Signals20090215 Timer Commentary
In the previous blog entry, we discussed some cautionary points about performance for market timing systems.
Today, we will start with an enlarged view of a small piece of the graphic shown on the public home page of our website for the Climber model:
Each section of the grid shows about six months of data, so about 3.5 years of data is displayed ending in mid-February 2009. The black line indicated with the red arrow is a linear trend line for all the data from the thirteen-plus years of backtesting shown on the larger, home page graph. You can think of the trendline as showing a line drawn through the model performance where half of the data points are above the black line, and half are below the black line.
The red arrow above emphasizes the recent performance of the Climber model – very exceptional performance! For all the attention this performance provides us, notice that the past six months have basically moved us back up to the trend line.
In contrast, a prior period of performance starting in June 2008 and continuing into November 2008 started above trend, and ended below trend. We were using this model with leveraged funds for our own investing, so the decline was amplified and very unpleasant to experience. It is very difficult to stay with a system during such times, even for us. We did review the backtested data represented in the homepage graph, and found other small-scale comparisons that suggested the model could recover. But this bear market has some unusual characteristics: consumer spending damaged by the sudden change in home equity availability, large financial institutions being foundationally damaged, government intervention, etc.
The model could continue with the current trend for awhile, but it will not do so forever.
It may be surprising to some, but if we had our druthers, we would be happy if the model started following its own trend line more closely. We might get a little less attention, but we prefer our performance to be steady and climbing, as our website name suggests.
