4/5/2013

As many of you know from reading this blog before I have spent years doing quantitative research building models for hedge funds, Commodity Trading Advisors and Independent Research Firms, I was educated in Applied Economics and Statistics from Johns Hopkins University and The University of Chicago, and I have worked with many of the biggest and most expensive backtesting software packages, such as Compustat (which costs up to $50,000 a user) in the world.

But to be honest during all my days working for some of the smartest minds in the hedge fund industry and in High Level Academia, I have found that the simpler and easier the model is to understand the better it is. There are 1000’s of PHDs at Hedge Funds and on Wall Street from Ivy League Universities that have built highly sophisticated models and stil most of their models fail, Why, because they are just too complicated, they fall prey to data mining, curve fitting etc.

So with that I have been tinkering with a timing model for ETF’s and leveraged ETF’s based on the simple premise that all investors are controlled by things fear or greed, and that when fear or greed are at an extreme that is the best time to buy or sell short an asset class. With that I took over 20 different asset classes and ETFs: Stocks, International Stocks, Emerging Markets, Gold, Silver, Natural Gas, Tresury Bonds, Volatility, Oil, and various stock sectors (such as technolgy stocks, financial stocks and energy stocks) and backtested what would happen if you bought or sold short these Asset Classes and ETFs at moments of extreme greed or fear, and quite honestly I was shocked at the results.

Not only were the results incredibly profitable, using leveraged etf’s only the model returned over 82% a year and robust meaning (meaning the model made money in almost every month and quarter) but this ETF timing model literally picked almost all the tops and bottoms of most major asset classes, stocks, bonds, Gold etc. More interesting was the fact that the most profitable holding periods were longer than I expected (around 3 to 5 months) , so the model did not generate an excessive amount of trades, but consistently produced 100% plus returns using leveraged ETF’s.

The reason I am mentioning this, is my Leveraged ETF Timing Model has been producing some of the strongest signals I have ever seen in all my 12 years of backtesting.

I am seeing the start of 4 to 5 major trends in 4 to 5 different asset classes and by using leveraged ETF’s, I am pretty sure that I will able to produce a 100% this year off these signals, and the good thing it is not to late to act on these signals either.

Will Meade
Editor of the Billionaires Portfolio
wmeade@purealpharesearch.com