Market Returns - Simple Improvement

GE Late When GE was doing poorly, a buy and hold strategy underperformed the SMA screen on every category. In essence, being in the market at any time during this period was not useful.

GE Total When the entire period (GE Early and GE Late) are looked at as one period, the SMA screen outperformed a buy and hold strategy for every category.

Generality Test II — European Stocks

VEURX, a Vanguard mutual fund of European stocks, was tested with the SMA 10-period screen. The test ran from 1992 to January 2019. The results are below:

European Stocks (1992 – January 2019)

(Click on image to enlarge)


European results are improved in every category by using the SMA screen.


The examples above showed the effects of a screen or switch to determine market participation. One should not conclude that such screens work in all circumstances.

Two failures were not shown. By failure, profits were worse with the screen. Drawdowns improved but only marginally. The two failures involved IBM and AAPL (neither shown). No other assets or securities were tested.

Regarding these “failures,” I suspect that the volatility of individual stocks versus the volatility of groups or portfolios of stocks had much to do with the IBM outcome. Individual stocks are more volatile than a portfolio of stocks. In portfolios, some stocks are jumping up because of individual circumstances, others are declining because of their own particulars. Much of the “noise” is thereby nullified.

When a grouping of stocks moves, the move is apt to have more significance than the movement of a single stock. Individual stocks move based on their own uniqueness (surprise earnings, management change, etc.). Such changes can be significant for an individual company but not necessarily create a trend change in a grouping. Signals are also fewer in portfolios, reducing the whipsaw effects.

Stocks like AAPL (or GE Early above) are questionable for screens for two reasons:

  1. If they are in their explosive growth period, you probably never want to be out.
  2. Even after the explosive growth, the volatility of individual stocks seems to produce too many false signals.

Screening or filtering is an important tool for investors. This article demonstrated why. Consider adding a screen to some or all of your funds.

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