In response to my previous post about whether to buy or sell just on the basis of a 10 month moving average, I decided to publish some back testing results of the process.
This test assumes you bought or sold at the start of the each month based solely if the S&P 500 was above or below its 10 month moving average by one percent. This test also assumes if you sell, you just have the money sitting in cash earning no interest. In the table below, I test using 100 shares of S&P 5500 index fund – comparing the 10 month moving average approach to just buying and holding the index:
Month End |
Price |
10 mo moving avg |
%over / under |
|
shares owned |
Mov Avg $ |
Buy/Hold $ |
9/30/2007 |
135.98 |
129.207 |
Initial Buy |
100 |
$13,598 |
$ 13,598 |
|
10/31/2007 |
130.71 |
129.802 |
0.70% |
100 |
$ 13,071 |
$ 13,071 |
|
2/29/2008 |
133.82 |
130.953 |
2.19% |
100 |
$ 13,382 |
$ 13,382 |
|
3/31/2008 |
131.97 |
131.777 |
0.15% |
100 |
$ 13,197 |
$ 13,197 |
|
4/30/2008 |
138.26 |
132.682 |
4.20% |
100 |
$ 13,826 |
$ 13,826 |
|
5/31/2008 |
140.35 |
133.357 |
5.24% |
100 |
$ 14,035 |
$ 14,035 |
|
6/30/2008 |
127.98 |
132.991 |
(3.77%) |
Sell |
0 |
$ 12,798 |
$ 12,798 |
7/31/2008 |
126.83 |
132.922 |
(4.58%) |
0 |
$ 12,798 |
$ 12,683 |
|
8/31/2008 |
128.79 |
132.885 |
(3.08%) |
0 |
$ 12,798 |
$ 12,879 |
|
9/30/2008 |
115.99 |
131.068 |
(11.50%) |
0 |
$ 12,798 |
$ 11,599 |
|
10/31/2008 |
85.82 |
126.052 |
(31.92%) |
0 |
$ 12,798 |
$ 8,582 |
|
11/30/2008 |
90.09 |
121.99 |
(26.15%) |
0 |
$ 12,798 |
$ 9,009 |
|
12/31/2008 |
90.24 |
117.632 |
(23.29%) |
0 |
$ 12,798 |
$ 9,024 |
|
1/31/2009 |
82.83 |
112.718 |
(26.52%) |
0 |
$ 12,798 |
$ 8,283 |
|
2/28/2009 |
73.93 |
106.285 |
(30.44%) |
0 |
$ 12,798 |
$ 7,393 |
|
3/31/2009 |
79.52 |
100.202 |
(20.64%) |
0 |
$ 12,798 |
$ 7,952 |
|
4/30/2009 |
87.42 |
96.146 |
(9.08%) |
0 |
$ 12,798 |
$ 8,742 |
|
5/31/2009 |
94.77 |
92.94 |
1.97% |
Buy |
100 |
$ 12,798 |
$ 9,477 |
6/30/2009 |
92.33 |
89.294 |
3.40% |
100 |
$ 12,554 |
$ 9,233 |
|
7/31/2009 |
100.44 |
87.739 |
14.48% |
100 |
$ 13,365 |
$ 10,044 |
|
8/31/2009 |
102.46 |
89.403 |
14.60% |
100 |
$ 13,567 |
$ 10,246 |
|
9/30/2009 |
105.59 |
90.953 |
16.09% |
100 |
$ 13,880 |
$ 10,559 |
|
10/31/2009 |
103.56 |
92.285 |
12.22% |
100 |
$ 13,677 |
$ 10,356 |
|
11/30/2009 |
109.94 |
94.99599 |
15.73% |
100 |
$ 14,315 |
$ 10,994 |
|
12/31/2009 |
111.44 |
98.747 |
12.85% |
100 |
$ 14,465 |
$ 11,144 |
|
1/31/2010 |
107.39 |
101.534 |
5.77% |
100 |
$ 14,060 |
$ 10,739 |
|
2/28/2010 |
110.74 |
103.866 |
6.62% |
100 |
$ 14,395 |
$ 11,074 |
|
3/31/2010 |
117 |
106.089 |
10.28% |
100 |
$ 15,021 |
$ 11,700 |
|
4/30/2010 |
118.8125 |
108.7373 |
9.27% |
100 |
$ 15,202 |
$ 11,881 |
|
5/31/2010 |
109.369 |
109.6301 |
(0.24%) |
100 |
$ 14,258 |
$ 10,937 |
|
6/30/2010 |
103.22 |
109.7062 |
(5.91%) |
Sell |
0 |
$ 13,643 |
$ 10,322 |
7/31/2010 |
110.27 |
110.1742 |
0.09% |
0 |
$ 13,643 |
$ 11,027 |
|
8/31/2010 |
105.31 |
110.3491 |
(4.57%) |
0 |
$ 13,643 |
$ 10,531 |
|
9/30/2010 |
114.13 |
110.7682 |
3.03% |
Buy |
100 |
$ 13,643 |
$ 11,413 |
10/31/2010 |
118.49 |
111.4732 |
6.29% |
100 |
$ 14,079 |
$ 11,849 |
|
11/30/2010 |
118.4925 |
112.5834 |
5.25% |
100 |
$ 14,079 |
$ 11,849 |
|
12/31/2010 |
125.75 |
114.0844 |
10.23% |
100 |
$ 14,805 |
$ 12,575 |
|
1/31/2011 |
130.235 |
115.4079 |
12.85% |
100 |
$ 15,254 |
$ 13,024 |
|
2/28/2011 |
133.15 |
116.8417 |
13.96% |
100 |
$ 15,545 |
$ 13,315 |
|
3/31/2011 |
132.59 |
119.1637 |
11.27% |
100 |
$ 15,489 |
$ 13,259 |
|
4/30/2011 |
136.43 |
122.4847 |
11.39% |
100 |
$ 15,873 |
$ 13,643 |
|
5/31/2011 |
134.9 |
124.9477 |
7.97% |
100 |
$ 15,720 |
$ 13,490 |
|
6/30/2011 |
131.97 |
127.6137 |
3.41% |
100 |
$ 15,427 |
$ 13,197 |
|
7/31/2011 |
130.22 |
129.2227 |
0.77% |
100 |
$ 15,252 |
$ 13,022 |
|
8/31/2011 |
122.22 |
129.5957 |
(5.69%) |
Sell |
0 |
$ 14,452 |
$ 12,222 |
9/30/2011 |
113.15 |
129.0615 |
(12.33%) |
0 |
$ 14,452 |
$ 11,315 |
|
10/31/2011 |
125.5 |
129.0365 |
(2.74%) |
0 |
$ 14,452 |
$ 12,550 |
|
11/30/2011 |
124.99 |
128.512 |
(2.74%) |
0 |
$ 14,452 |
$ 12,499 |
|
12/31/2011 |
125.5 |
127.747 |
(1.76%) |
0 |
$ 14,452 |
$ 12,550 |
|
1/31/2012 |
131.32 |
127.62 |
2.90% |
Buy |
100 |
$ 14,452 |
$ 13,132 |
2/29/2012 |
137.02 |
127.679 |
7.32% |
100 |
$ 15,022 |
$ 13,702 |
|
3/31/2012 |
140.81 |
128.27 |
9.78% |
100 |
$ 15,401 |
$ 14,081 |
|
4/30/2012 |
139.87 |
129.06 |
8.38% |
100 |
$ 15,307 |
$ 13,987 |
|
5/31/2012 |
131.47 |
129.185 |
1.77% |
100 |
$ 14,467 |
$ 13,147 |
|
6/30/2012 |
136.105 |
130.5735 |
4.24% |
100 |
$ 14,931 |
$ 13,611 |
|
7/31/2012 |
137.71 |
133.0295 |
3.52% |
100 |
$ 15,091 |
$ 13,771 |
|
8/31/2012 |
141.16 |
134.5955 |
4.88% |
100 |
$ 15,436 |
$ 14,116 |
|
9/30/2012 |
143.97 |
136.4935 |
5.48% |
100 |
$ 15,717 |
$ 14,397 |
|
10/31/2012 |
141.35 |
138.0785 |
2.37% |
100 |
$ 15,455 |
$ 14,135 |
|
11/30/2012 |
142.155 |
139.162 |
2.15% |
100 |
$ 15,536 |
$ 14,216 |
|
12/31/2012 |
142.41 |
139.701 |
1.94% |
100 |
$ 15,561 |
$ 14,241 |
|
1/31/2013 |
149.7 |
140.59 |
6.48% |
100 |
$ 16,290 |
$ 14,970 |
|
2/28/2013 |
151.61 |
141.764 |
6.95% |
100 |
$ 16,481 |
$ 15,161 |
|
3/31/2013 |
156.67 |
144.284 |
8.58% |
100 |
$ 16,987 |
$ 15,667 |
|
4/30/2013 |
159.68 |
146.6415 |
8.89% |
100 |
$ 17,288 |
$ 15,968 |
|
5/31/2013 |
163.445 |
149.215 |
9.54% |
100 |
$ 17,665 |
$ 16,345 |
|
6/30/2013 |
160.42 |
151.141 |
6.14% |
100 |
$ 17,362 |
$ 16,042 |
|
7/31/2013 |
168.71 |
153.615 |
9.83% |
100 |
$ 18,191 |
$ 16,871 |
|
8/31/2013 |
163.65 |
155.845 |
5.01% |
100 |
$ 17,685 |
$ 16,365 |
|
9/30/2013 |
168.01 |
158.4305 |
6.05% |
100 |
$ 18,121 |
$ 16,801 |
During this period, the 10 month moving average approach beats the buy and hold strategy by a total of 7.86% over approximately 6 years. Another plus for the 10 month moving average approach is you are exposed to lower risk, as the portfolio was in cash for 19 months.
Note that in recent months, the moving average approach underperformed just buy and hold, primarily to some ill-timed sales. So I would agree there is a cost to this approach during low volitility periods of the market, however it does appear to provide insurance against major downside moves.