotting out the 10-year government bond spread (versus the German Bund) for all the PIIGS (i.e. Portugal, Italy, Ireland, Greece, and Spain) from 2007 to the present. For example, the Greek 10-year government bond yield (light blue line) is currently a whopping 32.5 percentage points greater than that of the relatively stable German Bund. That is a far cry from where it was back in the summer of 2009. However, even more important is the status of Italy (dark blue line). Italy has €1.9 trillion ($2.6 trillion) of debt outstanding. This level of debt is greater than that of all the other PIIGS combined. Due to the severity of the situation, the European Central Bank may ultimately be forced to print a significant amount of euros – something they are very much ideologically opposed to doing.

Source: http://www.chartoftheday.com/20111111.htm?A

The Information Cascade: Is Trend Following the same as Herding?

Posted by Mike Shell on July 01, 2011

An information cascade is a growing group assessment of a situation where all members are uninformed of actual facts but form opinions based on the number of others who assert something to be true. Once this process has begun, people still undecided about the truth of the proposition in question view each new adherent as evidence of the proposition’s truth. People tend to believe certain theories about portfolio management and trading just because others do. The more others believe it, the more they think that means it's true. I once saw a group commenting about a active management research paper that was written with solid evidence supporting it.  But, the group members suggested it may have little value because it hadn't been widely cited or read. Yet, since most people don't do well at portfolio management as evidenced by their own performance history, you necessarily have to be doing something very different than the majority if you are to be in the small group who do well. We could say the same for investors choosing a money manager. Some of the first questions they'll ask is "How much money do you manage" or "How many clients do you have" as if that's any measure of skill or probability of success. Yet, what if the really great money managers trade mainly for themselves and a few others, so they don't need to manage billions for other people? Many people lost a lot of money the past several years but they seem to feel better about it as long as they thing others did, too. You can probably see how this cascade leads to the path to mediocrity. And, mediocrity is often found in large clusters.

An information cascade occurs when people observe the actions of others and then make the same choice that the others have made, independently of their own private information signals. Because it is sometimes sensible to do what other people are doing, the phenomenon is assumed to be the result of rational choice. Nevertheless, information cascades can sometimes lead to an arbitrary or even erroneous decision.

Following the crowd can be the rational choice at first, but become irrational at some point. For example, If you are in a room and everyone is running out frantically, it may be the best choice to assume they are on to something that you aren't yet aware of. As you initially run with them and realize the building is on fire. You notice they are jumping out of a window from the fifth floor and you see an EXIT sign out a door that's not on fire, you may want to part from the herd.

To some extent, it can be rational to follow the crowd, it's when the cascade has gone too long or too far that signals high emotion is involved and at some point it reverses. It may be best to follow the cascade then change direction when it reverses.

A good trend follower will roll with the crowd when it's the rational choice and part from them when it isn't. That is the distinction. 

Now, you could also call yourself a trend follower if you stay with the price trend and ride it all the time - staying "fully invested". Trend following as a strategy is a system that increases and decreases the exposure to the possibility of loss. It's the getting off point that makes the distinction between good and bad. It's the exit, not the entry, that always determines the outcome. 

Trend Commandments by Michael Covel

Posted by Mike Shell on June 30, 2011

I just finished reading Michael Covel's latest book Trend Commandments and it's a great follow up to his previous books. Mike is also the author of two outstanding books written about trend following: Trend Following and The Complete Turtle Trader. I've read more than 500 portfolio management/trading books that I've ordered from Amazon alone, so I can tell you Covel's are strong trending outliers. Trend Commandments is a collection of essential beliefs shared by systematic trend followers, including myself. It was nice to see "Mike Shell" in the acknowledgements. If you pursue an asymmetric risk/reward profile: a positive mathematical expectation where profits are imbalanced over losses, Covel's trend following writings are the right direction. Once you get in the right direction, keep going...

trend commandments.jpg

Source: www.michaelcovel.com 

Here is a glimpe of what you'll find in the book (from the "Cheat Sheet" in the back):

Profit in up and down markets: Trend following doesn’t swear an allegiance to a bull or bear market. It follows trends to the end. No matter how ridiculous trends might appear early and no matter how insanely extended they might appear at the end, follow trends. Why? They always go farther than anyone expects. Ignore momentum at your peril.

No more buy and hold, analysts, or news: Trend following decision-making doesn’t involve discretion, guesses, gut feelings, or hunches. It’s not day trading or buy and hope. It doesn’t involve passive indexing, in and out trading, or fundamental analysis. No more 24-hour news cycles, daily turbulence, or sensational hype. No black boxes or magic formulas either. Let go of the Holy Grails.

No prediction: Trends exist everywhere, always coming and always going. Markets are no different: They trend up and down. That said, no one can predict a market trend, you can only react to one. Trend following never anticipates the beginning or end of a trend. It only acts when the trend changes. There is no need to figure out why a market is trending, just follow it. You don’t need to understand electricity to use it.

The big money of letting profits run: Trend following at its best aims to compound absolute returns. It doesn't shoot for average. The goal is to make the knock your socks off returns, not passbook savings interest. Trend following also has the unique ability to lie and wait for targets of opportunity. That means making a killing on unpredictable surprises.

Risk management is top priority: Trend following always has defined exit protocols to control injury to your account. Stop losses and proper leverage usage are standard practice. Trend following also has low to negative correlations with most other investment opportunities.

Takes advantage of mass psychology: Trend following takes advantage of panicky sheep behavior. Strict discipline minimizes behavioral biases. It solves the eagerness to realize gains and reluctance to crystallize losses. Too many people believe what pleases them. Most behaviors are simply driven by the impulsive moment of now. Trend following wins because of that.

Scientific approach to trading: Trend following doesn’t require a belief, but rather it relies on unwavering scientific principles. It has a defined edge just like the MIT card-counting team that beat Vegas casinos. Be the casino, not the hapless player. Trend following uses rigid rules rooted in numbers. Think process not outcome. Remember, frequency of correctness is not the issue, the magnitude of correctness matters. Winning percentage means zilch.

Strong historical performance in crisis periods: Trend following is adaptable to differing climates and environments performing best during periods of rising volatility and uncertainty. The unknown will happen again. Are you ready? You have to be able to ride the bucking bronco. Ride out the storm and stay alive.

No traditional diversification: Trend following is not restricted to any single market or instrument. A focus on price action allows trend following to be applied to an exceptionally large variety of markets. Price is the one thing that all markets have in common. A trend trading system for Treasury Bonds should also work on the Euro and stocks. Trend following is robust.

No government reliance: Forget Social Security, bailouts, stimulus plans, and roads to nowhere. Those won’t help you to make money; they only help you lose. When the Fed puts on or takes off the training wheels (read: rate manipulation), will you be ready to mint cash or will you sit there and just take it again? If your portfolio is grounded in sound principles, you can win no matter what happens. 

Source: Covel, Michael W. (2011). Trend Commandments: Trading for Exceptional Returns, FT Press. 

 

Trend Commandments speaks the truth

Posted by Mike Shell on June 24, 2011

A great truth from Trend Commandments:

For the last 30 years, there has been a sophisticated marketing campaign, boosted by an even more sophisticated political lobbying campaign, all designed to convince everyone attached to the matrix that they could do no better than guessing or throwing darts, so in turn just “invest all of your money in mutual funds and hold on for the long term” (long term is never usefully defined of course; it could be your death). For a man who has the numbers against him, Fama remains defiant in the face of his intellectual defeat. Recently he was asked this question about technical trading (read: trend following): “Some researchers argue that a market-timing strategy based on buy/sell signals generated by a 50- or 200-day moving average offers a more appealing combination of risk and return than a buy-and-hold approach. What is your view?” Fama responded: “An ancient tale with no empirical support.” Clearly, Fama has no answer for the reality of trend following performance. He would rather commit Seppuku—a form of Japanese ritual suicide—than admit an error. He would rather die with honor than fall into the hands of superior market wisdom.6 Having lived through the financial crisis of 2007–08, the man in the street knows markets are not efficient. But the Efficient-Market Hypothesis, like a Hollywood monster, has proved very hard to kill off.7

Fortunately for you, there is a way out. There is inspiration. The great trend followers are not academics, magicians, charlatans, or pedigreed investment bankers. They are self-starter entrepreneurs who, through concentration, drive, and fierce independent streaks, have cultivated that rare knowledge to mint money. Trend following proves daily that the Efficient-Markets Hypothesis has more in common with Scientology, versus any useful trading enlightenment. Understand the comparisons made herein. It’s all part of you interpreting the puzzle.

 

Source: Covel, Michael W. (2011). Trend Commandments: Trading for Exceptional Returns (Kindle Locations 1197-1200). FT Press. Kindle Edition.