prof88 wrote:
College professor here, and my dissertation was on the stock market and trading strategies vs buy/hold over 100 years of stock market data.
1. If you think your trading system can outperform a buy and hold strategy with whatever asset (Dow 30, S/P 500,Nasdaq, whatever) , you will not do it over the long run (assume a 30+ year investing career). You may make some timely calls on buying or selling, but over the long run you will incorrect calls. Buy/Hold beat many trading strategies over many time segments. So, once you decide on your asset to invest in, buy and hold it for at least 5 years, or get out if the fundamentals (if it is a stock ) change on you...
I'm curious to know what trading strategies you put up against buy & hold because they don't sound like very good ones. If you put a good college basketball team up against a bunch of NBA practice squad players then I would expect the college team to win. But the story will be different if they play a bunch of NBA starters. Finding strategies that work is hard. Unless a successful trader gave you some then I'm not surprised by your dissertation's conclusion.
The strategies I use were backtested against S&P-500 data from 1960 thru 2009 ... 50 years. (I did this analysis in 2010, that is why the ending date is 2009). Here are the results versus buy & hold for the 2 simplest strategies:
Best 6 Months - Buy SPY or an S&P-500 Index fund at the market open on the 3rd-to-last trading day of October. Sell it at the market close on the 2nd trading day in May. Let your cash sit in an interest bearing account until October. Repeat this every year.
10 Month Simple Moving Average - create a simple moving average of the monthly close of the S&P-500. When it is up from the previous month then buy SPY (or whatever fund) at the next month's market open. When the 10 Month SMA turns down from the previous month then sell at the next month's market open and just let your cash earn interest until you get a buy signal.
Using buy & hold, $10,000 invested in an S&P-500 Index fund with reinvested dividends grew to $884,826 at the end of 2009. The worst drawdown was 55% during the 2008-2009 crash.
Using the Best 6 Months strategy with reinvested dividends the $10,000 grew to $1,067,035. The worst drawdown was 34% during the 2008-2009 crash.
Using the 10 Month SMA strategy with reinvested dividends the $10,000 grew to $1,558,631. The worst drawdown was 36% during the sudden 1987 crash.
These are 50 year returns. Not the short time periods that you say are irrelevant. Both strategies beat buy & hold handily. Using leveraged S&P ETFS (something that would be crazy to do with buy & hold) yield even more dramatic results.
You might want to revise your dissertation.