What's the Risk?

General TSP Discussion.

Moderator: Aitrus

User avatar
12squared
Posts: 675
Joined: Thu Dec 31, 2015 7:28 am

Re: What's the Risk?

Post by 12squared »

hmarkway wrote:So is this the correct way to get the Sharpe number?:
    (Mean of strategy - Mean of G fund)/SD of strategy
So for #15670 (2004-2016: Mean=33.23 & SD=7.48; G fund Mean=3.09):
    (33.23-3.09)/7.48 = 4.03
And then we can use the same table to determine the chance of exceeding the G fund? Without changing the table, correct?


You need to compute Sharpe using the year by year data for each strategy, and the G fund.
The Means and StdDevs must be of the same parameter, the excess return for each year.
Sharpe = Mean(strategyYEAR - G fundYEAR) / StdDev(strategyYEAR - G fundYEAR)
“The genius of investing is recognizing the direction of the trend – not catching the highs or the lows.”
- Dean Witter

"Put all your eggs in one basket and then watch that basket."
- Andrew Carnegie

hmarkway
Posts: 61
Joined: Thu Apr 12, 2012 8:14 am

Re: What's the Risk?

Post by hmarkway »

12squared wrote:
hmarkway wrote:So is this the correct way to get the Sharpe number?:
    (Mean of strategy - Mean of G fund)/SD of strategy
So for #15670 (2004-2016: Mean=33.23 & SD=7.48; G fund Mean=3.09):
    (33.23-3.09)/7.48 = 4.03
And then we can use the same table to determine the chance of exceeding the G fund? Without changing the table, correct?


You need to compute Sharpe using the year by year data for each strategy, and the G fund.
The Means and StdDevs must be of the same parameter, the excess return for each year.
Sharpe = Mean(strategyYEAR - G fundYEAR) / StdDev(strategyYEAR - G fundYEAR)


Ohhh.. But if you're only looking at one year of data, the StdDev would be zero because you need multiple data points to find a StdDev.
Current Allocation: 50/50 split F/G Funds, as of 1/3/2018
Strategy: Loosely following Daily Seasonal #16198 until I figure out my 2018 plan when all the main plans start diverging.

User avatar
12squared
Posts: 675
Joined: Thu Dec 31, 2015 7:28 am

Re: What's the Risk?

Post by 12squared »

hmarkway wrote:So looking at #7980, with a 2004-2016 mean of 36.96 and a SD of 16.54, you get a mean/SD ratio of 2.2. Which means that at least 0.56 in 40 years should be negative, but at most (99% chance) 2.76 years out of 40 will be negative. Not terrible odds unless they are super negative years....

So if I decide that I'm more comfortable with a ratio of 2.8 where at least 0.104 years in 40 would be negative, but there's a 99% chance that not more than 0.74 years in 40 would be negative (and just over 1 year in 60). The strategy that "best" (= with the highest mean) fits 2.8 is 15560 with a mean of 35.74 and a SD of 12.27 with a ratio of 2.9.

Looking at the highest ratio on our chart, 3.4, the risk of a strategy with this ratio would boast a 99.9% chance that at most 0.256 years in 40 (or 0.64 in 100) would be negative. If you look at the current king of low risk, 15670, the ratio is off-the-charts at 4.44 (33.23/7.48), which would suggest that it will almost never be negative.

Of course we are dealing with a very small data set, so every year it will adjust, but I think it's safe to say, that unless I'm missing something, there are some really great options of different strategies that hold high means, but also provide warm fuzzies of low risk. Personally, I think I'm comfortable going for the highest mean with a ratio of > 2.8, which is 15560. Unless of course the mean margin of error matters more than I'm understanding, and in which case, 15242 with an SD of 6.96 or 15670 with an SD of 7.48 would probably be the way to go.


It may be more useful - and possibly less confusing - to use the Chance of Negative Return table to determine the relative risk of strategies having different Mean/SD ratios or σ0 - the multiple of standard deviations at which the result is zero.
In the previous example, Strategy A (mean of 30 and a SD of 10), σ0 = 30/10 = 3.0. For strategy B (mean of 40 and a SD of 25), σ0 = 40/25 = 1.6. Their respective chances of negative returns (at 0% confidence) are 0.135% and 5.48%. Therefore, B has a 5.48/0.135 = 40.6 times greater chance of having a negative year than A. At 95% confidence, the difference is 14.5 / 0.70 = 20.7 times greater.


hmarkway wrote:How is the margin of error in the mean proportional to the SD? I guess I'm still hung up on the margin of error chart. Double the error is okay if you have double the mean - because that puts the mean twice as far away from zero? "Okay" in terms of not likely to be negative? I'm sorry if I seem to be chasing my tail. I'm just really confused by that chart.


Take a look at https://www.mathsisfun.com/data/confide ... erval.html
X ± Z∙s /√(n)
Margin of Error is the part to the right of the ±.
“The genius of investing is recognizing the direction of the trend – not catching the highs or the lows.”
- Dean Witter

"Put all your eggs in one basket and then watch that basket."
- Andrew Carnegie

ksmoly04
Posts: 66
Joined: Thu Oct 06, 2016 2:08 pm

Re: What's the Risk?

Post by ksmoly04 »

Great work 12squared. I've been enjoying this thread. The one question that I want to ask, and I haven't seen already put forward is this:

Is there any further reduction in the "probability of a negative return" once you get above the sigma = 3.4 ? I see that the daily you're following has a 4.44 sigma... how does that compare with a strategy that hits the 3.4 sigma exactly?
Daily Seasonal Since: August 23, 2017
Current Strategy: 16198 / 7.21σ

User avatar
12squared
Posts: 675
Joined: Thu Dec 31, 2015 7:28 am

Re: What's the Risk?

Post by 12squared »

ksmoly04 wrote:Great work 12squared. I've been enjoying this thread. The one question that I want to ask, and I haven't seen already put forward is this:

Is there any further reduction in the "probability of a negative return" once you get above the sigma = 3.4 ? I see that the daily you're following has a 4.44 sigma... how does that compare with a strategy that hits the 3.4 sigma exactly?

Given only 13 or 14 years of data, I am 99% certain that a strategy having a sigma0 (σ0) of 4.4 is about 32 times less likely to have a negative return than one whose sigma0 is 3.4.

I've been looking for a reason to post an updated table ever since strategies with mean/SD greater than 3.5 became a reality.
Image
Image
“The genius of investing is recognizing the direction of the trend – not catching the highs or the lows.”
- Dean Witter

"Put all your eggs in one basket and then watch that basket."
- Andrew Carnegie

User avatar
fordest
Posts: 605
Joined: Wed Sep 26, 2012 3:48 pm

Re: What's the Risk?

Post by fordest »

I am following this thread from a very high level. Not even trying to understand the math. But, 144, take a look at a strategy I just added: 15791. Does that have a sigma of 4.91?
100% in the daily system since August 2, 2017.
Following strategy (current pick) #88676. 2020 real life has been following #110838

User avatar
fordest
Posts: 605
Joined: Wed Sep 26, 2012 3:48 pm

Re: What's the Risk?

Post by fordest »

fordest wrote:I am following this thread from a very high level. Not even trying to understand the math. But, 144, take a look at a strategy I just added: 15791. Does that have a sigma of 4.91?


15795 5.54?
100% in the daily system since August 2, 2017.
Following strategy (current pick) #88676. 2020 real life has been following #110838

User avatar
12squared
Posts: 675
Joined: Thu Dec 31, 2015 7:28 am

Re: What's the Risk?

Post by 12squared »

fordest wrote:
fordest wrote:I am following this thread from a very high level. Not even trying to understand the math. But, 144, take a look at a strategy I just added: 15791. Does that have a sigma of 4.91?


15795 5.54?


I can hardly believe my eyes - 15793 and 15795 are.. 5s...5s...5s! We'll need to use my largest scales.

How did you uncover these gems?
“The genius of investing is recognizing the direction of the trend – not catching the highs or the lows.”
- Dean Witter

"Put all your eggs in one basket and then watch that basket."
- Andrew Carnegie

User avatar
fordest
Posts: 605
Joined: Wed Sep 26, 2012 3:48 pm

Re: What's the Risk?

Post by fordest »

12squared wrote:
fordest wrote:
fordest wrote:I am following this thread from a very high level. Not even trying to understand the math. But, 144, take a look at a strategy I just added: 15791. Does that have a sigma of 4.91?


15795 5.54?


I can hardly believe my eyes - 15793 and 15795 are.. 5s...5s...5s! We'll need to use my largest scales.

How did you uncover these gems?


I was playing with your super safe strategy and started changing things to make it more like the one I am following and lo and behold things started happening.... now look at. 15807 and 15805... 5.81

The problem with this might be that some of them are currently under 20%. They may not keep that number into 2018. We will have to watch and see.
100% in the daily system since August 2, 2017.
Following strategy (current pick) #88676. 2020 real life has been following #110838

User avatar
12squared
Posts: 675
Joined: Thu Dec 31, 2015 7:28 am

Re: What's the Risk?

Post by 12squared »

fordest wrote:
12squared wrote:I can hardly believe my eyes - 15793 and 15795 are.. 5s...5s...5s! We'll need to use my largest scales.

How did you uncover these gems?


I was playing with your super safe strategy and started changing things to make it more like the one I am following and lo and behold things started happening.... now look at. 15807 and 15805... 5.81

The problem with this might be that some of them are currently under 20%. They may not keep that number into 2018. We will have to watch and see.


This was exactly what I hoped might happen when I began this thread. Rep Points headed your way.
“The genius of investing is recognizing the direction of the trend – not catching the highs or the lows.”
- Dean Witter

"Put all your eggs in one basket and then watch that basket."
- Andrew Carnegie

User avatar
fordest
Posts: 605
Joined: Wed Sep 26, 2012 3:48 pm

Re: What's the Risk?

Post by fordest »

I have to quit for a little while. Maybe somebody else can pick up where I left off. But I am going to leave you with a 6.2

15817
100% in the daily system since August 2, 2017.
Following strategy (current pick) #88676. 2020 real life has been following #110838

User avatar
12squared
Posts: 675
Joined: Thu Dec 31, 2015 7:28 am

Re: What's the Risk?

Post by 12squared »

fordest wrote:I have to quit for a little while. Maybe somebody else can pick up where I left off. But I am going to leave you with a 6.2

15817


Show off! :P
Looks like 15822 & 15821 are in the 6 sigma club as well? Are they also yours?
“The genius of investing is recognizing the direction of the trend – not catching the highs or the lows.”
- Dean Witter

"Put all your eggs in one basket and then watch that basket."
- Andrew Carnegie

User avatar
fordest
Posts: 605
Joined: Wed Sep 26, 2012 3:48 pm

Re: What's the Risk?

Post by fordest »

yes. I got to those two while trying to decrease the amount of time in S in February.
100% in the daily system since August 2, 2017.
Following strategy (current pick) #88676. 2020 real life has been following #110838

bad70nova
Posts: 245
Joined: Thu Oct 17, 2013 10:18 am

Re: What's the Risk?

Post by bad70nova »

OK with thousands of daily stratagies out there now, how to know what one to actually follow? I currently do the seasonal 1 move a month, thinking about jumping in and seeing where these may take me. Been to TSP Calc and looked around, but no idea what one to follow. I would say any suggestions, but guessing I will get 500 different answers. But here it goes any suggestions.

User avatar
fordest
Posts: 605
Joined: Wed Sep 26, 2012 3:48 pm

Re: What's the Risk?

Post by fordest »

Like any other investing, the first thing you need to decide is how much you want to put into it. How much time, how much risk.

Do you want to have to make fewer IFTs per year?
Do you want to limit your time in stocks (CSI)?
Do you want a really high average with greater chances of high returns?
Are you willing to accept the risk that goes with that?
Or do you want a more stable strategy with a smaller amount of deviation?

Once you know what is important to you, you can filter using the tool on the right and find a strategy that you can call your own.
100% in the daily system since August 2, 2017.
Following strategy (current pick) #88676. 2020 real life has been following #110838

Post Reply

Fund Prices2024-03-28

FundPriceDayYTD
G $18.15 0.05% 1.05%
F $19.08 -0.06% -0.74%
C $82.21 0.11% 10.55%
S $82.43 0.30% 6.92%
I $42.57 -0.24% 5.95%
L2065 $16.38 0.02% 8.37%
L2060 $16.39 0.02% 8.38%
L2055 $16.39 0.02% 8.38%
L2050 $32.73 0.01% 6.95%
L2045 $14.91 0.02% 6.58%
L2040 $54.38 0.02% 6.22%
L2035 $14.34 0.02% 5.79%
L2030 $47.67 0.02% 5.38%
L2025 $13.15 0.03% 3.43%
Linc $25.61 0.03% 2.82%

Live Charts

Pending Allocations

Under development. For now, you may view Pending Allocations by going to "fantasy TSP" and selecting "Leaderboard sort" of "Pending Allocations".