Okay, so I think I’ve been doing a bit too much patting myself on the back lately and not enough sober reflection and work. Presenting the December 2010 results in the table below will be a good start toward clearer, more concise, monthly results reporting for the Automatic 7 tactical asset allocation (TAA) systems.
I have been trading a large percentage of my net worth in the system labeled A7(2) below since the market close on November 30th, 2010.
The good news is that A7(2) did have the highest absolute and risk adjusted returns in December. I continue to use GTAA as the benchmark for A71 and A7(2), and both versions of A7 outperformed GTAA on both an absolute and risk adjusted basis.
A7 Mom and Pop underperformed its benchmark on both counts. Indeed, December 2010 was a great month to hold equities, and a fairly volatile month for bonds…hence the under performance, as Mom and Pop held 50% of assets in bonds last month vs. 40% in the benchmark portfolio.
MarketSci TAA and its benchmark are included for reference…the thought there being that if A7 does not outperform MarketSci, then I would be foolish not to follow MarketSci’s strategy, especially since it is currently published for free in real time.
Bottom line…December was great because stocks did well, but clearly one month does not make a trend, and even more clearly, A7 was exposed to equities 100% in December, which on some level is akin to playing flash crash Russian Roulette. 
Notes:
Returns and volatility calculated at ETFReplay.com (11/30/2010 – 12/31/2010)
(GTAA) Cambria Global Tactical ETF
MarketSci TAA
Results for December 2010 (including dividends):
Automatic 7 : 7.26%
GTAA (Benchmark) : 4.68%
Mom and Pop : 3.06%
MarketSci (Benchmark) : 1.2%
The results for Automatic 7 in the month of December were a positive 7.26%, which came from holding a 50/50 split of VTI and VWO. For the month of January, the model has retained VTI and rotated out of VWO and into DBC; that is, we are staying in US Equities, but moving into commodities, while moving out of emerging market stocks.
GTAA returned 4.68% in December (after adjusting for a .22213 cent per share dividend that Yahoo has so rudely failed to factor in), so Automatic 7 produced returns that were 54% higher than the benchmark. From the first day that I read the prospectus on GTAA, I wondered if I should just stick my money there and forget about it. My gut tells me that this product is a bit too expensive, and perhaps a bit too complicated to boot, so at any rate, I am happy to be off to a good start with Automatic 7, which is much simpler, though it may prove to be more volatile as well. Only a real track record will tell that story going forward…
The (tiny) graph below shows the cumulative equity chart of Automatic 7, labeled as A7 (2), since it holds two asset classes. I am still toying with the idea of running a psycho aggressive version of Automatic 7 that uses the top asset class only and uses leverage as well. Since I have a very short backtest and real time record with this strategy, actually trading this psycho aggressive version is probably not a good idea.
I have been attempting to get some third party tracking going on here, since as Michael Stokes has so rightly said, if it’s not audited, it doesn’t count…however, my account on Covestor has been waiting for approval for over one month, and I am not entirely sure that I like the setup on Collective2, so I may need to simply get better at posting the trades here. After all, this system is so simple, it’s boring…
I have been very pleasantly surprised with the efficiency of market on close orders. They have allowed me to get into and out of my positions very near the closing price on the last trading day of the month, which should, by definition, keep slippage to a minimum, and allow me to capture more of the gains that the system produces.
Upon further reflection, it doesn’t really make sense for me to benchmark Automatic 7 against MarketSci’s TAA model, since Michael’s model benchmarks a 50/50 split of SPY and IEF (Stocks and Treasury Bonds), unless I am doing so on a risk adjusted basis. I will note, however, that the more conservative “Mom and Pop” version of Automatic 7 returned 3.05% in December, and perhaps it will be appropriate to benchmark that version of the system against MarketSci, which, for the record, returned 1.2% in December against 1.4% for it’s own benchmark, the aforementioned 50/50 split of SPY and IEF.
Finally, I do want to express deep gratitude to Michael Stokes for publishing MarketSci. Without his blog, I’m not sure how long it would have taken me to discover that TAA really is that good.
