7Mon
Your comparative values with Buy&Hold are not very meaningful if you did the backtest right now in the middle of a stock market crash that will only recover for weeks or months from now!
It's clear that when the recovery begins, the loser stocks that were wrongly (because of panic) dragged down will be the first to rally the most... That's why your strategy wins in a current(!) backtest.
Let your backtest end at various earlier points in time and look at the normal distribution (peak of the bell curve across all test periods!) in the result: Then you will find out the true systematic return of your strategy !
It's clear that when the recovery begins, the loser stocks that were wrongly (because of panic) dragged down will be the first to rally the most... That's why your strategy wins in a current(!) backtest.
Let your backtest end at various earlier points in time and look at the normal distribution (peak of the bell curve across all test periods!) in the result: Then you will find out the true systematic return of your strategy !
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@AlexBloch Hi, thanks for your feedback, but crashes like this are part of it... I used 25 years as a backtest in some cases and a single crash shouldn't be that significant 🫠
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7Mon
@AlexBloch Incidentally, I think your strategy is similar to a small-cap factor strategy:
In it, you take all the smallcaps and assume that some of them will do disproportionately well because they will prevail in the market...
It's similar with your loser strategy:
You also expect that some of them will rise more strongly (reason I mentioned above), with the difference that they have not entered the market as new smallcaps, but are only temporarily (monthly) downgraded to a kind of smallcap, so to speak, because the market underestimates some of them or pulls them down for no reason during crashes.
The value and quality companies among them will recover relatively quickly from smaller or larger drawdowns...
If you have a cheap (free) broker and don't lose a lot of tax on the constant sales profits, your loser strategy could work out in the long term.
However, I believe that most private investors get fed up with the constant monitoring and monthly buying and selling after just a few months/years, especially when it becomes just annoying manual routine work based on rules...
A rule-based index that follows these strategy rules would make more sense... But: no ETF provider would follow them, precisely because you would always have to trade monthly. The costs are too high in the long run... Back and forth, empties your pockets.
In it, you take all the smallcaps and assume that some of them will do disproportionately well because they will prevail in the market...
It's similar with your loser strategy:
You also expect that some of them will rise more strongly (reason I mentioned above), with the difference that they have not entered the market as new smallcaps, but are only temporarily (monthly) downgraded to a kind of smallcap, so to speak, because the market underestimates some of them or pulls them down for no reason during crashes.
The value and quality companies among them will recover relatively quickly from smaller or larger drawdowns...
If you have a cheap (free) broker and don't lose a lot of tax on the constant sales profits, your loser strategy could work out in the long term.
However, I believe that most private investors get fed up with the constant monitoring and monthly buying and selling after just a few months/years, especially when it becomes just annoying manual routine work based on rules...
A rule-based index that follows these strategy rules would make more sense... But: no ETF provider would follow them, precisely because you would always have to trade monthly. The costs are too high in the long run... Back and forth, empties your pockets.
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•7Mon
@Klein-Anleger1 Backtests only make sense (if at all) if you do them at least 30-50 years backwards. This is what Gerd Kommer or Andreas Beck do in their backtests, for example. Because then you have several(!) bear and bull markets in it, instead of mostly just a single bull market like now, most recently from 2010 to 2024.
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7Mon
@AlexBloch If you only backtest from 2000 to 2025, for example, you always end up with the MSCI World or the S&P500, which is part of it (and largely the driving force), with the best return... Now in 2025, however, you can only see the correction, precisely because the USA is no longer the driving factor, but only the top 5 Internet and AI giants.
If you had only bet on the top 5 (oil companies!) in the 80s, the money would have been gone just 20 years later when the internet and AI boom came. And perhaps the next boom will be renewable energies and electromobility or robotics, and nobody will be talking about Google, Amazon and the like anymore because their growth limits will soon be reached...
So: always backtest over many decades and spread across the world. Then you get meaningful results that you can project into the future 😉.
If you had only bet on the top 5 (oil companies!) in the 80s, the money would have been gone just 20 years later when the internet and AI boom came. And perhaps the next boom will be renewable energies and electromobility or robotics, and nobody will be talking about Google, Amazon and the like anymore because their growth limits will soon be reached...
So: always backtest over many decades and spread across the world. Then you get meaningful results that you can project into the future 😉.
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•@AlexBloch Thanks for your feedback. I'll have a look when I have time to do a backtest over a longer period of time... it's just relatively time-consuming at times 😁😬
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•@AlexBloch I know this is not the most reliable source, but I just asked ChatGPT what performance I would have over a period starting in 1980... ChatGPT took the S&P 500 and spit out the following values...:
Buy & Hold averaged around 9% p.a. over this period.
The loser strategy with SMA200 would come to approx. 13 % p.a....
Lg
Buy & Hold averaged around 9% p.a. over this period.
The loser strategy with SMA200 would come to approx. 13 % p.a....
Lg
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•7Mon
@Klein-Anleger1 However, you would still have to deduct the monthly trading costs and taxes on profits. Because with buy&hold, you never sell or only sell after decades when you withdraw your monthly pension, whereby with B&H there is also a large compound interest effect.
And also an "expense allowance" for the monthly work of identifying and buying new loser shares...
And also an "expense allowance" for the monthly work of identifying and buying new loser shares...
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7Mon
@Klein-Anleger1 I can confirm @AlexBloch 's concerns about taxes. Even an annual portfolio turnover of 200% can cost you around 30% of your return. And 13% minus 30% is just under 9.1%.
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