The Kahneman-Tversky portfolio is presently sitting with 100% in Cash after 1.65 Standard Deviation TSLO’s were hit on 4 October, shortly after the last review. The equity/performance graph looks like this:
As we can see from the above screenshot this is the second time this year that TSLO’s have hurt the performance of this portfolio when relying on monthly reviews. The black dashed lines with arrows show that, while out of the market and holding Cash, ~$1,000 has been missed, compared with holding the benchmark AOR fund, despite the stronger performance in the May-September period when VTI was held in the portfolio.
Let’s check current rankings and recommendations from the Dual Momentum model using the slower 252-day momentum lookback period (Kahneman portion of the portfolio):
where we see that the current recommendation is to hold VTI (US Equities). As a cross-check we’ll take a look at the rotations for this model:
where we see strong short-term momentum (moving up) for all assets relative to TLT but a weakening in relative strength on a longer term time scale (moving right to left). However, all assets are still sitting in the desirable top right quadrant of the graph.
Moving to the faster (Tversky) portion of the portfolio that uses our default 60- and 100-day momentum lookback periods the rankings/recommendations look like this:
and, again, suggest that we should hold VTI.
Cross-checking the rotation graphs for these parameters:
we see that medium term momentum is now rotating clockwise but that only VTI and AOR are showing more strength than TLT. However on a shorter term time scale momentum is still stronger than TLT.
Although it makes me a little nervous to buy VTI with US equities hitting a new all-time high on Friday I will follow the system and buy shares in VTI for both portions of the portfolio. Also, despite the bad experience with TSLO’s this year, and the feeling that I have that we may be out of sync in review-date timing, I will continue to use 1.65 SD TSLO’s for downside protection.