- Hardcover: 240 pages
- Publisher: McGraw-Hill Education; 1 edition (October 31, 2014)
- Language: English
- ISBN-10: 0071849440
- ISBN-13: 978-0071849449
- Product Dimensions: 6.2 x 0.9 x 9.2 inches
- Shipping Weight: 1 pounds (View shipping rates and policies)
- Average Customer Review: 332 customer reviews
- Amazon Best Sellers Rank: #131,249 in Books (See Top 100 in Books)
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Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk 1st Edition
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"I ran the numbers for this strategy myself and they are quite impressive. The back-test makes sense, as do the behavioral reasons for the momentum factor." - A Wealth of Common Sense
"Gary Antonacci's Dual Momentum Investing provides both a fantastic introduction to momentum investing, as well as a sophisticated discussion of and an approach to achieving risk-managed exposure to the anomaly across asset classes." - Alpha Architect
"Antonacci's extensive research and his clear-headed thinking have led to a book that every investor should read...The practically oriented investor will find a road map for moving ahead and staying out of really big trouble." - Reading the Markets
From the Inside Flap
After examining more than two-hundred years of data across dozens of markets and asset classes, the conclusion is clear: Momentum continually outperforms. However, most investors haven't had a way to fully discover and implement momentum investing .. . until now! Whether you're an independent investor, investment professional, or money manager, Dual Momentum Investing enables you to consistently profit from major changes in relative strength and market trend.
Based on the award-winning work of Gary Antonacci, an expert in modern portfolio theory and systems development, this groundbreaking guide presents an easy-to-understand, straightforward model that transforms momentum concepts into an actionable investing strategy called Global Equity Momentum (GEM). By combining relative-strength and absolute momentum, this unique methodology lets you take advantage of market trends while avoiding large drawdowns. A disciplined implementation of this proven strategy enhances the ability of every investor to:
* Lock in profits and mitigate risk with a minimal number of switches per year among U.S. equities, non-U.S. equities, and bonds
* Establish meaningful control over investment risk once an asset's value begins to decline
* Remove emotional and behavioral biases from your decision-making,while taking advantage of these same biases in others to achieve exceptional expected returns
Each facet of GEM is explained in simple clarity using supporting theory, historical analysis, and understandable data. Pragmatic techniques come to life with real-world relevance that both deepens your understanding of why dual momentum works and better prepares you for using it yourself. From picking a brokerage firm, to making asset choices, to customizing your strategy as you near retirement--this reliable guide helps you do it all with the confidence you'll gain through repeated success.
You put a lot into earning your wealth, now take the nextstep with Dual Momentum Investing and properly protect it while it's working for you.
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However, this strategy is not without it's fair share of detractors. Browse through any online forum regarding this strategy and you will find passionate opposition. Probably the most consistent argument against it is that since the strategy is based on back-testing, there is no way to guarantee it's continued effect going forward and, in fact, it's effect is likely to be arbitraged away as more people adopt the strategy. People also distrust it's logic, arguing that it is built upon a shaky foundation of dependency upon investor psychology. I actually think both of these critiques widely miss the point and I will provide another explanation of not only why this works, but why it MUST work based on mathematical facts. The reasons for this are basic and involve the wisdom of preservation of capital.
The absolute momentum criteria effectively establishes a protective stop on the equity investment. The strategy has defined a maximum loss you'll take in the position. This works very advantageously in DM because you are using a market index. This is because the entire market essentially has a zero chance of gapping down, unlike an individual stock. A visual analogy: If you are at the top of a stair case made up of 10 stairs, you cannot jump all the way down to the bottom stair, you must step on each one on the way down. Therefore, if you decide to pull out of the market after you have lost 3%, 5% etc. (or whatever the strategy defines), you entirely eliminate the possibility of going to the bottom of the losses, because you know that in order to lose 30%, you must first go through 3%, 5% etc. Thus, the signal is reliable. This is very desirable when you consider some sobering facts. Here are mathematical certainties for recovery after drawdowns just to get back to even. I was unsure how a table would format when submitted, so I have presented the data as number pairs in each bracket. The first number in each bracket is the drawdown of your portfolio, the second number in each bracket is how much the portfolio has to increase to get back to even.
(5% : 5.3%) (10% : 11.1%) (15% : 17.6%) (20% : 25%) (25% : 33%) (30% : 42.9%) (40% : 66.7%) (50% : 100%) (60% : 150%) (75% : 300%) (90% : 900%)
Notice that as the drawdown gets larger, the amount required to return to even increases even larger. For example, by the time you have a drawdown of 50%, you must then have an increase of 100% just to get back to where you started. Consider that the S&P 500 has returned an average of right at about 10% a year, including dividends, from 1900 through 2014. This seems like a decent return, however, this number can be misleading. If you think that translates to just putting money in the S&P 500 Index and watching it double about every 10 years, you are in for a big disappointment. There are some losing years in between the winning years.
A market correction is defined as a 10% drop in price and a bear market is defined as a 20% drop. Since 1900 there has been an average of 1 correction/year and 1 bear market/3.5 years. The average correction lasts for 10 months and the average bear market lasts 15 months with an average 32% loss. If we look at the data above, we see that an "average bear market" requires the stock market to grow around 42.9% to recover losses. Considering that the average growth is only around 10% a year, you could be waiting a while to recover your losses. In fact, it took until around 2013 to reach the same price that the market was at in 2000. Indexes are not as volatile as individual stocks and there are not many days that the entire market moves more than 2%. Therefore, it is on average, big and slow.
If you exit equities before they get to their lowest price, then you will not have to recover such an enormous amount to return to even. If you lost only 5%, then you would only have to gain 5.3% to get back even. This could be relatively quickly (compared to bear market recovery), depending on the environment, and you could be back in positive territory with your portfolio, while someone else who lost 30% or more is still far from breaking even. Because of these facts, it is no surprise that DM outperformed the S&P index handily in back-testing and should going forward. Notice that this mechanism does not even require mention of investor psychology or arbitrage.
One counterargument is the whipsaw. Yes, there WILL be some whipsawing with this strategy. However, in that situation, since the index moves relatively slow as we have discussed, the expected loss would be small, somewhere around the 5% or lower range, and this can be recovered easily. Only in a scenario in which the market becomes as volatile as an individual stock would this not happen. This is highly unlikely to occur, barring a tragic event (like the collapse of the U.S.A.), since the diversity afforded from hundreds or thousands of stocks in an index will smooth out any large price swings (Black Monday is the freakish outlier here). Again, the benefit from avoiding a large drawdown on the order of 30% or more, greatly outweighs the risks of having some small, easily recoverable losses from an occasional whipsaw.
Another counterargument can be that it is impossible to predict the future and therefore it may be that there will be no more large decreases of the market index over 20% (i.e. no more bear markets). From a theoretical perspective this is indeed a possibility, although in the real world this is extremely unlikely to the point of being absurd. We must expect that there will be bear markets, and if we don't participate in them, then we will avoid the devastation that a large drawdown has on our portfolio. Tax costs and commissions could also arguably decrease losses. That could contribute depending on where you trade, however, in my case I execute DM only in tax-deferred accounts and using Vanguard ETFs in a Vanguard account, which has $0 commissions.
In summary, I think this strategy works and does not require theoretical, questionable arguments to explain why. However, for it to work you have to faithfully evaluate every month without fail and spastically jerk your money out of the market if you get the signal. There can be no emotion about this. Yes, there will be some whipsaws but you WILL skip out on bear markets. I highly recommend reading the book. It gathers a lot of great info and research into one place.
Gary does a great job explaining the overall inveting landscape and evaluating the two main anomalies: value and momentum.
In my own experience I have also found that momentum is critical to the overall success of investment strategies and that without momentum value only strategies have a number of problems. What Gary does however, is to provide a great overview of these two approaches (value and momentum) providing a wealth of interesting data. He also does a fabulous job reviewing the overall investing landscape particularly as it pertains to the individual investor. Having said all of that, what makes this book so useful is that Gary provides the reader with step by step instructions to implement his momentum based system using very liquid ETFs. Everything one needs to achieve the results he discusses is provided in the book.
One of the complaints I see often in the reviews of investment books is that there are never any clear instructions on how to generate the results discussed in the book. That is definitely not an issue here.
Having read the vast majority of investment books for the individual investor and quite a few of those for a professional audience I truly believe that this is the best of the best for the individual investor by a wide margin. That includes many of those books considered "classics". Gary's model is very simple but its results are absolutely brilliant. I have seen much more complex systems that don't generate anywhere near the returns as his basic GEM model does. So, if you are an individual investor who has been looking for a way to invest that will demolish 99% of the best money managers while taking less risk than the overall market get this book now!
I can' recommend it highly enough.
Takeaways from the book:
- Book is divided into 10 chapters with 150 pages in total
- Dual momentum is a combination of relative strength and trend-following methods
- Author has MBA from Harvard B-school and is an ex-money manager
- Chapter 1, 2 and 3 go into the background and history of Index funds, Stats and Modern Portfolio Theory - Nothing stands out in these chapters
- Chapter 4, and 5 take the reader into the world of momentum, asset selection - Slightly pedantic and the reader has to work through these chapters for the money section
- Chapter 6 and 7 set the stage for the concept of Smart Beta and Risk management
- Chapter 8 and 9 are the core part of the book and provide the true value of investing in this book, I don’t want to reveal the secret sauce that author has distilled from his “pracademic” work and would recommend you get a copy of this valuable book
- Overall, I feel that this book was a great investment in our portfolio. I have been practicing his method for the last 6 months and have been keeping up with the market
- I had lot of execution doubts that I wrote to the author, through his personal site, and he responded within 24 hours with good answers