26 Dec What Worked (Or Didn’t Work) in 2019
What Worked (Or Didn’t Work) in 2019
Dec. 25, 2019
As the year comes to a close, I like to look at what worked and what didn’t work in 2019.
If we looked at what worked, we might be able to replace our under-performing systems with something more useful.
If we look at what didn’t work, then we can be confident on our current trading path.
Last, by analyzing what worked in a 12-month market environment, we might be able to better match up our portfolio with the market we’re dealing with.
So, let’s get to it. We’ll look at a bunch of systems, give their performance, and a do a quick re-cap.
- System: Vanguard VFINX S&P 500 Index Fund
- Available to anyone? Yes
- Cost: Nominal
- System methodology: Just buy and index fund and do nothing.
- 2019 Performance: +27.50%
- Comments: Anyone can get an index fund from Vanguard and most people have. Index funds are now the dominant investment vehicle in trading–and it was dominant in 2019. The market went up without relenting and made 31 new all-time highs. Passive investors won big this year.
- System: Magic Formula Value Investing
- Available to anyone? Yes
- Cost: Free
- System methodology: Use the free scan, which gives 30 stocks that are “good companies on sale”. Hold all the Magic Formula stocks for a year and one day, and then refresh with new stocks from the scan.
- 2019 Performance: -4.43%
- Comments: Over a 3-year period, the Magic Formula system has beaten the market every time. But it got killed by the market in 2019. While the portfolio, created on 1/1/19 had big winners like LRCX (+73%) and KLAC (+67%), it was also riddled with losers like GME (-52%) and CASA (-64%). It turns out that a lot of the picks were average companies and elevated prices. This usually works out over the long-term, but being a Magic Formula value investor this year was a tough deal.
- System: Dunn Capital Management
- Available to anyone? No. You must be a qualified investor with at least $1,000,000 in net worth or two years of at least a $300k income (spouse included).
- Cost: Reasonable, when considering most fund costs.
- System methodology: Dunn is a 100% automated trend following system. It uses long-term charts and goes for maximum return.
- 2019 Performance: +17.46%
- Comments: Trend following was a reasonably good system in 2019. The U.S. market mostly went straight up, but there were a lot of global issues affecting big portfolios like Dunn. U.S. stocks were easy, but a lot of other funds/systems found some difficulty in the dramatic geo-political environment found around the globe. Dunn managed these obstacles successfully, just not as well as the U.S. stock market.
The takeaways so far? The U.S. stock market was a behemoth. With no trading knowledge and no investing experience, just buying and holding the market could put us among the best traders in the world.
With out-performance like that, it would be easy to quit all our trading research and become a passive investor after the past 12 months.
Of course, it’s also easy to forget that the market was negative in 2018.
In our next email, we’ll look at some other systems to see how they did in this year’s market.
Talk to you soon.
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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.