Buying momentum?

Discussion in 'Share Investing Strategies, Theories & Education' started by try anything once, 30th Oct, 2008.

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  1. try anything once

    try anything once Well-Known Member

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    There has been a bit of discussion lately on some other threads where some people seem to be suggesting that to get ahead one simply buys/in market during bull markets and sell/sit on the sideline during bear markets.

    The data simply does not support this view.

    Consider Dow Jones Index in the 40 years from 1968 to today. The index return over this period was 8% pa.

    What would be your forward 12 month % return on investment if you only bought when the previous 4 months movement was between 0 and +20% (bull market?)? Answer: 7%pa.

    What would be your forward 12 month % return on investment if you only bought when the previous 4 month movement was between -28% and -14%? (bear market?) Answer: 19%

    What was it that someone posted a few weeks back... "If you think you are in a bear market, why are you still invested in the market?

    Happy to entertain different definitions/triggers for bear and bull markets but haven't got much time for hand waiving and assertions without data to support them.
     
    try anything once, 30th Oct, 2008
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  2. Simon Hampel

    Simon Hampel Founder Staff Member

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    I've been working on some systems using simple long-term moving averages as triggers over on Compare Funds :: Managed Fund Comparison Charts and Statistics

    ... but I have found that this simple measure suffers from one big problem when it comes to volatility. I have considered trying to identify a custom moving average for each different type of investment (different market / sector / investing style / etc) to help deal with those investments which are naturally volatile and those which are less so.

    I haven't yet had time to build my full simulation tool to test some of these scenarios - hopefully over Christmas I'll get the time to do something there, I feel it would be very interesting.
     
    Simon Hampel, 30th Oct, 2008
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  3. try anything once

    try anything once Well-Known Member

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    Sim

    Very interested in hearing about what you come up with. As I indicated in an earlier post, I have identified a simple trigger which seems to work very well..... but I still don't believe it.

    Happy for you to try to model/replicate the findings with my triggers if you have the inclination??
     
    try anything once, 31st Oct, 2008
    #3