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Message:
this year we have had "worse" performance than buy-and-hold . . .
Is it possible that part of the "problem" is that several of our large
dips have occurred as a result of justified or unjustified fears of a European
country, such as Greece or Spain or Ireland, going near bankrupt, and/or the
collapse of the Euro, and that, "our" models don't reflect or react quickly to "fear
that a country in Europe will go bankrupt"? After all, in the last 26 years,
we have not previously had substantial fears of Greece or Ireland collapsing
. . . and our models presumably don't reflect that.
Is there something that should be done to improve the models based on
this idea?
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Response:
First let me say that I agree that our performance this year is not as
good as last year's. The chart below shows our current results:
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Forecast
Model Performance
|
| |
Y-T-D
|
165 Days
|
45 Days
|
| Buy and hold return |
9.15 percent
|
3.42 percent
|
5.51 percent
|
| Forecast model return |
7.13 percent
|
3.69 percent
|
4.67 percent
|
| Max model drawdown |
5.48 percent
|
5.48 percent
|
1.65 percent
|
| Total stops |
2
|
1
|
0
|
| Days long |
80
|
41
|
17
|
| Days cash |
131
|
102
|
26
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| Days short |
22
|
22
|
2
|
| Trading days |
233
|
165
|
45
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As you can see, we
had these returns with being mostly in cash. The benefit of being
in cash is that it reduces portfolio risk.
Certainly, the debt
problems in Europe and our own deficit problems affected the market
and our ability to predict it. Perhaps, forecasting one day ahead
is too difficult in these volatile times. I am looking again at a
five day model which would average out some of the volatility and
give us a better estimate of the underlying trend. More on this later.
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