No. of Recommendations: 4
but there are two separate facets. One is stock picking, the momentum part. Clearly these Naz screamers are going to outperform the S&P500 index.
Yes. Although I wouldn't say "clearly these stocks...." The only reason we are looking at these are BECAUSE they are screamers.
Do the same backtest using Sp500 (VFINX) instead of Nas100. Over the same time period it beat B&H by 3.4 points. (16.6% vs. 11.2%).
The other facet is timing, the topic of this thread. It is well recognized that it is hard to get a higher CAGR with any timing. Mungo's 99-day rule is the only method that comes to mind that improves return in addition to reducing volatility.
If a timing scheme improves the return, that is just a happy coincidence. The true purpose of timing is to avoid the brunt of a huge downturn in deep bear markets. Anything beyond that is just icing on the cake.
There are others. 43 week SMA using GTT is one. For these NAS screens almost all the timing variations I've tried improved the return -- albeit just a little -- while greatly reducing the drawdowns from sky-high to just massive-nosebleed high.
However, I will rummage around and look for the 99-day spreadsheet I made a while back and see to trying that.
GTT works on normal screens because it prevents you from selling when the general economy is doing good. I think it doesn't work here because these stocks are in a special sector and not part of the general economy.
I could be wrong, but it seems that a method the improves CAGR with an index would be likely to improve the performance after being applied to a momentum screen.
Indeed. I've thought about this a lot. It lends itself to special pleading, which I try to be wary of.
I think it works with high volatility investments when it cuts off the large downturns more than it cuts off the high positive excursions.
