The Double-Edged Sword of Trend Following
Two Quants and a Financial PlannerApril 22, 202400:53:52

The Double-Edged Sword of Trend Following

In this episode of Two Quants and a Financial Planner, we dive deep into the world of trend following investment strategies. We explain what trend following is, discuss the potential benefits such as downside protection during bear markets, and explore some of the challenges involved, including false signals, whipsaw risk, and the difficulty of sticking with the strategy during underperforming periods. We also talk about how trend following can be incorporated as one component of a diversified investment portfolio and why the sizing and blending of strategies is so important.

00:00 Introduction and announcement of PNL for a Purpose charity podcasting event on April 30th
03:37 What is trend following and how is it defined?
07:29 Return profile of trend following vs. buy and hold
11:12 Is trend following a form of market timing?
14:48 Various ways to measure trend (moving averages, death cross, etc.)
18:40 Trend following and commodities
20:37 Challenges of trend following (whipsaw, taxes, momentum crashes)
26:10 Trend following as a form of momentum investing
27:19 Jim O'Shaughnessy's "Two points of failure" framework and what type of investor trend following is suitable for
30:56 Importance of position sizing when implementing trend following
34:27 incorporating trend following into client portfolios
37:09 Blending different trend following methods and risk management techniques

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