Market Timing Calculator for Model Portfolio Backtesting
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|250 Independently-weighted Signal Input, 25 Asset-class, Hypothetical Real-time Market Timing Strategy Modeler
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Investment Strategy Backtesting Calculator
What!?!?!? That makes no sense, but that's what it is!
Customers kept asking for us to make a money tool to do this job, so here it is. Maybe it will help investors lose less money than they otherwise would have. Disclaimer: We haven't seen a market timing strategy that works yet, so you will lose money with any and all market timing strategies. The long version on market timing is here.
Top level explanation: There's three parts to making a market timing calculator:
First, there's the shell that does the work. That's what this program is.
Next, there's "data" that's needed for bottom line evaluation and signal generation (this program does not have any database, so there's NO DATA supplied other than the past returns of our models and a few indices).
Last, but not least, signals. You'll need to generate your own signals (from data that you'll find somewhere else, because there is very little data included).
Now you're asking where to get data, and how to use it with this program. You can get data online from various sources (e.g., Morningstar or other financial website subscription). Once you find data, you then get it to download into an Intermediate spreadsheet (that either you or we make).
Then this intermediate spreadsheet talks to this program by manually linking / referencing cells (which is very easy to do).
Then all you'd need to do to update your data is do this online download function, and everything automatically updates. This intermediate spreadsheet is where you'd make things like oscillators, moving averages, and other things that distill into signals.
You can do this work yourself fairly easily, or we can do it for the proverbial "small fee."
Market Timing Software Features:
• This market timing calculator is hard-wired into the Model Portfolios, so you'll have to buy the model allocations to get this investing tool.
It's only necessary to maintain the monthly subscription if you care about using our investment models as the vehicle funding mechanism for your market timing strategies (in other words, you want to use our mutual fund / ETF / index fund picks as the actual investments held in your strategies). The usual reason for caring is that the models come pre-populated with the picks, asset classes, current returns, allocations, and other features that you may want to integrate into your market timing strategies.
The most popular funding vehicle choice to model is the Benchmark Index Model. This is because most market timers care about which asset class will be affected the most by a signal input change, so the actual index for an asset class is the most pure thing to model. Then you can substitute anything you want as a surrogate for this asset class (mutual funds, ETF, stocks, options, etc.), then trade those in the Real World.
So if you have no interest in our mutual fund picks nor our Benchmark Index Model's return data, then you'd just choose "Let Me Input Manually" from a dropdown menu, and everything in our allocation models is ignored. This means you'll have to input the asset class name, the funding vehicle name, the returns for three time frames, and the yields in all of the buckets used.
• It has 25 assets, or if you prefer, accounts, asset classes, funds, or buckets (they're all the same thing). They are all the same and all function independently of each other (no signal from anything else will directly affect the range on any other asset class).
• Each asset class has an on-and-off toggle switch to quickly see the results of any investor strategy and/or signal input change. In other words, if you want to see the result with just taking one bucket out of the picture, then you can just turn it off with one click and it doesn't affect anything else.
• Each asset class has 10 signal inputs, so in total the investment calculator has 250 signal inputs.
Each signal input has a ten increment range (1 to 10, in case you're wondering, using -5 to +5 caused annoying programming problems). To set signal strength at its maximum you'd input 10, and minimum, 1).
• For each bucket, you'd set the weight of every signal input in percentages. This allows you to assign different signal input weights, so some can be much more important than others. You can also set them to all be the same if that's what you want. This gives market timers the control over signals they want.
• To fund the asset classes, you use a dropdown menu to choose from the following list of options. Our:
• You give each asset class its own unique allocation range. Then the combined weighted signal strength of the inputs move the allocation up or down along that specified range.
For example, if you set the cash allocation range from 5% to 10%, then when the combined weighted effect of all of your signals add up to being "scared" then you'll get the full 10% allocated to cash, and vice versa. In case you're confused, all the signals do is move how much money each asset class holds (its allocation) up or down within the range that you specify in advance.
So when your signals are all "buy stocks," then more is allocated to stocks, which automatically reduces the amount of money held in non-stocks (if you set it up to do that - you have to set up everything manually). So what you're doing is using the signal inputs to tell you how much to buy or sell out of the asset classes you've set up in response to new signal data (daily economic and business news).
Daily financial news events get distilled into what market timers call "signals." These signals, and their weightings, just provide a logical mechanism for you to quantify, control, and backtest investment strategies. Because you can model and save an unlimited number of strategies, you can make all of the comparisons you want. So over time, you'll see which strategy worked the best in different market environments.
The goal of market timers is usually to buy more of asset classes that they think will go up over a predictable time frame, and sell off securities predicted to go down, based on today's signal inputs, and of course before other investors do the same thing enough to effect prices. So if you think stocks will go up in response to gold going down, then you'd want to buy more stocks the moment gold goes down - before everyone else does of course. The question this investing calculator answers is, how much?
So you'd set up everything in advance to get the amounts of asset class mix movement you want in response to various signal movement, then when things actually happen in the Real World, you can just make the trades. If that asset class did go up or down as you predicted, then you profited. This is all this money tool does - it allows you to quantify your predictions of what to buy and sell now, and how much, in response to daily financial news. This is really all market timers are doing, so mystery solved.
The signal inputs are daily news events like unemployment data, that economic forecasters use to predict the future of various asset class movement. Since you're thus using daily news events to tell you how much to invest in each asset class, this is the classic definition of market timing.
Every time one makes a decision about an investment going up or down over a time frame, that's market timing. And since there is no actual portfolio with real money in it, it's called a model. And since you're not accounting for past trades, fees, nor rebalancings of an actual investment portfolio in the Real World, it is hypothetical. Therefore this is a hypothetical investment model that allows you to overlay market timing strategies onto it, so you can see what happened in the past with real data, to model and analyze the end result of portfolio (returns and/or yields) after all of the signals feed through to get a new bottom line.
This long-winded and non-sequitur explanation can be summed up by saying that all of this stuff is just called "Backtesting." Market timers are thus just using backtesting results to create their predictive models, so they can quantify how much to trade, in hopes that their crystal ball is correct, thus enabling them to make unusual profits with daily financial news events (much more profit than just using boring asset allocation strategies and/or stock picking strategies alone). They're basically using what happened in the past to predict what will happen in the future.
Spoiler alert - none of this works, but enough people think it does to make and market a unique money tool for them. As one should know, all of this has little-to-no predictive value because financial assets respond randomly to complex sets of financial variables, that are traded by humans that have diverse reasons for trading, none of which can be predicted by anyone nor any computer software program. But we made this investment tool for investors that want to play with such things because we want their money, and we hope this money tool will help them lose less money than they otherwise would have over time by taking some guesswork out of the process of trying to quantify something that can't be quantified. There is no such thing as a crystal ball, so it's all futile.
• Because of all of the different ways you can model strategies, you choose if you want to manually tinker with each buckets' allocation range so the end result adds up to 100%, or you can choose to let the program do it all automatically. So you get the best of both ways of doing things here.
• The Market Timing Models sheet is unprotected, so you can do anything you want with it. The Input sheet is protected, so you can only input data into green-shaded input cells.
• It's possible to get this to work in "real time" because you can link the signal input fields into most anything that can download into a spreadsheet online. So if you set something up online to download the daily price of gold into something that exports into a spreadsheet, then you can do the translation there and reference it directly from this financial tool. Then it will automatically change that signal input, therefore changing the allocation of the portfolio when something happens in real time. Then you can use program trading software to get the allocations from this portfolio tool, and make trades when you're not even at a phone or computer. This is possible, but we can only help you at our normal $100 per hour consulting rate. Sorry, but we can't help you with any of this investing tool as part of our normal support. All of this is way beyond the normal scope of this site. BUT - we'll take a look at your first stab at inputting a model and comment on what you're doing to ensure you're on the right track.
• With this investment tool, you can do raw historical backtesting of virtually any investment strategy. All backtesting is, is seeing what the returns would have been if you would have done this, that, or the other over a set time frame. This will allow you to do that, as you can input any time frame's returns into any one of the three columns (it comes pre-populated with our model returns, so it's going to be YTD, 12M, and 3Y). Please note that like most all other backtesting tools, past trades, rebalancings, and fees are all NOT accounted for. This makes all results "hypothetical" and therefore, mostly meaningless.
Please note also that this investing tool does NOT come with any database of the normal useless investment portfolio statistics, like Sigma, Beta, Sharpe, Treynor, Jensen's Alpha, etc. The bottom-line results of the models are the returns (there's no database of past returns either).
Using market timing to forecast returns is not possible, and using it to forecast risk is twice as impossible (because all investment risk statistics are ten times more random than returns, making it totally futile, although money managers still like to obsess over trying to quantify it and thus trying to predict future risks). If any of these things had any predictive value whatsoever, then we'd be using them in our mutual fund screening process. The long-term returns of our normal investment strategy should be proof enough of all of these kinds of "opinions."
• If you're a Registered Representative of Finra working through a Broker Dealer, then the answer to the question, "Will my BD approve this?" is a huge NO!!! They'll want to terminate you as you as you bring up that you want to start market timing with client money. But if you're with a special BD that caters to this way of doing things, then they will probably approve of using it.
This money tool is for fee-only money managers (that have disclosed to their clients in writing in advance that they will be using market timing techniques on their SEC ADV), stockbrokers and stock pickers that do their own modeling, market timers, mutual fund managers, individual investors with too much money to play with, arbitragers, institutional money managers, hedge fund managers, etc. Financial planners, do not use this tool to do anything with normal sane rational client money.
• If you're thinking that this would also be a great stock picking tool, then yes it can be used for that too. You'd just use the input signals a stock is sensitive to and everything works the same way. So this money tool can help choose which stocks to favor out of a basket of 25. If enough stock pickers buy it, then we'll make it do 100 buckets instead of 25.
• This is just a spreadsheet, so you can have an unlimited number of strategies modeled and saved, so you can keep track of what works and what doesn't.
• The non-functional demo is here. It's just the two timing sheets carved out of the allocator models (which has 20 sheets), then all formulas were removed.
More on this Investment Strategy Backtesting Calculator
Here's how it basically works:
Okay, so you're a market timer. You more than likely already have been using several timing strategies (and maybe similar money tools) for a long time. So you know what you want to model and backtest already.
As you know, there's no investment tools you can buy to model them for any reasonable price. So you've been flying blind with no way to quantify anything. All you have is a gut feel if your ideas are working or not (and then compared to what?). This tool is all about quantifying allocations and returns of investment strategies to help you in your quest for trying to find profit.
You're using either asset classes, or buckets, or whatever you've been calling places to put money that's different from the other buckets. We still call them asset classes because we think it's more logical. You'll have to segregate money somehow, so this is how you do it. So there are 25 asset classes.
You can choose to use just one asset class, any mix of the 25, or all 25. You can also flip a switch, and the it automatically populates with our existing 16-asset class models.
The whole thing in a nutshell is using what's called "signals" to either underweight, or overweight an asset class (compared to the others) based on a forecast of where these asset classes will be in the future. So all the signal inputs do is move its asset classes' allocation up or down throughout its allowable range that you specify in advance. So the signals do the forecasting.
Then as the overall mix changes, the returns and yields change. If the returns went up because of something you did, then you're probably heading in the right direction. So you're basically chasing after predicted asset class returns using gut feels and past returns. There's little-to-nothing else that can be done here, other than be able to backtest using portfolio (risk) statistics like Beta. We're not going to go down the road of being a database company, because that would entail hiring an expensive employee just to maintain that (which would more than double most all prices).
The bottom-line of the result can be illustrated like this: Say you think the current price of gold has something to do with other asset classes going up or down in a time frame predictable enough to profit from.
So to make a long story short, you want to know how much to change in one or more asset classes as a response to gold going up or down today. Then the allocations to the other asset classes change, because if you set the allocation of a precious resources fund to go up when the signal gold goes up (so you'd be buying more), then this allocation increase sucks money away from the other asset classes by around the proportional amount (which is good, because you probably expect them all to go down soon anyway).
Then, for example, the price of bonds are usually also predicted to go down too, so you'd be setting up the signals to be selling more fixed income by reducing the amount held in those asset classes, because you think interest rates will be going up (which make the current price of bonds go down).
So the bottom-line is that after you set it up, if gold goes up, the allocations of the whole model changes according to and controlled by the way you set it up. Then you can change Real World portfolios (make buy and sell trades) at your discretion based on your analysis of the model's past returns.
If you're right, then increasing / decreasing exposure ahead of the herd to asset classes that will react favorably to your predictions regarding changing in signals (e.g., gold going up) will result in making large quick excess profits compared to holding the static allocation mix. This is one of the "Holy Grails" of investing. Too bad no human ever got it to work right... yet anyway (this tool may be the critical missing piece of the puzzle that may allow some genius to actually get something to work for a change - please let us know if you do as this will change the world of investing forever)!
So the big question is, how much do I have to buy and sell of this that and the other to get the end result that I want, given my forecast of this that and the other in response to today's move in something like gold prices? That is what this market timing tool does. It tells you how much the portfolio's allocations change in quantifiable terms, given a set of 250 weighted signal inputs that you have total control over.
So if one asset classes' allocation goes up 1% in response to a signal change, then you'd buy 1% more of that funding vehicle. If your predictions pan out then you made quick and easy profits by buying more of something that you predicted would go up, before it actually went up in the Real World (and maybe selling off 1% of something that's going to go down soon at the same time).
This in a nutshell is all market timers are doing - backtesting, finding, chasing, then exploiting what they see as temporary market anomalies before the herd catches on; acting on it, thus negating the anomaly via their trading equilibrium.
So with this investor tool, you can wake up one day, see gold is going through the roof, update your signals, get a new portfolio mix, then trade your funding vehicles in the Real World to match the new allocation, and go back to sleep. It will take some work and trial and error setting things up to make all of this happen beforehand, as you can guess.
Basically you'd just implement your investment strategy via a given set of asset classes and weighted input signals (which there are 250 of - ten per each of the 25 asset classes), then after you set it up it tells you how much to buy and sell of this much of this that and the other to get to the bottom-line you want. So after tinkering with all of the asset classes, asset class ranges, signal inputs, and signal weightings, you get to have a timing tool where you can play with the signal inputs, and it tells you how much to buy, sell, and hold of all of the asset classes that comprise the portfolio.
Please keep in mind that this only tells you what to do by estimating what the past returns would have been if you held those exact assets in those exact amounts, and there were no past trades, fees, or rebalancings (all based on your signal inputs). Then you are totally assuming that what happened in the past is what will happen in the future (it won't), and making trades based on these assumptions of history repeating itself enough to profit.
This tool has zero predictive capability whatsoever! It's your investment strategy that makes the predictions, this is just a tool that helps quantifies the past returns of your predictions using three samples of time. Nobody knows what future returns of anything will be, so this is all there is to work with.
Also, few stock market timers are going to run enough backtesting simulations on a single strategy to see if it has enough statistical significance to work in the future. Just because a strategy worked well in one past time frame does not have anything to do with what will happen in the future. So blaming this tool for anything is like blaming the hammer for nails bending when you hit them wrong (or using defective nails).
This market timing tool just tells how the past returns changed, based on allocation weights changing, based on how you set up your signals. None of this has anything to do with what will really happen to anything in the future based on changes in Real World real timing signal inputs. It's all 100% a huge guess. This tool just helps you quantify your guesses by using past returns of the most useful funding vehicles for this purpose.
This investment portfolio tool just estimates what would have happened if you had a magic time machine, and were able to go back in time and buy that exact mix of funding vehicles on that exact day. This is why using the benchmark indices that are already pre-populated with data in the models will be of value in your modeling.
So if a strategy worked once in the past, you're basically betting that it will work the same in the future. It won't, but it may just generate enough profit to make it worthwhile after taxes, transaction costs, and the costs of your time backtesting your theories. This is the bottom-line of why market timers do what they do - they know this is not an exact science, and it rarely works, but by spotting temporary anomalies in advance, they can sometimes be exploited and profited from if one's strategy can be put into action in the Real World in time.
If one can keep their ducks in order, one may be able to make a living off of market timing (albeit a risky and stressful one). The problem with ducks is there about as easy to herd and keep in order as cats are. Then another problem with winning big with one duck is that it breeds overconfidence. So over time the profits made on the one big successful duck will probably be wiped out when setting up the next duck or two. This is why market timers are always in and out of the "guru" spotlight in the media. When their luck is good, they get to be on TV. The next month their luck is bad so they're off TV. It's the average that should matter to investors, and 99% of all market timers' records over two years have a dismal average.
Our support is not an option with this money calculator unless you want to pay our normal $100 per hour consulting rate. So if you buy the Model Portfolios with full support, please do not be surprised if you get no help on the phone regarding the market timing calculator part of the models. BUT - we'll take a look at your first stab at inputting a model and comment on what you're doing to ensure you're on the right track.
This investment calculator is a whole nuther can of worms compared to all of the other investing tools on the site. We know for sure that none of this market timing stuff works, so you're basically on your own. But if you want to pay $100 per hour, we'll be glad to help you set things up to help you model and backtest your investing strategies. We're interested in such things, so we're glad to help - we're just not going to do it for "free" because this is a huge messy can of time-sucking worms and is completely opposite compared to what this website is all about.
There are no directions for this money calculator other then what's on this page, and the text boxes on the non-functional demo. Over time directions may be made. The thing is that most market timers already know what all this is all about and don't need directions - this is exactly what they've been dreaming of for decades (considering the price and other than the lack of a huge database of indices with past returns and risk statistics).
So making detailed directions would just encourage individual investors to lose money with futile market timing strategies. If you know what you're doing enough to want this, then just looking at the demo should answer all of your questions. If you've studied the demo and still don't know what's going on, then you shouldn't buy or use it. You're just going to get yourself into more trouble a lot faster than using a portfolio optimizer!
We want investors to be the tortoise in the great race of life. We want to help investors get to where they're going at a slow, steady, safe, and predictable manner. This is what our Model Portfolios are for. This investing timing tool is for the hares in the world that think they have special insights and/or magic powers that will allow them to do things no other human has managed to pull off - which is to consistently profit wildly with short-term investment strategies more than two years in a row.
There's always a crop of current market timing gurus in the news that have a great year or two, but ~95% them never have more than three great years in a row. The hare always messes up, takes too many naps, takes the most inefficient curved hilly and bumpy road, is too proud and overconfident, and snacks and goofs off way too much - all while the tortoise inches past the finish line first.
So in the long run, the returns of all market timing strategies rarely even come close to boring asset allocation strategies, especially considering all of the time that went into making the timing strategy, then you need to subtract both the trading costs of short term market timing (which are very high) and also the short-term capital gains taxes from the profitable trades. Market timing (and stock picking) is a lot more fun and interesting than asset allocation, but it makes a lot less money long-term.
Here's some directions: If you're modeling with our Index Funds Model, then when you get to asset classes that don't have a funding vehicle, then just go to that sheet and type over that cell on that model. The same goes for the returns. If you want to model using the Benchmark Index Model, but want to see 10-year returns, then just manually input them into one of the three return columns on the Conservative Model of the Benchmark Index Model sheet. Just keep in mind that the results sheet just gets its data from the models that are already there, and they're not protected, so you can edit all kinds of things there and they'll show up on the timing calculator's result sheet.
Prices and ordering information are at the bottom of the Model Portfolios page. Sorry, but this is not a stand-alone financial tool. It's hard-wired into the investing models, so you you'll need to buy the models to get this calculator.
There is no support for this market timing calculator! So when you see the prices, only the unsupported prices apply.
Good luck, you're gonna need it! ☺Please let us know if you do have good luck, and how, and we may reward you with free financial software.
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