Valuation & Momentum — The Impossible Dream

This piece is a brief and final update to the piece The Holy Grail Projects, which I have since renamed “The Impossible Dream” projects.  I have solved both of them, and with far less effort than I would have anticipated.  There is a way to gain superior bond performance, with one factor, at least as far as the past is concerned, but with higher volatility.

For equities, two simple factors are required, but they beat the market by 2%/year with 70% of the equity volatility over 130 years.

Personally, I find these two results surprising, particularly in the short time that I received them.  That said, I only passed over the data once for each project, which gives me more confidence in the results.

If you have interest in this, e-mail me.  In general, I have not favored tactical asset allocation in the past, but these measures have given me some confidence.

PS — from my days at Provident Mutual in the 90s, what I have replicated is similar  to what one firm I interviewed showed us who had the best track record.  I was really impressed with them and that gives me more confidence.