One year ago today I published my first post, starting a journey outlining my unique views on investing. Ironically, one year later the S&P 500 index is nearly at the exact same place it was on that night. (2746.56 this morning vs 2743.07 a year ago).
While the market has followed the earth, returning to the same place it was a year ago, the blog has taken a different journey. I had never published anything before last year, but felt a duty to release my ideas into the public. I was confident the concepts worked, and over the last year while the market has been flat, Geometric Balancing (unlevered) gained over 20%. My initial claim of creating the “finest investment strategy ever” was of course a bit over the top. But after one year, maybe you’ll see it may only be a slight hyperbole.
More importantly, and to my great joy, many people have been drawn to the theories outlined here. Thousands and thousands of readers from 87 different countries have visited, read, and enjoyed the blog. I’m truly honored.
Thank You For Reading
Meb Faber has a wonderful post about how “nobody wants to invest in your shit“. Meb published the article while I was writing the “Welcome” post and it influenced much of my thought about what the blog needed to become. The timing seemed pre-ordained as a warning of what I was getting myself into. The article is as much about writing as it is about investing, describing how an author asks their readers to spend their most precious resource: their time. Many of you have given this blog your time in spades and I couldn’t be more humbled by your gesture.
Thank you.
A Second Influence
Secondly, this twitter thread from Taylor Pearson greatly influenced how I structured the “Welcome” page, as well as my following posts. For anybody who is trying to “sell” anything I highly recommend it, and the blog post that followed months later. While I’m not really “selling” anything on this site (I make no money from it), I am absolutely asking for your time, which as stated above, is precious.
The Grand Purpose
Some people have realized this is much more than just an investing blog. It certainly is an investment blog, but the portfolio construction aspect is meant to be a conduit towards a larger goal. The grand purpose is to spread unique, world changing, philosophies about economics, markets and human behavior which are either unknown or currently lie outside the mainstream.
I believe a lot of investment theories are very flawed. Exhibit #1 is how many theories don’t work in actual implementation. They work in academia, but not in the real world.
The common investor is often harmed the most by faulty investment theories. It’s their hard earned wealth that lags market returns and suffers painful, potentially life altering drawdowns. It’s their hopes and dreams held hostage by the success or failure of their investment portfolios. I’d like to change that.
Geometric Balancing is a simple implementation of a different market theory that works wonderfully in practice. You may look at my posts today and say, “interesting, but can that really be true?”. You make look at the backtests and say, “that looks great, but lets see if it works in real time”. If I stumbled upon my blog, I would likely have a similar initial reaction.
But once one sees a simple investment strategy built with these concepts display it’s superiority with live trading, some will start to think, “there might be something meaningful here”.
Geometric Balancing is a Trojan Horse to get investors (and the investing world) to rethink how they construct and build their portfolios. It’s also a Trojan Horse for all the “evidence” of irrational investor behavior. I cringe at the belief that investors are irrational. You, my readers, are not irrational.
Of course it is also nice to exponentially grow your wealth on the way toward enlightenment.
Plenty More Posts In the Next Year
Lots of people are asking for more details.
I’m way behind where I wanted to be on the number of posts. Somehow, I have more pending posts now than I did when I started last year. I greatly underestimated the time it would take to write and manage this blog when I started. I have a career outside of finance, and a family and kids, which limit my free time. There is plenty more to say, but I’m not going to just post something that’s rushed and poorly done.
We’ll get there though. I have lots more on the way:
- Evaluating “The Man Who Solved The Market” and RenTech from the principles of Geometric Balancing
- Explaining how to expand the portfolio balancing concepts to multiple assets.
- Examining why I don’t short sell
- Showing mathematically why indexes should trend
- Explaining how measurement error makes “Peak Kelly” not optimal
- Discussing balancing a portfolio for other optimizations than pure return
- Expanding the blog’s concepts to interpret the leading economic theories
- Showing a mathematical reason why inequality has increased in the world (and what’s causing it)
- Discussing why drawdown is more important than volatility
- Providing an explanation for the investor behavior gap.
- Explaining why bonds are negatively correlated to stocks today, but were not 40 Years ago.
- Among many others.
Is The Blog Helping?
From communicating with some of you, I know some are trying to create your own versions of Geometric Balancing. I think this is great and hope there are many more experimenting with their own versions as well. The more that people explore these ideas on their own, the faster the ideas will spread, and the more they will become refined and broadly implemented.
Secondly I know others (maybe many more) are trading off of the strategy at the top of the blog or from the weekly updates.1 So I’d love to hear in the comments or on Twitter:
How many people are trying to implement a Geometrically Balanced strategy? Has it worked for you, especially over the past few weeks?
Is anyone sleeping better because of it?
Thanks again for reading. I’m looking forward to exploring another year together.
1-I said earlier I didn’t recommend doing trading from the live strategy as one:I’m not a finance professional, two: the numbers at the top do break from time to time and three: that portfolio isn’t necessarily correct for everyone. I’ve been constantly updating the code to prevent or signal when its broken. I just added a date to the data since some browsers can pull old versions for some reason. But the point still stands, none of this is meant to be trading advice for you, even though it is precisely what I follow myself.
Assuming the market tanks for real soon, we’ll get to see how geometric balancing weathers the storm. In the mean time, thanks for sharing your labour of love with the world. Giving up time to read almost all of your posts in return for thought-provoking enlightenment has been a worthy trade-off.
Hi BTM,
As you know, I am implementing this and running it for real on my entire net worth.
I don’t know how to thank you enough!
I’d already been (largely) following the Permanent Portfolio, but with my own (amateur) changes to the asset weights.
I now have a beautiful mathematical reason to assign particular weights, which fortunately I managed to implement before the recent market insanity.
As a result, I have more long bonds than ever before, and am grateful both to them and to you!
I continue to refine my model and experiment with assets / methods that can improve my trades.
Best wishes,
James
Just finished reading the blog – you’ve got very interesting ideas. Thank you for sharing them!
Really looking forward to seeing your portfolio return this week – it’s a major crash test. But just from the numbers at the top of the page I see you’ll beat S&P by a lot 😀
I’m trading off the strategy with real money. It’s working great — and definitely has helped me sleep better!
I’d love more detail as to your model, but I’m finding the model I’ve made, pieced together off hints from your previous blog posts, comes close to your numbers. Really appreciate you explaining the underlying principles in depth
I felt I should update my previous comment for the benefit of others.
After a lot of testing, I am sceptical that Geometric Rebalancing is superior to simple fixed-weight allocations, such as 1/3 Gold, 1/3 S&P, 1/3 TLT rebalanced monthly / quarterly / annually.
Significant testing suggests that short-term volatility does not predict future volatility and the same goes for correlations.
For example, in one backtest using 41 years S&P, TLT and Gold in USD, using correlations and trailing returns to determine which assets to be over/under weighted seemed to indicate choosing the outperforming asset delivered better returns than a simple 1/3 split. However, running the same on 8 years of Global Stocks, UK Long Gilts and Gold in GBP, the opposite was true.
I really want Geometric Rebalancing to work, but I’m dubious that it’s any better than a fixed-weight (e.g. 50% stocks, 35% Bonds, 10% Gold, 5% Cash) method and that the real-world costs and lag out of bottoms outweigh its potential benefits.
I’ll continue to follow the blog because I love the idea, but I’m no longer using it to manage my portfolio.
Please add 1/3 split and/or 50/35/10/5 as benchmarks in future posts BTM!
Best wishes.
I’ll think about adding the 1/3rd split or either a pure permanent portfolio to some of these. I don’t see the logic of comparing to a 50/35/10/5 portfolio since that may just be a portfolio that worked well in the past.
I apricate your efforts in attempting to implement the strategy yourself. You exemplify the spirit I’m hoping to bring out in people from this blog. Even if you do use some other method, I hope some aspects of these theories benefit your investing in the future. I look forward to your thoughts on future posts.