Mojena Market Timing
Reality Check


The performances in Timing Model are theoretical in the sense that the model's structure is tested and revised annually (at the end of each year) to optimize return based on historical data. The revised model is then used "live" the following year.  At the end of that year the model is revised once again, for use the following year.  This page checks reality by describing the timing model's actual or live performances, starting with its first complete year in 1990.

Live Timing Model Performances

 

Inflation

T-Bills

Buy & Hold

Standard

Aggressive

1990

6.1%

7.5%

-3.2%

11.9%

18.1%

1991

3.1%

5.4%

30.4%

30.4%

40.8%

1992

2.9%

3.5%

7.6%

7.6%

6.5%

1993

2.7%

3.0%

10.0%

10.0%

10.5%

1994

2.7%

4.3%

1.2%

-2.0%

-13.6%

1995

2.5%

5.5%

37.5%

25.6%

20.9%

1996

3.3%

5.0%

22.9%

17.4%

16.3%

1997

1.7%

5.1%

33.3%

22.7%

19.1%

1998

1.5%

4.9%

28.6%

35.5%

56.2%

1999

2.7%

4.7%

21.0%

12.8%

3.0%

2000

3.4%

5.8%

-9.1%

-3.8%

-14.0%

2001

1.6%

3.4%

-11.9%

-4.3%

-9.4%

2002

2.4%

1.6%

-22.1%

-7.3%

-0.3%

2003

1.9%

1.0%

28.6%

18.9%

15.4%

2004

3.3%

1.4%

10.9%

10.9%

13.3%

2005

3.4%

3.2%

4.9%

4.9%

4.2%

2006

2.5%

4.7%

15.7%

15.7%

20.7%

2007

4.1%

4.4%

5.4%

5.4%

4.6%

2008

0.1%

1.5%

-37.0%

-13.0%

2.9%

2009

2.8%

0.2%

26.6%

26.6%

33.9%

2010

1.5%

0.1%

15.0%

5.9%

-3.6%

2011

3.0%

0.1%

2.1%

2.1%

-1.7%

 

 

 

 

 

 

Start

$,100,000

$100,000

$100,000

$100,000

$100,000

End

178,626

210,681

565,590

801,456

794,837

Total Return

179%

211%

566%

801%

795%

Annualized Return

  2.7%

  3.4%

8.2%

9.9%

9.9%

 

 

 

 

 

 

Years to Double

26.3

20.5

8.8

7.3

7.4

 

 

 

 

 

 

Risk

 

   0.0%

4.8%

2.1%

2.7%

Standard Deviation

 

 

18.9%

12.8%

17.2%

Max Drawdown (Yearly)

 

 

-37.0%

-13.0%

-14.0%

Max Drawdown (Weekly)

 

 

-18.2%

-8.3%

-12.6%

 

 

 

 

 

 

Max Return (Yearly)

 

 

37.5%

35.5%

56.2%

Max Return (Weekly)

 

 

12.0%

12.0%

18.0%

Risk-Adjusted Return

 

  

1.7

4.6

3.6

Sharpe Ratio

 

 

0.25

0.51

0.37

Return is total annual percent return, including any reinvested dividends, but not including expenses or taxes.  Each account was updated (compounded) on a weekly basis.  Risk is average under performance relative to the three-month T-Bill's annual return, a la MorningstarMax Drawdown is the worst paper loss, based either per year or per week.  Risk-Adjusted Return is return divided by risk (return per unit of risk).  Standard Deviation is a statistical metric that describes variability, the standard measure of risk in financial analysis.  Sharpe Ratio is another measure of risk-adjusted return, defined as excess return over risk-free return (T-bill return in this case) divided by standard deviation.   Buy & Hold is buying and holding the S&P 500 Index through thick and thin, including reinvested dividends.  Standard (model) is 100% in the S&P 500 during buy signals, including reinvested dividends, and 100% in T-Bills during sell signals.  Aggressive is 150% long the S&P 500 (dividends not received) during buy signals and 100% short the S&P 500 (dividends not paid) during sell signals.  The model's signals are based on week closings, but returns are calculated on next-day closings when switches are implemented, to more closely approximate the use of mutual funds and conform to reporting standards.

The timing model's standard portfolio returned more than a buy-and-hold strategy since 1990… and with much less risk.  The standard model's annualized return of 9.9% would double an investment in about 7 years.  Its risk of 2.1% is less than half that of buying and holding.  It was also much less risky from a drawdown perspective.   On an annual basis, its maximum loss was 13% (in 2008) versus the 37% loss that same year for buying & holding.  Maximum weekly drawdowns were 8% for the standard model and 18% for buying and holding.

Over the actual life of the model (since 1990), the standard model versus buy and hold ends with a larger portfolio, by about $236 thousand (+42%), with less than half the risk.  Its risk-adjusted return, favored by many analysts, nearly triples that of buy & hold, based on Morningstar risk.  Using the Sharpe ratio, its risk-adjusted return exceeds buy & hold’s by more than double.  Its intermediate to long-term perspective issued just 31 signals over 22 years, or about three every two years on average.

The aggressive strategy can substantially boost a year's return, as it did in 1998 (+56%), but the price paid is higher volatility.  The 14% drawdowns in 1994 and 2000 very much hurt its performance.  Its return, risk-adjusted return, and Sharp Ratio under-perform the standard strategy, but easily outdistance buy and hold.

Year 2008 was particularly demoralizing.  The buy & hold 37% loss for the year far exceeded previous high losses since 1970: 22% in 2002 and 27% in 1974.  Back to 1926 (the start of the S&P 500), the 2008 loss is second only to the 43% Great Depression devastation in 1931, edging out the 35% hammering in 1937.  The 13% loss for the standard portfolio, while meaningful, was well below the buy & hold 37% loss. Moreover, the model's loss for the year was almost entirely due to the misfortune of buying at the end of Monday's 12% surge following the weekend's buy signal. The aggressive portfolio ended the year in green at nearly 3%.  Too late for sure, but the revised  and re-optimized models for 2010 to 2012 incorporated the unprecedented volatility that characterized the past four years: In 2008 alone, the S&P 500 experienced daily moves of 5% or more 17 times, a feat that took 50 prior years to match.  In 2010 the 21-month bull run was interrupted by a 16% severe correction lasting 10 weeks from April into early July that year.  This short, sharp correction fooled the 2010 model into a late sell signal just before the primary downtrend bottomed.  The switchback buy signal followed in three weeks, but not before damage to the year’s return, a fact that did not escape the model’s revision for 2011.  In 2011 the model unfortunately followed the fast, deep nearly 20% correction, but participated in the recovery into the end of the year, ending with a gain in another very turbulent year.

The hallmark of a very good timing model is to match or exceed its benchmark index over an extended period of time, but with much less risk.  Sounds good, but it’s the rare money manager or newsletter writer that manages this feat. The standard and aggressive models have achieved this goal in actual use.

The shortage of severe corrections during the 1990s favored buying and holding strategies over timing systems. The length of the expansion from October, 1990 to April, 1997 was without precedent in not experiencing so much as a 10% correction. In April, 1997 we finally got an 11% correction in the S&P 500, but it lasted all of one day! On a weekly-closing basis, the correction was 9%, a nonevent from the model's perspective.   The nearly 20% S&P 500 declines in 1990 and 1998, the 49% S&P 500 bear market in 2000-2002, a 52% encore decline in 2007-2008, and the Nasdaq's bear markets of 35% in 1998 and 78% in 2000-2002 all underscore the benefits of capital preservation strategies.  Note that years in which there were substantial selloffs (1990, 1998, 2000, 2001, 2002, and 2008) are the years that the model's standard portfolio beat the buy and hold strategy. 

The breakdown by decades in the accompanying tables tells the story. The standard strategy under-performed buy & hold by about 1.5% annualized percentage points per year during the 1990s, ending with a portfolio amount some $6200 less, a cumulative 12% deficit.  Timing strategies simply can’t beat a disciplined buy & hold strategy during an exceptionally strong bull market.  Adjusted for risk, the standard model’s return exceeds buy & hold’s return by 100% during the 1990s, but this does not translate into real dollars, unless risk scares off the buy & holder from practicing this tough, emotionless discipline.  Research shows that real buy-and-holders don’t exist: emotion short circuits the required discipline.

And then came the new millennium, a lost decade, the worst performing ten years in the S&P 500 index since its inception in the 1920s.  Surprisingly, the economically-devastating 1930s just about broke even for a buy and hold investor, a much better performance than the recent decade’s cumulative 9% loss, which works out to a 1% annualized loss, including reinvested dividends.  The index itself lost 24%, not including dividends. A passive portfolio of $10,000 based on the S&P 500 Index at the start of 2000 would have ended with $9,075 at the end of 2009, including reinvested dividends.  Compared to the discredited buy-and-hold strategy, cash was king.  A portfolio invested in three-month treasuries (our money-market benchmark) would have ended with a value of $13,069, or about 44% more than the stock portfolio.  The standard portfolio beat buy & hold by about 75% ($15,840 v $9,075) and the aggressive version outpaced buy & hold by roughly 100%.  The aggressive portfolio more than doubles the buy-and-hold portfolio.  And keep in mind that these are actual results, not theoretical results based on back testing.

It is worth repeating: Buy and hold based on the popular benchmark S&P 500 index is down a cumulative 9% over the ten years of the past decade (24% for the index itself), a devastating performance that has served to finally discredit the buy and hold strategy.  Buy and hold actually marked a negative real return of -3.5% per year over the most recent decade, after accounting for a 2.5% annualized inflation rate.  That is to say, the buying power of a buy-and-hold portfolio is less at the beginning of 2010 than it was at the beginning of 2000. Cash has been king for the lost decade, standard and aggressive strategies excepted.

The models are under-performing buy and hold so far in the current decade (2010 & 2011), with the aggressive model showing an overall loss.  The decade is still young, so we’ll see…

Strongly cyclical markets are tailor-made for a good timing system to decisively beat buy and hold, as seen in the second table at right and by the previous secular bear market that spanned 1966-82, as the Dow flirted with 1000 for 16 bruising years. The model's genetic heritage easily gives it a decisive edge over the theoretical buy and holders during prolonged declines; over extended increases, as in the 1980s and 1990s, the model either slightly trails or slightly leads buy and hold, depending on the time period, but with considerably less risk.  And keep in mind that buying and holding is an idealized strategy.  Research clearly shows that investors in the aggregate under-perform buy and hold because of “timing” decisions based on fear and greed: they tend to sell near bottoms (fear) and buy near tops (greed).  Buying and holding requires a very disciplined, unemotional strategy that few investors can follow.  A good timing model helps calm emotions that harm performance.

 

 

Live Market Timing Phases

 

 

 

 

 

Note:
The model's signals use week-end (usually Friday) closings but the reported live performances are based on next-day (usually Monday) trading, to more closely approximate the reality of mutual fund trading and better conform to performance reporting standards.

Each signal date in the table is a Sunday.  Each index is a next-day closing.  These are actual (not theoretical) results. See download page for Excel workbook that includes time series of S&P 500 and model histories.

 

 

 

 

 

 

Timing Model Signal Phases

Dates

Signal

Positions

DJI

S&P 500

Nasdaq

Comment

10/29/89
09/30/90

Sell

Cash/Short

2603-2516
-3%

335-315
-6%

451-355
-21%

Stood aside during 13% S&P 500 rally from February to July, but avoided 20% bear-market decline into October. Overall, dodged 6% loss in S&P 500 and stiff 21% pummeling in Nasdaq.

09/30/90
04/03/94

Buy

Stocks

2516-3593
+43%

315-439
+39%

355-727
+105%

Missed bear-market bottom by 15 S&P 500 points (on next-day closing basis) and two weeks. Rode primary bull market for about 3 1/2 years. Nasdaq was rocket over this period.

04/03/94
04/09/95

Sell

Cash/Short

3593-4198
+17%

439-507
+15%

727-821
+10%

Poor sell signal. Up in air for nine months as markets traded within narrow ranges, but missed powerful rally that took averages to new highs in first quarter, 1995. Back to drawing board. Model substantially revised July, 1995, based on data through end 1994. New model would have given timely and LIVE buy signal in mid January, 1995.

04/09/95
07/14/96

Buy

Stocks

4198-5350
+27%

507-630
+24%

821-1060
+29%

Good buy signal, with solid gains each index. In hindsight, this buy phase should have continued.

07/14/96
08/04/96

Sell

Cash/Short

5350-5674
+6%

630-660
+5%

1060-1121
+6%

Unsuccessful switch-back signal, lasting only three weeks and giving up gains of 5-6% in indexes. Looked good for two weeks, but strong rally in third week flipped signal back to buy. Current model's technical indicators very sensitive to market's volatility.

08/04/96
04/06/97

Buy

Stocks

5674-6556
+15%

660-762
+15%

1121-1251
+12%

Profitable, with okay gains all indexes. Ideally, this buy phase should have been continuation of preceding buy phase.

04/06/97
05/04/97

Sell

Cash/Short

6556-7214
+10%

762-830
+9%

1251-1339
+7%

Another short sell signal with gains regretted. The 9% lost opportunity gain in the S&P 500 is higher than previous 5% worst case for this version of model. Stunning last week accounts for just about all gains, a lesson not lost in next revision of model.

05/04/97
08/02/98

Buy

Stocks

7214-8787
+22%

830-1112
+34%

1339-1851
+38%

Fifteen-month phase yields good gains all around, although Dow significantly lags  behind Nasdaq.  In hindsight, this buy phase should have been extension of preceding buy phase.

08/02/98
10/18/98

Sell

Cash/Short

8787-8466
-4%

1112-1062
-4%

1851-1649
-11%

Eleven-week sell signal modestly successful as 4 to 11% losses are avoided, while nestled in safety of money market during very volatile period that included bear market in Nasdaq.

10/18/98
07/25/99

Buy

Stocks

8466-10861
+28%

1062-1348
+27%

1649-2619
+59%

Nine-month buy signal very profitable, especially Nasdaq gain.

07/25/99
01/23/00

Sell

Cash/Short

10861-11008
+1%

1348-1402
+4%

2619-4096
+56%

Did a good job of identifying summer's 12% thirteen-week decline in its early stages, but overlooked subsequent 18% eleven-week reversal to the upside ending December 31. Gave up small gains in the Dow and S&P over its 26-week sell signal, but missed the Nasdaq blow out.

01/23/00
01/30/00

Buy

Stocks

11008-10941
-2%

1402-1394
-2%

4096-3940
-1%

One-week switchback shows small losses.

01/30/00
06/04/00

Sell

Cash/Short

10941-10815
-1%

1394-1468
+5%

3940-3822
-3%

Eighteen week sell signal okay for Dow and Nasdaq, but foregone gain for S&P.

06/04/00
06/25/00

Buy

Stocks

10815-10543
-3%

1468-1455
-1%

3822-3912
+2%

Small losses in big caps, small gain in techs, in volatile markets.

06/25/00
07/09/00

Sell

Cash/Short

10543-10647
+1%

1455-1476
+1%

3912-3980
+2%

Another short signal gives up small gains as model reacts to tape changes while looking to be on right side of any sustained move.

07/09/00
07/30/00

Buy

Stocks

10647-10522
-1%

1476-1430
-3%

3980-3767
-5%

Three-week signal yields moderate losses as model gets whipsawed by trading-range behavior.

07/30/00
08/20/00

Sell

Cash/Short

10522-11080
+5%

1430-1499
+5%

3767-3953
+5%

Model once again on wrong side of three-week trade, as momentum falters in continued trading range.   Market reminiscent of 1994 market, but this model more sensitive than earlier version, reacting to head fakes, while likely ensuring early detection of persistent market direction.

08/20/00
09/24/00

Buy

Stocks

11080-10808
-2%

1499-1439
-4%

3953-3741
-5%

Continued trading range promotes another losing trade.

09/24/00
05/20/01

Sell

Cash/Short

10808-11338
+5%

1439-1313
-9%

3741-2306
-38%

Sell signal lasted eight months, during which S&P lost 9%.  Bear market confirmed during this signal, at 28% below high.  Nasdaq plunged 38% during signal.  Its bear-market low stands at 68% below high.  Dow was star here, actually rising 5%, recovering from near-bear market low of almost 20%.

05/20/01
06/17/01

Buy

Stocks

11338-10645
-6%

1313-1208
-8%

2306-1989
-14%

Poor buy signal, with significant losses all around. Strong counter-trends, lasting just weeks, give model grief, until clearer intermediate to long-term trends emerge.

06/17/01
12/09/01

Sell

Cash/Short

10645-9921
-7%

1208-1140
-6%

1989-1992
+0%

Six-month sell signal moderately successful, although subsequent buy signal missed bottom of ten-week tradable rally from bear-market lows of Dow 8236 (-30% from high), S&P 966 (-37%), and Nasdaq 1423 (-72%) following 9/11.

12/09/01

02/10/02

Buy

Stocks

9921-9885

-1%

1140-1112

-2%

1992-1847

-7%

Two-month buy signal incurs small S&P loss, continuing pattern of losing short-lived buy trades dating back to beginning of bear market in early 2000.

02/10/02
12/01/02

Sell

Cash/Short

9885-8863
-10%

1112-935
-16%

1847-1485
-20%

Ten-months sell signal avoids substantial losses in S&P and Nasdaq, less so in Dow.  During this signal the indexes hit multi-year lows in October, 2002, from peaks in Q1, 2000: 11723 to 7286 (-38%) for Dow; 1527 to 777 (-49%) for S&P; 5049 to 1114 (-78%) for Nasdaq.

12/01/02
01/26/03

Buy

Stocks

8863-7990
-10%

935-847
-9%

1485-1325
-11%

Badly-timed two-month signal; 90% of damage in last two weeks, as geopolitical and earnings worries tank market. 

01/26/03
04/27/03

Sell

Cash/Short

7990-8472
+6%

847-915
+8%

1325-1462
+10%

Three-month sell signal gives up gains all indexes, mostly over last two weeks.  Trading-range-bound market since last December catches model on wrong side of last two trades.

04/27/03
01/06/08

Buy

Stocks

8472-12827
+51%

915-1416
+55%

1462-2499
+71%

Record-long buy signal shows solid gains. 

01/06/08
04/20/08

Sell

Cash/Short

12827-12825
0%

1416-1388
-2%

2499-2408
-4%

Fifteen-week sell signal is a wash for the Dow and slightly successful for the S&P and Nasdaq.

04/20/08
06/08/08

Buy

Stocks

12825-12280
-4%

1388-1362
-2%

2408-2459
+2%

Ten-week buy signal shaves 2% from our benchmark index and splits results on the Dow and Nasdaq.  Spike in oil prices and poor jobs report tank recovering market and trip new sell signal as recession fears grow.  Increased volatility associated with more frequent switch signals.

06/08/08
10/12/08

Sell

Cash/Short

12280-9388
-24%

1362-1003
-26%

2459-1844
-25%

Four month signal avoids significant losses all indexes, as market enters bear market and slow-motion crash prior to surge on Oct 13.

10/12/08
07/04/10

Buy

Stocks

9388-9744
+4%

1003-1028
+2%

1844-2094
+14%

Twenty-one month buy signal yields unimpressive results as market sinks 16% from recovery high over 10 weeks.  Buy signal given over weekend with S&P 500 at 899.  As bad luck would have it, 12% rally on Monday marked purchase at 1003.  With reinvested dividends the respective returns were 10, 8, and 16%.

07/04/10
07/25/10

Sell

Cash/Short

9744-10525
+8%

1028-1115
+8%

2094-2296
10%

A 20-month bull run was interrupted by a severe correction lasting 10 weeks from April into early July.  This short, sharp correction fooled the model into a late sell signal just before the primary downtrend bottomed.  The switchback buy signal followed in three weeks, but not before the year-to-date damage was done, a fact that will not escape the model’s revision for 2011. See fast sell signals in 1996, 1997, and 2000 for subsequent historical results.

07/25/10
?

Buy

Stocks

10525-?
?%

1115-?
?%

2296-?
?%

Current signal.

Last revised 01/20/2012


Distribution
Copyright © 2012 Richard Mojena.
All rights reserved. All materials contained on this site are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of Richard Mojena at mojena.com. You may not alter or remove any graphics, copyright or other notice from copies of the content.  You may download or print one machine readable copy and one print copy per page from this site for your personal, noncommercial use only.

Disclaimer
Specific and personalized investment advice is not intended by this communication. Its contents are for the public record as a free public service. Information is based on the analysis of past data and assessments by the models. Future performance may not reflect past performance. Profitable trades are not guaranteed. No system or methodology ensures stock market profits. No guarantee is made regarding the reliability or accuracy of data. In other words, use this stuff at your own risk!


Front Page     Timing Model     Reality Check     FAQ     Downloads     About     Mea Culpa?