Last Month's Best Fund Method Strategy

[Greg]

A friend told me about a TSP-fund IFT-strategy that someone else (person B) told him about. Person B said it performed 5 or 6 times better than any other strategy that he analyzed.

It is a very simple strategy. It consists of: at the beginning of each month IFT into the fund that performed the best the previous month (i.e., at beginning of July IFT into the fund that performed the best during June.)

I back-tested it for the years 2001 thru 2007 (2001 was the first year with all 5 funds.)
Using this strategy over those 7 years gave a return of 114%.
Staying in the I-fund the same years returned 74%.
The S-fund returned 69%.
The F-fund returned 49%.
The G-fund returned 38%.
The C-fund returned 25%.

Supposedly, person B has been using this strategy for several years with success. It seems too simple. But I can see why it would work. And it does take the emotions out of IFTing and it would fit in any restricted-IFT rules that they throw at us.

This strategy could also be back-tested all the way back to the beginning to TSP using the G, F, C funds. I haven't done that yet.

Also, staying in a fund (that performed best the previous year) all year seems to be a very good strategy too.

Of course, all of this is taking the multi-year view.

Attached is the Excel worksheet that I used.

[squalebear]

Information we can all use ! Thanks so much !

Back Testing during a Bull Market looked great.
I wonder if it will hold true since the TSP began.
Are you going to Test further. If so, I can't wait
to see the results. Again, Thanks A Million !
:)

[Greg]

2001 and 2002 were bear market years.

After the first 3 months of this year, this method is up 0.8% while all 3 of the stock funds were down 9.0%

[squalebear]

2001 and 2002 were bear market years.

After the first 3 months of this year, this method is up 0.8% while all 3 of the stock funds were down 9.0%

Totaly Cool Stuff, Thanks

[Braveheart]

OK THX for the Info: So what Fund is the best for April based upon March the only Fund was the F Fund that performed well is had the highest % gain. Is that the pattern you are looking at.

In March the I Fund was up but % goes to the F Fund.

[Greg]

OK THX for the Info: So what Fund is the best for April based upon March the only Fund was the F Fund that performed well is had the highest % gain. Is that the pattern you are looking at.

In March the I Fund was up but % goes to the F Fund.

The March indicator is really a tie. G was 0.32% and F was 0.33%. Technically it should be the F-fund.

[nasa1974]

Very interesting! Something to track for a little bit and try and get a warm fuzzy. Thanks for the information.

[squalebear]

Very interesting! Something to track for a little bit and try and get a warm fuzzy. Thanks for the information.

Greg's Avitar is warm and fuzzy ! I'll be looking into this a bit as well.
Keep us posted on this endevor, It sounds profitable !
:toung:

[nasa1974]

Greg's Avitar is warm and fuzzy ! I'll be looking into this a bit as well.
Keep us posted on this endevor, It sounds profitable !
:toung:

Sounds almost too simple. Would be interested in some of the other top movers input. Squalebear Have a good day.

[squalebear]

Sounds almost too simple. Would be interested in some of the other top movers input. Squalebear Have a good day.

I agree, warm & fuzzy is never simple. I look forward to seeing others imput as well. ;)

[RPM]

Attached is the Excel worksheet that I used.



Thank you for the analysis. I am sure if we look hard enough, we'll know why it works, and the reason will make it less "simple"

Although I really like the simplicity of this approach. Would appreciate getting the info if you do back test to the beginning of TSP.

TIA

[malyla]

Thank you for the analysis. I am sure if we look hard enough, we'll know why it works, and the reason will make it less "simple"

Although I really like the simplicity of this approach. Would appreciate getting the info if you do back test to the beginning of TSP.

TIA

Just tested this method from Jun 03 to present (share prices inception). As a buy and holder with 85%C and 15%S starting in Jun 03 I would be about 54% gain on my initial investment on Jun 2003. As of today, I'm really only 44% gain on my initial investment of Jun 2003 due to some bad I fund/G fund timing with transfers. (I track both my buy&hold and trading strategies). The last month best fund method at first did not look like it was going to work as the 2003-2005 showed that I was missing massive gains by looking to the last month best fund, but after finishing the whole spreadsheet (using Tom's) with some adjustment to federal paydays as the start or end of a month to initiate a transfer, the following conclusion jumps out. I would be up 128% on my Jun 2003 investment if I had followed this 'last month best fund' method. And my current balance would be almost double what I have now.

Why has no one (TSP, employer, etc...) ever mentioned this before? The last 4 months would have been made mute as this method had us out of stocks during the big drop from Dec 07 - present. Also missed the drops in March-April 2004, June-July 2006, July 2007. Missed some gains as well (Oct 2003, May 2004, Aug-Sept 2004, Feb 2005, May 2005, Nov 2005, Mar 2006, Aug 2006, March 2007,and Aug 2007), but it's the drops that affect the rate of return the most.

Very interesting. I do appreciate all that this website has taught me and look forward to more illuminating ideas and methods.

Good luck all. Currently 100% G.

malyla

[nasa1974]

If I understand the concept of the "last month best fund method" you move whatever % you are comfortable with (to maximize your profits it would be 100%) into the fund that had the best record at the end of the previous month (April as an example) and stay in that fund for the month (May). Then look at May's numbers and repeat.

[Greg]

Just tested this method from Jun 03 to present

I think this method was most impressive during 2001 and 2002.

In 2001, this method was up 5.1% while all 3 stock funds were down (C = -11.94 , S = -9.04 , I = -21.94 ).

In 2002, this method was down a little ( -1.2%) while all 3 stock fund were down a lot (C = -22.05, S = -18.14, I = -15.98 ).

[malyla]

Just tested this method from Jun 03 to present (share prices inception). As a buy and holder with 85%C and 15%S starting in Jun 03 I would be about 54% gain on my initial investment on Jun 2003. As of today, I'm really only 44% gain on my initial investment of Jun 2003 due to some bad I fund/G fund timing with transfers. (I track both my buy&hold and trading strategies). The last month best fund method at first did not look like it was going to work as the 2003-2005 showed that I was missing massive gains by looking to the last month best fund, but after finishing the whole spreadsheet (using Tom's) with some adjustment to federal paydays as the start or end of a month to initiate a transfer, the following conclusion jumps out. I would be up 128% on my Jun 2003 investment if I had followed this 'last month best fund' method. And my current balance would be almost double what I have now.

Why has no one (TSP, employer, etc...) ever mentioned this before? The last 4 months would have been made mute as this method had us out of stocks during the big drop from Dec 07 - present. Also missed the drops in March-April 2004, June-July 2006, July 2007. Missed some gains as well (Oct 2003, May 2004, Aug-Sept 2004, Feb 2005, May 2005, Nov 2005, Mar 2006, Aug 2006, March 2007,and Aug 2007), but it's the drops that affect the rate of return the most.

Very interesting. I do appreciate all that this website has taught me and look forward to more illuminating ideas and methods.

Good luck all. Currently 100% G.

malyla


That is correct(from a quick check of 2000-2002). I used the method of picking the last month's best fund for the beginning of the new month. I used 100% transfers. I compared it to my buy and hold (85%C 15%S) and was amazed. B&H 54% since Jun 2003 compared to 'last month best fund' 128% since Jun 2003. I will continue to track my two methods plus this one for awhile before I make a choice.

[nasa1974]

Well I have two weeks to better understand the concept. If I understand it better I will give it a try starting in May. Of course I will keep 50% in "G" just to play it safe. I would like to retire in 4 years and can not afford to be to agressive. YET! :D

[Greg]

I am sure if we look hard enough, we'll know why it works, and the reason will make it less "simple"


It's very simple why this works, it indicates how the different funds are trending.

There has to be a slightly better indicator than the end of a calendar month. I'm hoping someone here comes up with it. But without the odd-ball corrections that people add to the back-testing but never work in the future.

Would appreciate getting the info if you do back test to the beginning of TSP.


I hope others will do their own independent numbers to verify my figuring. But I ran the numbers for 1988 thru 2000 when there was only the G, F, and C fund.

First the good news. During this 13 year period, this method would have returned 278% while the F-fund would have returned 172% and the G-fund would have returned 148%.

The bad news is that during those 13 years, the C-fund returned 608%. The C-fund had 20-30-something-% returns for at least half those years.

You can't get greedy with this method.

[Greg]

Well I have two weeks to better understand the concept. If I understand it better I will give it a try starting in May. Of course I will keep 50% in "G" just to play it safe. I would like to retire in 4 years and can not afford to be to aggressive. YET! :D

This strategy is good only as a multi-year approach. It will be a "dog" some months and even some years. (Just like Ebb's method could be a good multi-year strategy but it just been down for the last 6 months and it's going roar back and finish the year at 30% or maybe next year).

I think this method can be improved.

I think this method is kinda like what Ebb was doing, but he was trying to indicate when to jump in/out from date to date (and had complicated rules that only worked during back-testing).

[Bullishreturn]

1. "The trend is your friend" is a very, very old maxim to live by.

2. Theorys abound. Greatly.

3. Past performance is no guarentee of future results, and

4. I'll look at setting up an autotracker account with that theory in mind, if someone wants to become the "owner" of that theory, and post it up, and maintain it- so that we all can watch for a while.

Anybody want to take responsibility for this? (Requires a LONG term commitment).

[camper65]

Rule #1, (For my self only)
The Market goes up, the market goes down,
or to put it in other terms,
the market goes up, AND the market goes down!

[Asylum]

Will this work with any 30 day period?

say from the 15th to the 15th of the month?

[Greg]

4. I'll look at setting up an autotracker account with that theory in mind, if someone wants to become the "owner" of that theory, and post it up, and maintain it- so that we all can watch for a while.

Anybody want to take responsibility for this? (Requires a LONG term commitment).

I'll volunteer (I'm only 15 minutes from the Tennessee state-line.)

There will be a 2 day gap using this method. I will calculate the fund % COB-last-day-of-the-month. Autotracker enter the IFT (if any) and it takes effect COB-fist-day-of-the-month.

Can we start it in the autotracker back to the beginning of the year?

[malyla]

I performed a more rigorous analysis ( and eliminated a mistake from my last post) and came up with the following:

Assuming an IFT made COB on the first of each month:

Jun -Dec 2003 results = 20.29% (assumes initial 100% C for Jun, then 100% I in July, 100% S in Aug-Sep, 100% F in Oct, 100% S in Nov, 100% I in Dec)
Jun - Dec 2003 fund results =(G fund = 2%; F = -1.3%; C = 11.6%; S = 23.7%; I = 22.3%)

Jan - Dec 2004 results = 13.3%
Jan - Dec 2004 fund results =(G fund = 4%; F = 3.72%; C = 9.13%; S = 14.4%; I = 15.47%)

Jan - Dec 2005 results = 7.39%
Jan - Dec 2005 fund results =(G fund = 3.93%; F = 1.34%; C = 7.03%; S = 13.72%; I = 10.9%)

Jan - Dec 2006 results = 19.2%
Jan - Dec 2006 fund results =(G fund = 4.57%; F = 5.05%; C = 13.07%; S = 14.72%; I = 18.93%)

Jan - Dec 2007 results = 17.64%
Jan - Dec 2007 fund results =(G fund = 4.44%; F = 6.71%; C = 5.11%; S = 4.69%; I = 11.76%)

Jan - Mar 2008 results = 0.87%
Jan - Mar 2008 fund results =(G fund = 0.9%; F = 0.92%; C = -4.96%; S = -5.27%; I = -5.77%)

Totals for the time period from Jun 2003- Mar 31, 2008:
last month best fund method = 78.69%
fund results =(G fund = 23.9%; F = 21.2%; C = 55.1%; S = 85%; I = 131.8%)

Conclusion: Method seems to beat the C,F,G funds, however, a buy and hold of S and I would have produced higher earnings. This is mainly due to this method failing in the years 2003-2005 to adequately pick the reoccuring best fund. However, the years from 2006-2008 have the last month best fund method performing better that all the funds (B&H strategy). So can one assume that this method does not work well in a strong bull market but during a weak bull / bear market, this method can lead to significant capital preservation.

Good Luck in building your third leg of your retirement stool. It's only 30-40% of your retirement ;-)

[squalebear]

Good Luck in building your third leg of your retirement stool. It's only 30-40% of your retirement ;-)

Thanks for your analysis, this has been quite interesting to see it unfold.
By the way, although only 30-40% of our retirement, it's the only part in
FERS that we have any control over. At least, until they strip us of that
ability too. Again, this is great stuff and I'm sure they'll be looking very
close at the tracker for everyones benefit.
:cheesy:

[Greg]

So one can assume that this method does not work well in a strong bull market but during a weak bull / bear market, this method can lead to significant capital preservation.


I generally agree with your statement. But I wish you look into how this method did during 2000-2002, this is when this method did well

But can you name a better method that does as well as this method?

I think your percentages are a little low. Could you send me your worksheet?

[DakotaKid]

Here's a thought...

To better (or more quickly perhaps) take advantage of a trend (whether it be up or down), why not do a back test for the first of the month AND the middle of the month (taking advantage of the two trade limit that's soon to be imposed...(I hope not)). This way we would rebalance our accounts on the first of the month as well as the 15th, should a change be indicated.

I'd be happy to back test it myself, but I won't have the results till late this afternoon probably. I'd also be happy to assist Greg with the tracking of this (if it's more than a one person job).

DakotaKid

[malyla]

Here's a thought...

To better (or more quickly perhaps) take advantage of a trend (whether it be up or down), why not do a back test for the first of the month AND the middle of the month (taking advantage of the two trade limit that's soon to be imposed...(I hope not)). This way we would rebalance our accounts on the first of the month as well as the 15th, should a change be indicated.

DakotaKid

Just for grins and giggles I did a back test of this method tied to the 26 Friday paydays (close to the beginning and end of each month). I assumed that an IFT was performed on the Friday that is a payday affective COB that day (in hindsight, making an IFT before the weekend may not be that bright of an idea). That means you are in the market on Monday at the Friday closing price.

This method was not very good with this biweekly timeframe. The overall return for the period from Jun 2003- April 2008 was 43.58%. It did well in 2004 and 2007 beating all the funds in 2004 and all but the I in 2007, but 2005 was worst than the G fund (beat the F fund though) and 2003 and 2006 where marginal (6% and 10% respectively). This year the return is negative (0.88) which isn't bad compared to the funds, but using the monthly method has the return at positive 0.88.

Right now the biweekly (payday) method has the I fund as the last month best fund saying that as of April 4 you should be in the I fund until April 18. The monthly method has you in the F (G was 0.01% behind) fund for the month of April 2008.

Good luck.

[malyla]

Results of back testing Last Month Best Fund Method:

Uses the monthly funds return results from the tsp.gov website. (Ex. If Jan 91 has G returns = 0.57%; F returns = -1.35%; and C returns = -1.89%; Then Fund moves into G fund for Feb 91 to reap the return of 0.56% for the month of Feb 1991.)

Tom’s spreadsheet is used to calculate the annual return using the formula:
Accumulated return = (100*(1+previous_accumilated_total)*(1+monthly_ret urn)-100)/100
(ex Calculating Accumulated return for Feb(tot) = (100*(1+January return)*(1+Feb_monthly_return)-100)/100;
Calculating Accumulated return for Mar = (100*(1+Feb(tot))*(1+Mar_monthly_return)-100)/100; etc…)

Negative returns are in ( ).

1992
LMBFmethod = 2.47%
G fund = 7.24%; F fund = 7.21%; C fund = 7.71%

1993
LMBFmethod = 3.56%
G fund = 6.13%; F fund = 9.52%; C fund = 10.12%

1994
LMBFmethod = 0.64%
G fund = 7.22%; F fund = (2.97)%; C fund = 1.33%

1995
LMBFmethod = 29.43%
G fund = 7.03%; F fund = 18.30%; C fund = 37.39%

1996
LMBFmethod = 26.96%
G fund = 6.76%; F fund = 3.66%; C fund = 22.85%

1997
LMBFmethod = 9.52%
G fund = 6.76%; F fund = 9.61%; C fund = 33.17%

1998
LMBFmethod = 31.25%
G fund = 5.76%; F fund = 8.74%; C fund = 28.44%

1999
LMBFmethod = 9.70%
G fund = 5.99%; F fund = (0.86)%; C fund = 20.95%

2000
LMBFmethod = (6.46)%
G fund = 6.42%; F fund = 11.65%; C fund = (9.14)%

2001
LMBFmethod = 3.85%
G fund = 5.39%; F fund = 8.57%; C fund = (11.95)%; S fund = (9.03)%; I fund = (21.94)%

2002
LMBFmethod = (1.65)%
G fund = 4.99%; F fund = 10.27%; C fund = (22.04)%; S fund = (18.14)%; I fund = (15.96)%

2003
LMBFmethod = 38.73%
G fund = 4.14%; F fund = 4.11%; C fund = 28.52%; S fund = 42.91%; I fund = 37.94%

2004
LMBFmethod = 15.48%
G fund = 4.29%; F fund = 4.30%; C fund = 10.79%; S fund = 18.03%; I fund = 20.01%

2005
LMBFmethod = 5.70%
G fund = 4.49%; F fund = 2.41%; C fund = 4.96%; S fund = 10.48%; I fund = 13.63%

2006
LMBFmethod = 8.18%
G fund = 4.94%; F fund = 4.39%; C fund 15.80%; S fund = 15.32%; I fund = 26.31%

2007
LMBFmethod = 13.78%
G fund = 4.87%; F fund = 7.08%; C fund = 5.55%; S fund = 5.50%; I fund = 11.44%

2008 to April 1
LMBFmethod = 0.81%
G fund = 0.89%; F fund = 2.26%; C fund = (9.48)%; S fund = (9.50)%; I fund = (8.96)%

Definately good for bear markets but not very good for strong bull markets.

[Greg]

Definitely good for bear markets but not very good for strong bull markets.

My numbers generally agree with yours. Would you recheck your percentage for 2005 (I get 9.2%).

I still think it is a good long-term method.

[DakotaKid]

After much manual work, I took a break and read Malyla's post about using Tom's tracker...After banging my head a few times on the keyboard I transitioned to that and it went much more quickly. (yes, I'm a retard.)

Here's what I get for the bi-monthly Best Fund method (beginning and middle of month):

June 03 - Dec 03 = -.41%
G = 4.11%, F = 4.11%, C = 28.54%, S = 42.92%, I = 37.94%

Jan 04 - Dec 04 = 17.82%
G = 4.3%, F = 4.3%, C = 10.82%, S = 18.03%, I = 20%

Jan 05 - Dec 05 = 18.23%
G = 4.49%, F = 2.4%, C = 4.96%, S = 10.95%, 13.63%

Jan 06 - Dec 06 = 21.90%
G = 4.93%, F = 4.4%, C = 15.79%, S = 15.30%, I = 26.32%

Jan 07 - Dec 07 = -2.27%
G = 4.87%, F = 7.09%, C = 5.54%, S = 5.49%, I = 11.43%

Jan 08 - Mar 08 = -1.37%

Total since Jun 03 = 53.69%

One thing I noticed in my labored raw data work, is that there seems to be a lot of the "tail wagging the dog". For example, the I fund would be strong the first half of the month, so the Method would switch to I. Then the I would be negative or flat for the last half and the S would be strong. So you'd switch to S on the first. Then the S would be negative or flat while the I did good. It seemed to do alot of chasing, while the Monthly method would average the ups and downs for a better gain (that the bi-monthly was chasing for little gain).

This method seems quite erratic to me. There are some decent gains, but it gets suckered into some huge losses too (ie, 2007's return of a negative return for the year).

Hope this helps.

DakotaKid

[fabijo]

This sounds a little like the problem I was having when I tried making an excel sheet to go for the best fund. I finally figured it was better to go for the wildest fund. It's a little bit like going for the fund that has the largest % movement (whether positive or negative).

A lot of times when you are in a bull market, a volatile stock or fund will have a huge drop. If you are just trying to go for the fund with the most gain during that quick market drop, you'd end up going to the G or F. But what happens is the fund that had the hugest drop during a bull market, usually comes back with fire while you are sitting in the G or F.

You need a way to decide if you are in a bull market or a bear market. I choose to use the 75 day Exponential Moving Average vs. the 180 day EMA of the S&P 500. During the bull market (when 75 day is above the 180 day) go to the fund that had the most volatility in the previous month(or two weeks). That may mean going to the fund that had the biggest gain or the biggest loss. During a bear market (when 75 day is below the 180 day) go to the G or F.

On back tests, this works nice, but I just haven't really been keeping up with it, especially since we are limited to two trades a month. For now, I'm staying in the F fund since we're at a stage where the 75 day EMA is below the 180 day EMA on the S&P 500.

[airlift]

Fab,

Glad to read you always. Can you please give your opinion and a run down of the importance of the 75 and 180 moving averages as a factor in trading? Thanks.

[Bullishreturn]

I'll volunteer (I'm only 15 minutes from the Tennessee state-line.)

There will be a 2 day gap using this method. I will calculate the fund % COB-last-day-of-the-month. Autotracker enter the IFT (if any) and it takes effect COB-fist-day-of-the-month.

Can we start it in the autotracker back to the beginning of the year?

OK Greg- check your PMs. I just created the user name, and sent you the password for this. Remember, this is a long-term commitment to keep it current. If you have any problems doing so, please PM me.

As far as the gap, your timeframes are like all other autotracker accounts- you'll have to enter by noon on the first trading day of each month, and it will be effective COB that day. No way to do otherwise.

And no, we can't set you up back to the beginning of the year. It is physcially possible to do, but would create a LOT of work to do it- (would require entries and re-syncs for every single day of the year so far), and if there was a mistake in the process- it would potentially screw everything up. Suffice it to say I'm only a part-time backup to the backup guy on a mission like that, and I don't want to take that chance.

You are now ready to enter your first entry- good luck, and let's see what that theory will do.

[Bullishreturn]

And I just moved the entire thread from the "Account talk" thread, to a new thread of it's own in "Longer Term Strategies".

that seems to fit it a little better, and will give it more visibity.

Good luck- let's see how it works in real time.

Jim

[fabijo]

Fab,

Glad to read you always. Can you please give your opinion and a run down of the importance of the 75 and 180 moving averages as a factor in trading? Thanks.

Hey airlift -

My apologies in only responding now. A couple of Decembers ago, I started processing a bunch of data from the S&P and other indices. The basic premise was that I wanted to have a way to only rely on closing prices so that my TSP decisions wouldn't be based on the minute by minute market. After trying so many SIMPLE ways to avoid dips, I just could not come up with a consistent method. I finally decided to look for a simple indicator of deciding between a bear market and a bull market. Again, there was no consistent method I could find that only based its decision on the index prices - at least not until I started increasing my horizon. Once I programmed Excel to process long term averages, the backtesting started showing much better returns on a consistent basis.

I don't really know the significance of the 75 day Exponential Moving Average vs the 180 day exponential moving average. Those numbers just seemed to provide better returns than any other combination of numbers I played with. Of course, I probably could have gone further by writing a program to adapt to changes in the economy. I just haven't found the time to go that far. Now with our new trade restrictions, I might need to find a way to analyze trading methods that only allow for two trades a month. That all depends on the gift of extra time being bestowed upon me.

[malyla]

My numbers generally agree with yours. Would you recheck your percentage for 2005 (I get 9.2%).

I still think it is a good long-term method.

Sorry it took so long to get back to you. I had non-retirement planning work to do;)

I double checked the figures and there was no change. 2005 was a weird year as one some signal change in the monthly fund made a big difference in the overall return. The signals had me in the following funds at the 1st of each month:
Jan 05 = I
Feb 05 = F
Mar 05 = I
Apr 05 = G
May 05 = F
Jun-Aug 05 = S
Sept-Oct 05 = I
Nov 05 = G
Dec 05 =S

Amazingly, C never was the best fund. I wonder if that can be used as an indicator:cheesy:

[malyla]

According to this strategy, one should have made an IFT today (effective COB May 1) into the I fund for the month of May.

Lets see what happens this month - it may work out:D

[luv2read]

According to this strategy, one should have made an IFT today (effective COB May 1) into the I fund for the month of May.

Lets see what happens this month - it may work out:D
did someone post an IFT in the tracker?

[Greg]

Lets see what happens this month - it may work out:D

This system does NOT work every month. In fact, some months it is going to pick the worst fund for the upcoming month. It is good for a multi-year approach in which the market has a trend for many months such as the stock-funds going down after the dot-com bubble burst and Sept 11 then also when the I-fund was king during 2003-2006.

This is probably not a good method right now when the markets are overly influenced by the things such as the Fed doing an emergency 0.75 % rate cut on a Monday morning at 520 AM.

[FUTURESTRADER]

Sorry it took so long to get back to you. I had non-retirement planning work to do;)

I double checked the figures and there was no change. 2005 was a weird year as one some signal change in the monthly fund made a big difference in the overall return. The signals had me in the following funds at the 1st of each month:
Jan 05 = I
Feb 05 = F
Mar 05 = I
Apr 05 = G
May 05 = F
Jun-Aug 05 = S
Sept-Oct 05 = I
Nov 05 = G
Dec 05 =S

Amazingly, C never was the best fund. I wonder if that can be used as an indicator:cheesy:

C is less volatile than S. S will outperform in a bull market. Somebody post this in Birchtree's account? :)

[Greg]

According to this strategy, one should have made an IFT today (effective COB May 1) into the I fund for the month of May.

Lets see what happens this month - it may work out:D

as of yesterday cob this method has a return of 2.20% ytd
it is beating the stock funds by ~ 5%
beating the g-fund by 0.9%
and lagging the f-fund by only by 0.09%

this method started the year in the g-fund and stayed thru february
ipted to the f-fund on 4/01 cob
and ipted to the i-fund on 05/01 cob

over at the autotracker 34 people are beating this method
this means to me that this method is not a great one
but it is a good one

[luv2read]

what is this called on autotracker so we can find it ourselves? TIA.:)

[Greg]

what is this called on autotracker so we can find it ourselves? TIA.:)

There's not one on the autotracker, there doesn't need to be one. I'm looking for people who are willing help to test out ways to improve this method.

[clester]

What about using a last 2 or 3 month return average to choose the fund?

[XL-entLady]

I base my TSP fund choices on many factors, but the main one is a 50 day moving average. That is fairly similar to basing on the last two month's "best fund."

I don't ever put all my TSP in one fund, so that the risks and gain are diversified, but I use the 50 day moving average to pick my percentages.

I miss the big valleys (and peaks!) that way, but I easily beat the average return and it is conservative enough to keep me out of big trouble.

Lady

[luv2read]

what is this called on autotracker so we can find it ourselves? TIA.:)

There's not one on the autotracker, there doesn't need to be one. I'm looking for people who are willing help to test out ways to improve this method.
My mistake. I was under the impression it was being entered in autotracker per this post.

http://www.tsptalk.com/mb/showpost.php?p=159944&postcount=33

[Dr Faustus]

I've been looking at ways to improve the method.

I tried a proportional approach instead of just choosing the best fund - ie, if the C Fund had a return of 4% and the S Fund had a return of 4.1%, then you would invest the next month with 49% in C and 51% in S. Surprisingly, that didn't work out as well as strictly choosing the best fund. I'm not sure what the reason is ... but it resulted in a return of 100.85% from 2001-2007 as opposed to LMBF method, which turned in a return of 121.07%.

[squalebear]

This is Great Stuff ! :)

[Dr Faustus]

C is less volatile than S. S will outperform in a bull market. Somebody post this in Birchtree's account? :)

I believe that the C and S funds are highly correlated ... ie, if the C fund is up, it is more than likely that the S fund will be up as well and probably by more.

I tried confirming this but my first attempt was disappointing and I'm not sure that I computed it correctly.

[FUTURESTRADER]

I believe that the C and S funds are highly correlated ... ie, if the C fund is up, it is more than likely that the S fund will be up as well and probably by more.

I tried confirming this but my first attempt was disappointing and I'm not sure that I computed it correctly.

Absolutely. They are both children of daddy Wilshire 5000. C is the slower, chubbier sibling. Theoretically, S will indicate a trend sooner, and again theoretically, C will follow. S will go higher, faster and farther, and likewise lower, faster, and farther. Hence S is more volatile than C.

[XL-entLady]

I tried a proportional approach instead of just choosing the best fund - ie, if the C Fund had a return of 4% and the S Fund had a return of 4.1%, then you would invest the next month with 49% in C and 51% in S. Surprisingly, that didn't work out as well as strictly choosing the best fund. I'm not sure what the reason is ... but it resulted in a return of 100.85% from 2001-2007 as opposed to LMBF method, which turned in a return of 121.07%.

Since early 2003 I've been implementing a version of the proportional approach that Dr. Faustus is talking about. My experience in the last 5 years has been that I missed some BIG uptrend days by using the approach. I've missed more on the upside than on the downside.

However, I've had to be very conservative in my approach because I've not been able to plan a retirement date with any certainty. For those of you who have more control over when you'll need to withdraw your TSP than I did, you could probably be much more aggressive and use a weighted proportional approach, or an 'all in' approach, for greater gains.

Lady

[Greg]

I've been looking at ways to improve the method.

I tried a proportional approach instead of just choosing the best fund - ie, if the C Fund had a return of 4% and the S Fund had a return of 4.1%, then you would invest the next month with 49% in C and 51% in S. Surprisingly, that didn't work out as well as strictly choosing the best fund. I'm not sure what the reason is ... but it resulted in a return of 100.85% from 2001-2007 as opposed to LMBF method, which turned in a return of 121.07%.

Right, I have tried many different indicators and none of them did as well as LMBF.

[Greg]

as of yesterday cob the lmbf method is up 3.47% ytd

so far this month
s 3.87%
c 2.86%
i 2.65%
g 0.16%
f 0.08%

[Greg]

the lmbf method is now up 4.45% ytd

[Greg]

yesterday cob, the lmbf method is now up 2.20 % ytd

[squalebear]

yesterday cob, the lmbf method is now up 2.20 % ytd

the i-fund is the best performing fund so far this month at 0.96%

Can you tell how well it's done MTD to this point ?

[sdouglas3]

yesterday cob, the lmbf method is now up 2.20 % ytd


What does lmbf stand for?

tia

[luv2read]

"Last Month's Best Fund"

The fund that performed the best the previous month.;)

[Greg]

Can you tell how well it's done MTD to this point ?

today cob, the lmbf method is up 3.26 % ytd

mtd is 2.09% (0.08% + 2.01%)
lmbf was still in f-fund until may-01-cob
it did a ift after april-30-cob to i-fund that didn't become effective until may-01-cob

so far this month, the s-fund is the best fund (it's betting the i-fund by 0.1%)

[squalebear]

Thanks Greg, Very helpful ! ;)

[Greg]

The I-fund is up only 0.13% since May-01-COB, when the LMBF IFTed into it.
That is ahead of the C-fund by 1.4% but behind the S-fund by 1%.
There's bound to have been some indication to switch to the S% during the month. Any guesses?

[Greg]

The LMBF method has a respectable YTD return of 1.91%. This is beating all of the funds. It is beating the:

* G Fund by 0.44%
* F Fund by 0.56%
* C Fund by 5.71%
* S Fund by 1.96%
* I Fund by 4.77%

It indicated to IFT to the S-fund on Monday.

[luv2read]

Are you talking about the indicator to move to the S fund that was missed this past Monday?

Or are you saying that the best fund for May was the S fund so IFT into it June 2?

[Greg]

Are you saying that the best fund for May was the S fund so IFT into it June 2?
Yes
Are you talking about the indicator to move to the S fund that was missed this past Monday?
I haven't heard about this one. Please tell me about it.

[luv2read]

The LMBF method has a respectable YTD return of 1.91%. This is beating all of the funds. It is beating the:

* G Fund by 0.44%
* F Fund by 0.56%
* C Fund by 5.71%
* S Fund by 1.96%
* I Fund by 4.77%

It indicated to IFT to the S-fund on Monday.


Are you talking about the indicator to move to the S fund that was missed this past Monday?

I haven't heard about this one. Please tell me about it.
The I-fund is up only 0.13% since May-01-COB, when the LMBF IFTed into it.
That is ahead of the C-fund by 1.4% but behind the S-fund by 1%.
There's bound to have been some indication to switch to the S% during the month. Any guesses?That's what I was referring to.
Or are you saying that the best fund for May was the S fund so IFT into it June 2? Yes

I think your two posts confused me. Thanks for clarifying.:)

[Dr Faustus]

The LMBF method has a respectable YTD return of 1.91%. This is beating all of the funds. It is beating the:

* G Fund by 0.44%
* F Fund by 0.56%
* C Fund by 5.71%
* S Fund by 1.96%
* I Fund by 4.77%

It indicated to IFT to the S-fund on Monday.

My results don't track yours. I'm showing that, as of COB May 30, the LMBF method was up 1.75% for the year. I have a 0.33% return for Jan, 0.16% for Feb, 0.32% for Mar, -0.16% for Apr and +1.09% for May. Where do our figures differ?

Are you looking at the returns on the 29th so you'll know which fund to be in on the 1st of the month?

[marcel54]

Thanks for the info. It seams to simple to be true but I will try it. :cool:

[Dr Faustus]

Report Card:

Jun 08: -7.63%
YTD 08: -6.02%

[malyla]

Report Card:

Jun 08: -7.63%
YTD 08: -6.02%

Not looking too good, but it has beat the stock funds
C S I returns-11.90%-7.69%-10.78%

The LMBF method is in G for July. I have looked at doing this quarterly, but the results are slightly worst than the LMBF returns. A bear market does give lower results for the LMBF (July 98 - Sep 02 gave 28.29%) but that greatly beat the stock funds (G 26.85%; F 36.45%; C -24.05%
S -29.48%; I -38.43%) for the time period.

Bear markets showed a great deal of oscillation where the YTD return was negative, but by the end of the bear market period, the LMBF was positive while the stock funds where negative.

I'm still evaluating this method and have not fully bought into it. Bear rallies are missed and give a false move into stocks for a loss in the first half of all three bear markets I've looked at (including the one we are in).

Good luck.

[malyla]

Well, I have finally had time to get back to the B&H comparisons.

The attachment is the excel spreadsheet showing comparisons of Buy & Hold strategies including the Last Month's Best Fund Method.

All long term strategies have one problem - How to anticipate when a Bull/Bear market occurs. I solved this problem by using the 8.6 year Business Cycle (google it) to determine the cycle for allocation change.

The strategies are three B&H (allocation scheme A,B,D) that ignores market cycles but have different stock/bond allocations, two Cycle B&H (E & H) that take into account the 8.6 year business cycle for capital accumulation /preservation with two different stock allocations, and the LMBF method which ignores the business cycle. I have also performed an analysis of the LMBF using the business cycle but it is not included in the spreadsheet. I will talk about it though ;)

I have used Tom's spreadsheet and equations to calculate the yearly and running returns. I also have two growth percentages; From Sept 91 to Jun 08 and from May 03 to Jun 08. This allows a comparison of the past 17 years which includes the infancy of the TSP program with the last Bull market run to today. I also used the monthly returns for each fund from the TSP.gov website.

First thing that jumped out was that an inflexible B&H gave worst results than a B&H that takes the business cycle into account. Second thing was that a diversified portfolio did not perform as well as the high risk (100% stocks) allocation scheme (expected). The LMBF had a growth return comparable to the Diversified B&H (no business cycle). When the LMBF was in capital preservation (not shown in the spreadsheet), the return was slightly better than the LMBF method that does not take the bussiness cycle into account (74.49% compared to 69.87% since 5/03; 544.15% compared to 428.08% since 9/91).

By far the best strategy takes the business cycle into account for long term investment growth. It was approximately double the growth compared to the inflexible Buy & Hold strategy.

This Cycle B&H strategy works very well for capital preservation as it is the Bear markets falls that quickly and irreparably affect investment growth.

Couple this method with methods to determine and take advantage of the Bear market bull rallies and long term growth is greatly enhanced. This would also allow for DCA-ing by allowing one to put contributions in G during a Bear Market and start contributions near the end of the Bear market time to get the most benefit from this method.

I hope this adds to your TSP tool kit. :D

[malyla]

The 8.6 year business cycle for you reading pleasure:D for post #70

http://www.nowandfutures.com/buscycle.htm

2032 should be scary. I hope all of us will be around to validate this theory:laugh:

G.L.

[malyla]

I looked at the intermediate terms in the 8.6 year Business Cycle. The excel shows this on the date column. What you can see right off is that there are BIG rallies in the Bear Market cycle, usually in the 2nd and 4th quarters. The intermediate term drops in the Bull market cycle are not big and do not seem to occur at any specified time. This tells me not to worry about the intermediate terms during a major up move (bull market), but to pay attention to get the 5-15% rallies during the major down move (bear market).

See Malyla's Account Talk post #102 and #70 in this tread for more info.

Enjoy and be careful out there:cheesy:

[Greg]

Returns YTD yesterday COB:

LMBF -5.30%

C-fund -16.27%
S-fund -12.91%
I-fund -16.53%

[Frixxxx]

..... This tells me not to worry about the intermediate terms during a major up move (bull market), but to pay attention to get the 5-15% rallies during the major down move (bear market).:cheesy:

You mean the warnings on Fox, CNN, MSNBC and ALL my local news are wrong...They say, "BE AFRAID, BE VERY AFRAID!!!"

Nice research Malyla:cool:

[malyla]

You mean the warnings on Fox, CNN, MSNBC and ALL my local news are wrong...They say, "BE AFRAID, BE VERY AFRAID!!!"

Nice research Malyla:cool:

Thanks. Today appears to be the start of one of the intermediate rallies during a Bear Market. Lets hope it gives us 15% before it fizzles in the next tsumani of bad news.

G.L.

[Greg]

http://marketplace.publicradio.org/standard/images/004/headerBackground.jpg

http://marketplace.publicradio.org/display/web/2008/07/17/oil_prices/

Thursday, July 17, 2008

Here's how to predict future oil prices

Justin Wolfers

Experts use complicated formulas to predict the future price of oil. But commentator Justin Wolfers says he's got a simple do-it-yourself method that works even better.

TEXT OF COMMENTARY

Kai Ryssdal: When we talk about oil prices, it's usually a futures contract that we're talking about. An agreement to pay a pre-arranged price for a barrel of oil at some point in the future, hence future contract. The art of the deal, though -- and the way to make money -- is to guess that future price of the world's most actively-traded commodity. Commentator and economist Justin Wolfers thinks he's got it all figured out.

JUSTIN WOLFERS: Important decisions about our family finances -- things like which car we purchase, or where we choose to live -- all of it hinges on whether today's high oil prices are here to stay, or whether this is just a temporary blip.

And there are dozens of talking heads on TV, pontificating about the latest oil industry developments.

But in fact, you're more of an expert than any of these talking heads. Or you will be, when I give you my secret forecasting formula.

Here it is: The single best forecast of oil prices in one month, three months, or a year is -- [sound of drumroll] -- today's oil price.

With oil at exorbitant prices today, I'm forecasting that next year's price will also be at exorbitant prices. I'm not saying that prices won't change, but I am saying that they're about as likely to go up as they are to go down. Let's call this the no-change forecasting rule. It won't work for everything, but it does pretty well for oil prices.

In fact, Ron Alquist and Lutz Killian, two University of Michigan economists, recently assessed the forecasting performance of the no-change rule. Amazingly, this simple rule did better than the average of dozens of professional forecasters! In fact, the no-change forecast was 34 percent more accurate at predicting oil prices in three months' time, and 18 percent more accurate at predicting prices in a year's time. While professional prognosticators might argue that this difference isn't statistically significant, it sure is embarrassing.

Others ignore the professional forecasters and focus instead on what futures markets are saying. But it turns out that even futures prices are not as accurate as our simple formula. Even sophisticated econometric models don't yield better forecasts than our simple no-change rule.

The truth is that forecasting oil prices is so darn hard that complicated formulae add nothing but complexity. And so the simplest forecasting rule also turns out to be the best. Don't you wish all of economics was this easy?

Ryssdal: Justin Wolfers teaches at the University of Pennsylvania's Wharton School of Business.

[nnuut]

This simple formula didn't seem to work last year, did it?:D

[malyla]

Hi all,

I took one more look at the B&H comparisons that I posted earilier to look at the FED rate oscillations and how they affected the F fund.

As you would expect, when we are in a Bear Market, this usually means we are in a recession and FED rates stay low (1% during most of the 2000-2003 Bear market). When we come out of a Bear market, the FED starts raising rates and the F fund suffers. For the most part, the F fund does well in a Bear market when the rates are low.

My concern is that this Bear market is somewhat different (more like the 1970s Bear Market). I have no data that can easily help me determine if stagflation affects the F fund. I have two questions: Would the FED raise rates in a Bear Market under current market conditions, and How would this affect using the F fund as the capital perservation fund using the Cycle B&H method (I'm guessing badly)?

Any thoughts?

[luv2read]

IMO the fed will not raise rates during an election year BEFORE the election UNLESS it's to be a GOP political ploy.
They will not raise rates while the housing market is still in a slump, UNLESS Congress passes and BA signs the housing rescue package. 30 year mortgage rates are at 6.25 (go figure) ...pretty much where they were before all the rate cuts which were supposedly to HELP homeowners as well as support the market.
The won't raise rates UNLESS rampant inflation takes off, period, and they still won't do it BEFORE the election UNLESS the GOP is in dire need of a boost.
They MIGHT raise rates if the price of oil stays at or below $130, supply continues to exceed demand, and OPEC threatens to reduce production. I know this seems backwards, but everything they've done so far has been backwards so in a contrary way this makes sense.
JMO.

[Greg]

As of Friday (the 25th) COB, it appears that LMBF method correctly predicted the G-fund to be the best fund to be in for the month of July 2008.

Month-to-date returns:
G-fund 0.34%
F-fund -0.73%
C-fund -1.59%
S-fund -1.79%
I-fund -3.27%

[squalebear]

It would appear that your method is calling (G) as the Best Fund
for the month of August as well. ;)

[Greg]

It would appear that your method is calling (G) as the Best Fund
for the month of August as well. ;)

Right

[XL-entLady]

So with today's market happenings, unless the order switches again tomorrow, that means that August's LMBF is C???

Day-amn! I'd have never guessed that one! :blink:

Lady

[XL-entLady]

August's LMBF strategy pick ends up being G Fund after all. That makes way more sense to me than yesterday's C Fund indication. What a wierd market. :(

Lady

[marcel54]

I'm still 100% G from last month...:cool:

[malyla]

August's LMBF strategy pick ends up being G Fund after all. That makes way more sense to me than yesterday's C Fund indication. What a wierd market. :(

Lady

Which just says that if you are going to follow this method, wait until the end of the month to determine the next transfer. There is a pretty good correlation between the bear market LMBF and the bear market position trade of F fund. The problem with the LMBF in a bear market is that on those short bear rallys, the LMBF missed the rally only to go into a loss for the following month due to the previous months signal. That can be very frustrating.

Still trying to determine if and when to use this method:) I'm thinking of using the monthly strength indicators as a secondary signal.

[XL-entLady]

There is a pretty good correlation between the bear market LMBF and the bear market position trade of F fund. The problem with the LMBF in a bear market is that on those short bear rallys, the LMBF missed the rally only to go into a loss for the following month due to the previous months signal. That can be very frustrating.

Still trying to determine if and when to use this method:) I'm thinking of using the monthly strength indicators as a secondary signal.

I'd never made the correlation between the LMBF and the F Fund. I appreciate incisive comments like yours that add to my knowledge base!

I'm using LMBF as a cross-check to make sure that I'm reading the medium-term market right, and that's the only way I'll probably ever use it. But I think it could have value as a primary fund for people who are ready to move beyond putting everything in an L Fund and walking away, but may not be ready to actively IFT using their own decision-making process. For those folks, it might be a good interim step while they are learning. What do you think?

Lady

[malyla]

A friend told me about a TSP-fund IFT-strategy that someone else (person B) told him about. Person B said it performed 5 or 6 times better than any other strategy that he analyzed.

It is a very simple strategy. It consists of: at the beginning of each month IFT into the fund that performed the best the previous month (i.e., at beginning of July IFT into the fund that performed the best during June.)

I back-tested it for the years 2001 thru 2007 (2001 was the first year with all 5 funds.)
Using this strategy over those 7 years gave a return of 114%.
Staying in the I-fund the same years returned 74%.
The S-fund returned 69%.
The F-fund returned 49%.
The G-fund returned 38%.
The C-fund returned 25%.

Supposedly, person B has been using this strategy for several years with success. It seems too simple. But I can see why it would work. And it does take the emotions out of IFTing and it would fit in any restricted-IFT rules that they throw at us.

This strategy could also be back-tested all the way back to the beginning to TSP using the G, F, C funds. I haven't done that yet.

Also, staying in a fund (that performed best the previous year) all year seems to be a very good strategy too.

Of course, all of this is taking the multi-year view.

Attached is the Excel worksheet that I used.



Lady,

The quote is from the first post (redundant, but it puts this method in propective). This method works very well in a bull market but not so well in a bear market. This makes sense as in a bull market at least one of the stock funds is doing well, so at worst you are moving between stock funds. However, in a bull market the return was better if you just left your money in the riskiest stock fund (I fund). It's the bear markets where this no longer works as well.

I put an excel together that shows this. It is in both this tread and in my account talk. There is a direct comparison between the LMBF and other strategies in that excel spreadsheet. Just take into account that it is a small sample set (back testing to 1991). It only shows 1 1/2 bear market returns, but the difference between the LMBF and the capital preservation method (Cycle B&H) is not to be ignored. The problem is determining when a bear market begins and how long it will be.

I hope this continues to be informative:D I do think it is good in a bull market for beginners, but I'm not sure I would have anyone use it in a bear market.

[Dr Faustus]

LMBF Report Card:

G Fund: +0.33
F Fund: +0.92
C Fund: +1.46
S Fund: +2.17
I Fund: -4.16

LMBF was in the G Fund for Aug. That puts the YTD LMBF performance at -5.33%

LMBF predicts S fund for Sep

[malyla]

LMBF Report Card:

G Fund: +0.33
F Fund: +0.92
C Fund: +1.46
S Fund: +2.17
I Fund: -4.16

LMBF was in the G Fund for Aug. That puts the YTD LMBF performance at -5.33%

LMBF predicts S fund for Sep

LMBF method says G for October. YTD LMBF earnings -15.09%
Last months returns
G 0.31%
F -1.31%
C -8.94%
S -10.32%
I -12.31%

Year to date
G 2.86%
F 0.84%
C -19.25%
S -16.08%
I -27.80%

Being in S fund for Sept lost you ~10%. I'm thinking that bear markets do not allow for the risks on that scale. Currently in F and Sept was not very good for me but it could have been worse.

GL everyone.
Malyla

[Greg]

LMBF method says G for October.


As of cob today, LMBF is beating the stock funds by at least 15% YTD. That's not bad.

[Greg]

August 2008 Fund Returns
G Fund: +0.33
F Fund: +0.92
C Fund: +1.46
S Fund: +2.17
I Fund: -4.16

LMBF predicted the S-fund for September, but it went down 10%.

Since the I-fund was a high negative in August, then maybe it should have indicated to stay in the G-fund. Somebody should back test that.

[Greg]

LMBF method says G for October.

Fund - G Fund F Fund C Fund S Fund I Fund
% Chg mon - +0.20% -1.57% -15.43% -19.21% -15.77%

[peterson82]

I am wondering how this strategy would do if we used a Last-Eleven-Business-Days-Best-Fund (LEBDBF), since we have two trades a month.

In panic situations we could still dump the shares into the G-fund.

[Silverbird]

Well, in this case, blindly following the LMBF method may not be wise because it would mean cementing your losses from last month?

[Greg]

Well, in this case, blindly following the LMBF method may not be wise because it would mean cementing your losses from last month?
It would have prevented at least a 15% loss this month.

[Silverbird]

Wow, ok! Now that's really good.

[Greg]

This month so far LMBFM is beating the C-fund by 11.5%, S-fund by 15.8% and I-fund by 9.6%.

[Kentucky]

Can anyone tell me what the LMBFMS is?

I understand the principle, but what do you do, look at last months returns and then invest in those funds? if so, how do you decide how much to put into each fund?

Thoughts and advise are appreciated!

[KevinD]

Greg went 100% F at close of business (COB) today using this method.

http://www.tsptalk.com/tracker/tsp_user_record_all.php

[Dr Faustus]

Can anyone tell me what the LMBFMS is?

I understand the principle, but what do you do, look at last months returns and then invest in those funds? if so, how do you decide how much to put into each fund?

Thoughts and advise are appreciated!

We've been applying 100% to the indicated fund for computation purposes. For example, November's returns (unverified) are:

G-Fund +0.31%
F-Fund +3.30%
C-Fund -7.18%
S-Fund -11.13%
I-Fund -6.72%

Since the best performing fund in November was the F-Fund, we apply 100% of our TSP funds to the the F-Fund for the month of December.

(just for the record, I am not using this strategy)

LMBF Report Card for Nov:
+0.31% Nov
-14.57% YTD