Post #2127 by zeelotes on the Mechanical Investing board

Investment Strategies / Mechanical Investing

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Jim wrote: If you do find yourself still long at a big pointy bear market bottom, whether it was a slow predictable bear or a sudden surprise plunge, as soon as you think the bottom is in it's a fabulous time to overweight small caps till about 14 months from the bottom.

This is good advice... most of the time. There is a caveat. The amount of forward returns are very much tied to the degree of drawdown in the previous bear market.

These are the dates I employed for testing this:

10/12/1990	BULL
11/11/1991	BEAR
10/8/1998	BULL
11/7/1999	BEAR
10/9/2002	BULL
11/8/2003	BEAR
3/9/2009	BULL
4/8/2010	BEAR
3/23/2020	BULL
4/22/2021	BEAR
10/12/2022	BULL
11/11/2023	BEAR

This shows the returns and stats for this whole period with a hold of from ten to one-hundred and twenty stocks:

# to Hold  ROI        CAGR    GSD    Sharpe  DDD3   BBW    Stock  % of Time  Drawdown
10         47098.89%  20.03%  22.64  0.84    3.27%  6.35   72%    19.28%     -35.78%
20         53841.65%  20.50%  20.15  0.94    3.89%  5.55   74%    19.28%     -40.81%
30         50326.01%  20.26%  18.89  0.98    2.87%  7.37   73%    19.28%     -38.62%
40         56227.95%  20.66%  18.16  1.03    2.00%  10.45  76%    19.28%     -37.85%
50         55959.08%  20.64%  17.8   1.05    1.82%  11.49  76%    19.28%     -34.72%
60         54282.88%  20.53%  17.52  1.06    1.74%  11.98  76%    19.28%     -32.33%
70         51616.77%  20.35%  17.25  1.06    1.72%  12.04  77%    19.28%     -32.03%
80         45528.37%  19.91%  17.07  1.05    1.81%  11.16  77%    19.28%     -31.90%
90         41070.91%  19.54%  16.86  1.04    1.84%  10.83  76%    19.28%     -31.94%
100        46220.05%  19.96%  17.56  1.02    1.89%  10.8   76%    19.28%     -31.60%
110        45941.41%  19.94%  17.22  1.04    1.90%  10.76  77%    19.28%     -30.61%
120        42208.94%  19.64%  16.9   1.04    1.89%  10.62  77%    19.28%     -29.59%

The best CAGR goes to the portfolio of forty stocks. Here are the returns for each hold:

Date        Signal  P  % G/L    Dow ROI
10/12/1990  BUY     L  38.98%   26.87%
10/8/1998   BUY     L  55.70%   38.63%
10/9/2002   BUY     L  177.72%  33.90%
3/9/2009    BUY     L  831.67%  66.90%
3/23/2020   BUY     L  337.23%  81.88%
10/12/2022  BUY     L  6.40%    17.55%

Notice that from the most recent bear market bottom small caps have significantly under-performed.

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