2. A 5-year holding period was used to lower transaction costs. However, in the last year, on average, only 43 S&P 1500 stocks had 10-day average dollar volume less than $2,500,000 . Using 0% friction might be reasonable. So a different rationale is needed for the 5-year holding period. The holding period does not affect the scatter much, and so one can use whatever is convenient.

Randomly choosing a new portfolio every year doesn't affect CAGR much, and has little effect on scatter. Maybe something like:

S&P 1500 5-year rebalance: SDpop 41
S&P 1500 annual rebalance: SDpop 46
S&P 1500 monthly rebalance: SDpop 40
S&P 500 5-year rebalance: SDpop 33
S&P 500 annual rebalance: SDpop 31
S&P 500 monthly rebalance: SDpop 29

Depth needed to get a 1.5 SDcg over 10 years:
Depth = ((SDpop / SDcg)^2) / yrs
S&P 1500 5-year SDpop 41 => Depth 75 needed
S&P 1500 annual SDpop 46 => Depth 94 needed
S&P 1500 monthly SDpop 40 => Depth 71 needed
S&P 500 5-year SDpop 33 => Depth 48 needed
S&P 500 annual SDpop 31 => Depth 43 needed
S&P 500 monthly SDpop 29 => Depth 37 needed

To get a similar scatter, one could rebalance 75 S&P 1500 stocks every 5 years, or rebalance 40 S&P 500 stocks every year. The holding period (5-year, annual, or monthly) has little effect on the scatter.

          Screen            yrs  Depth  AT  SDcg  SDpop  CAGR  GSD    From       To     settings
   Dartboard75hash4quin     10     75   0   1.47    40    11   22   20130308  20230310  h253n5r5
  Dartboard75hash4annual    10     75   1   1.62    44    11   23   20130308  20230310  h21n12r12
  Dartboard75hash4monthly   10     75   11  1.41    38    10   24   20130308  20230310     h21
  500Dartboard40hash2quin   10     40   0   1.31    26    11   19   20130308  20230310  h253n5r5
500Dartboard40hash2annual   10     40   1   1.25    25    11   20   20130308  20230310  h21n12r12
500Dartboard40hash2monthly  10     40   11  1.35    27    12   20   20130308  20230310     h21

          Screen            yrs  Depth  AT  SDcg  SDpop  CAGR  GSD    From       To     settings
   Dartboard75hash4quin     28     75   0   0.84    39    11   22   19941003  20230310  h253n5r5
  Dartboard75hash4annual    28     75   1   1.08    50    12   23   19941003  20230310  h21n12r12
  Dartboard75hash4monthly   28     75   11  0.90    42    11   24   19941003  20230310     h21
  500Dartboard40hash2quin   28     40   0   0.93    31    11   20   19941003  20230310  h253n5r5
500Dartboard40hash2annual   28     40   1   0.99    33    11   21   19941003  20230310  h21n12r12
500Dartboard40hash2monthly  28     40   11  0.86    29    11   22   19941003  20230310     h21

A 1-year trading date interval was used. Shorter trading date intervals will hold less cash, and follow index changes more closely. The benefits are small, with almost identical CAGR and GSD using 1-month and 12-month trading date intervals. Trying to follow the index closely by trading monthly might lower CAGR slightly.

          Screen           CAGR  SAWR  GSD  Sharpe  AT     From       To      setting   yrs  Depth  SDcg  SDpop
 500Dartboard40hash1quin   12.1  8.0   19    0.51   0.3  19570301  20230310  h253n5r5   66     40   0.58    30
500Dartboard40hash1annual  12.1  7.8   19    0.50   0.9  19570301  20230310    h252     66     40   0.63    32
 500Dartboard40hash1_12m   11.8  7.7   20    0.48   1.1  19570301  20230310  h21n12r12  66     40   0.69    36

quin uses h253n5r5 setting: rebalance and trade every 5 years.
annual uses h252 setting: rebalance and trade every 1 year.
12m uses h21n12r12 setting: trade monthly, rebalance annually, hold for at least 12 months.

https://gtr1.net/2013/?~500Dartboard40hash1quin:h2...
https://gtr1.net/2013/?~500Dartboard40hash1annual:...
https://gtr1.net/2013/?~500Dartboard40hash1_12m:h2...

Mechanical Investing FAQ

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