Very Surprising Results

As I stated yesterday I was beginning the back tests for the ETF rotation project. Previous attempts by myself and many others did not include a market timing component. However, in the Fidelity Select project there is also no market timing component as I’ve stated quite often. When I’ve attempted to introduce a market timing component, much to my surprise, performance worsened. Not only did the CAGR decrease but the max drawdowns (which are not great to begin with) increased; the worst of both worlds.

I have spent a good deal of time over the years attempting to find out the why that would be. The answer was actually quite simple and starring me in the face. As you’ve heard me say on numerous occasions it’s a market of sectors, of stocks, of asset classes. When you market time everything basis the S&P you lose that distinction. When the major market signal gave a sell, on many occasions, our open market position was still in bullish mode. On the other side of the coin, when the major market index gave off a buy signal, our potentially strong longs had already made good moves, i.e. entered late. Hence the market timing lowered our CAGR and increased our drawdowns.

Hence the change here, and the results are wonderful, at least to me. Here’s how the backtesting took place. If you look at yesterday’s post you noticed the bull/bear periods. Again since this is for financial advisors I am not considering the bear side. That will be up to the advisor who will know his client (well hopefully so). If he/she wants to do a bear fund when that asset class is in bear mode, fine, but I’m not backtesting that portion because I believe it’s for a relatively small minority. If I’m proved wrong I’ll back track.

Below is the Monthly test alone and I still have two asset classes to complete, hopefully tomorrow. Click picture for a full sized picture.


My initial reaction was; why do the weekly back tests?  😎 I know of no one who would be upset with the above performance over the last decade or so. Do you?

If I can complete the last two asset classes today, I will make the spreadsheet available to anyone who wants one. Just send along an email, it will not be uploaded to the site for download. Also included on the spreadsheet are the equity graphs and the month by month and year by year performance: Example for Emerging Markets two time periods:


One last item, in lieu of these findings I will be eliminating the ETF Rotation spreadsheet sometime next week. If you’d like to copy it down please feel free to do so.

Talking Points and These Companies Are Poised to Grow 25% Next Year:

Poof goes the middle class (LAT)

Americans’ Holiday Spending Not Shut Down by Shutdown (Gallup)

More information might not improve your ability to make decisions (Farnam Street)

No Second Half CAT Magic (Alhambra)

Can America innovate its way to growth? (Reuters)

Another billionaire is predicting doom. Ignore him. (WonkBlog)

S&P 500 Rally Pushes Index Toward Biggest Annual Gain in Decade (Bloomberg)

Even Master Jugglers Fail Sometimes (Coordination Problem)

How the Internet Is Changing What Economists Do (Fiscal Times)

How a Free OS Will Pay Off for Apple (All Things D)

Barack Obama, Government Job Slayer (Prag Cap)

2014 ‘Year of the Boom!’ Bet on the bulls now (MarketWatch)

The Biggest Economy Killer: Our Government (NYT)

Don’t Blame Health Law for High Part-Time Employment (WSJ)

Simple math does not support the bulls (Mark Hulbert)

International Business Heat Map (Int.Business Guide)

Maybe Economics Is A Science, But Many Economists Are Not Scientists (Krugman)

Moneyball of Economics: How One Man Is Knocking it Out of the Park (MoneyBeat)


Why Apple Wants Its Software to Be Free (Business Week)

5 Things Super Successful People Do Before 8 AM (Forbes)

DC Follies, perhaps? Euro surges to highest level against dollar in nearly two years (WSJ)

Stock Market Bubble vs. Impressive Bullish Breakout (Ciovacco Capital)

These Companies Are Poised to Grow 25% Next Year

have a great day!