09 Jan Stocks – This Strategy Has Beaten the Market for 60 Years
Stocks – This Strategy Has Beaten the Market for 60 Years
Jan. 9, 2023
In my previous life as a high-performance tennis coach, I used to do themes.
While most tennis programs have kids show up and do whatever, I found that putting your mind into your work dramatically increases learning.
By a lot.
So, each week we’d have a theme. It could be forehand short balls, backhand out of trouble, 2nd serve return, or one of several other topics. When they showed up on Monday, they knew what they were getting that week. It got to the point that they looked forward to it and would ask me what the theme was if they couldn’t make practice that day.
Which begs the question: Why haven’t I done the Newsletter that way?
Hmm, that’s a tough one.
Because I’m a moron?
Well, we’re doing it now.
Like I’ve mentioned, I’ve gotten so much great feedback over the past ten days. In fact, one of the emailers even asked me to do a theme. Of course I should do that.
This way, if you aren’t interested in a certain theme, you can ignore me for a week. If you are interested, then you’ll get consecutive content that will hopefully flow nicely.
I should have done this sooner. Forgive me for being obtuse.
This week we’re looking at something remarkable. Mind-blowing even.
It’s a ridiculously simple system that’s beaten the market since the 1960s with a mere fraction of the drawdown of buy-and-hold.
I defy any passive investor to say buy-and-hold indexing is better than this trading strategy. I also think almost no one will believe what I’m about to write.
Here’s the system:
- Monthly chart on SPX
- Buy $10k worth of stock when price closes above the 15-month simple moving average (SMA)
- Exit when price closes below the 12-month SMA
Here’s this system getting all the wins of the incredible bull market of 1995-2000 and suffering none of the drawdown of the Dot-Com Crash, as well as keeping us out of the Financial Crisis of 2008:
Here it is sidestepping the pandemic in 2020:
It gets all of the bullishness and is not in the market during major crashes.
And if we factor in drawdowns, this system more than doubles passive investing buy-and-hold over the same period:
Here is the Performance Report using Portfolio Architect:
Here’s the Equity Curve:
Both strategies would collect dividends, so I left that out.
In summary, this system is more than twice as good as buy-and-hold on a risk-adjusted basis.
If I were a passive investor, that would give me pause.
We’ll look at a few more stock systems this week.
Talk to you soon.
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.