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Livermore Active Issues Index for Friday, Feb 5th

February 5, 2010

A reader pointed out that last week’s performance was overstated and he was in fact correct, I computed things manually at the time  (Corey was away) and I missed a switch.  We ran the numbers using the computer this week and corrected everything. The last couple weeks has not been kind to the Livermore and to the general market-wiping out the small outperformance and putting the index in a small drawdown. However, as a long term rotational strategy, it will not outperform the index all the time and it is certainly more prone to drawdowns than short-term strategies. The hedged Livermore investor would be down a mere 2% from inception, and this is the model index that was presented as the best performing version on a risk-adjusted and absolute return basis. If you used trailing stops through this period, you would probably be about even. Following these types of long term strategies successfully is like flossing your teeth—it should be treated as an essential yet mundane activity that you must do regularly for it to work. Have fun with your short-term or discretionary trading for a small portion of your portfolio (unless you are a pro), but let these passive strategies do the heavy lifting over time. The Livermore allows you to hold the true leaders or soon to be leaders in the market.  If you can’t make money out of the market leaders, than you can’t make money in the market.

6 Comments leave one →
  1. Tastylunch permalink
    February 6, 2010 12:41 am

    your LI is fascinating, I can see why you are going to take it pay.

    Forgive my ignorance or if I Missed this somewhere (I just read all your LI posts)

    but when is this index rebalanced?
    I know it’s weekly but say using your table above were new additions ILMN, AMZN, EXPE and CEPH made at today’s close and are active for next week?
    Or did they go active earlier and could be swapped out?

    I would think when it’s rebalanced might have a significant effect on it’s outperformance…


    • david varadi permalink*
      February 6, 2010 12:49 am

      hi, the rebalancing is done as of thursdays close and the index is generally published on friday morning/afternoon. of course i could easily publish in real-time, which would make the backtesting more comparable to when i release. however, unlike short-term strategies that are published end of day, this strategy maintains its edge over long periods, and you can rebalance monthly and still get nearly the same results.


      • Tastylunch permalink
        February 6, 2010 5:57 pm

        wow that is extremely durable if it works rebalancing monthly or weekly!

        Thanks very much!

      • david varadi permalink*
        February 6, 2010 10:20 pm

        no problem tasty, glad you like it.

  2. Dave Svilar permalink
    February 6, 2010 12:01 pm

    Good to get your take on the LI. Based on the equity curve it appears that if the LI top 10 are to underperform, it will be in a falling market, or when the trend reverses. This makes me wonder how the LI bottom 10 fair in a falling market? In an older post you commented that hedging using the lowest rated LI stocks would incur less risk. Would be interested to hear more about this in the future.


    • david varadi permalink*
      February 6, 2010 10:20 pm

      hi dave that is a good idea and i will try to test this in the next couple weeks. indeed a market neutral long/short does very well but i have yet to post this. as for your first comment, the only time the livermore seems to underperform is indeed in the short transition periods, once a trend gets under way it begins to outperform again regardless (ie 2008 the hedged did well).


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