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18 trades 2010-2013: 14/18 = 78%. Worst drawdown = 14%.
Currently the Modern Portfolio Theory (MPT) method of passive investing, based on the efficient market hypothesis, is in favor with much of the financial advisory industry. MPT carries a lot of credibility because it is evidence-based, empirically-established as superior to actively-managed investing.
Although with a shorter comparison period, STATS shows superior returns to MPT. (STATS superiority should increase when a future bear market will be included in the data.) In comparing the STATS track record (2010-2013) with MPT, here is a look at MPT model portfolios for period 1973-2003, created by Larry Swedroe, Buckingham Asset Management, cited from Swedroe’s book (2005) The Only Guide to a Winning Investment Strategy You’ll Ever Need:
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Compound returns, MPT model portfolios (varying asset allocations of conservative, moderate, moderately aggressive, highly aggressive): 11, 12, 14, 15 percent, respectively
Compound returns, MPT model portfolios (varying asset allocations of conservative, moderate, moderately aggressive, highly aggressive): 11, 12, 14, 15 percent, respectively •Compound returns, STATS system: 22 percent
Compound returns, STATS system: 22 percent•Benchmark, MPT compound returns, S&P 500 (1973-2003): 8%
Benchmark, MPT compound returns, S&P 500 (1973-2003): 8%•Benchmark, STATS compound returns, S&P 500 (2010-2013): 14%
Benchmark, STATS compound returns, S&P 500 (2010-2013): 14%•Annual standard deviations MPT portfolios: 8, 11, 15, 18 percent
Annual standard deviations MPT portfolios: 8, 11, 15, 18 percent•Annual standard deviation, STATS: 42 percent. Mean: 28%. Trade standard deviation: 11%. Mean: 6%.
Annual standard deviation, STATS: 42 percent. Mean: 28%. Trade standard deviation: 11%. Mean: 6%. •Worst one-year return MPT portfolios: -5, -11, -18, -24 percent
Worst one-year return MPT portfolios: -5, -11, -18, -24 percent•Worst one-year return, STATS: -11 percent
Worst one-year return, STATS: -11 percent•Worst two-year cumulative return MPT portfolios: -8, -20, -30, -40 percent
Worst two-year cumulative return MPT portfolios: -8, -20, -30, -40 percent•Worst two-year cumulative return, STATS: 24 percent
Worst two-year cumulative return, STATS: 24 percent •Worst three-year cumulative return MPT portfolios: 7, 2, -3, -10 percent
Worst three-year cumulative return MPT portfolios: 7, 2, -3, -10 percent•Worst three-year cumulative return, STATS: 126 percent
Worst three-year cumulative return, STATS: 126 percentSee the track records.
Performance facts, STATS compared to MPT portfolios
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Read also: The Loser's Game
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