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Meb Fabers' 3-Way system
Peter Bakker
posted Jul 1, 2015

How annoying to see a system that is incredibly simple and it works. Seems like my own systems are too complex, although most code is to catch exceptions....

Based on the post of Meb Faber on his blog on the 16th of June ( http://mebfaber.com/2015/06/16/three-way-model/ ) I made a quick implementation of his 3-way system.

Three asset classes: Stocks, bonds, gold.

Invest equally in whatever is going up (defined as 3 month SMA > 10
month SMA).

So, how can we improve this further? How can we isolate the Alpha for the fund without destroying the edge?

have fun,

Peter

9 responses
Yagnesh Desai
Jul 1, 2015

beta 0.06 and sharpe 1.35 it is already too good to be true.
This is what Q is really looking for.

These 3 assets are really very cool just holding them in equal amount over
long time gives +ve sharpe and very low beta.

Alex Argyros
Jan 16, 2016

Could you explain the rules? Specifically, is this system based on a monthly rebalancing period and, if, for example, only one asset class is showing a "buy," does one invest 100% in it, or only 33.3%?

Peter Bakker
Jan 18, 2016

100%

weight = 1.0/len(updown[updown==True]) if len(updown[updown==True])!=0 else 0.0

~ if the len of the updown array is unequal to zero then divide 1 by the count of the updows elements with True. If there are no elements in updown weight =0

Peter Bakker
Jan 18, 2016

and I made a more aggressive version of this algo:

Still lost 12.5% in 4 months so performs as abad as the market

Peter Bakker
Jan 18, 2016

out of sample performance (mine is a bit lower in real life as I suffer forex loss/profit)

Peter Bakker
Jan 18, 2016

http://peterwoolston.com/wp-content/uploads/2012/04/Hope-is-not-a-strategy1.jpg

Minh
Jan 18, 2016

Seems like most of the gains come from the 2008 dip and afterwards it does as well as buy and hold SPY.

Alex Argyros
Jan 18, 2016

Is a non leveraged strategy that keeps up with the market during a bull run so bad? I don't know of many that do.

Minh
Jan 19, 2016

Not complaining. I'll probably try it in my vanguard account to hedge myself. Great that it's so simple.

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