"HISTORICAL TRUTH & WHAT PEOPLE BELIEVE "
"Many believe the myth that gold is a good inflation hedge.** Everybody should own some always. It is no such thing most of the time."
--Quote from original complete article on this topic
April 29, 2011
TBTB in the chart above means 'too big to believe'. I hesitate to print the total percent return because it is too big to believe. But see the original article to view how and why these incredibles occur.
Of course, a 40-year horizon is not of much interest to most people, including me. Except it is--and should be--if you are in the work force and younger than 40. Then studies like this one you are reading now become of tremendous value.
I have no idea whether the system presented here will work that long, or for that matter, even for the next several months or year. But I am willing to test this system with a little real money and feel what happens. If it feels good, I will release it as a new, high-power subscription service available to the public--sort of your own, ultraprivate, equity fund.
The chart above is log scale. That means that the curved lines appear visually in the same proportions as the underlying sequence of numbers occur which plot the speed and magnitude of each item depicted. You don't see many charts like this. At least, I don't. And those you do see, usually covering a much shorter time span than this one, are riddled with periodic, steep sell-offs called 'drawdowns'. System drawdowns are infrequent and trivial. If I were to magnify any portion of this chart, you would see an occasional quick decline. The single worst drawdown in these 516 months was -7.9% during the market collapse of 1990. It rebounded immediately 8.6% in the next two months.
TABLE OF RESULTS
43 Years--Monthly
1968-2011
•
|
%/yr |
rolling |
total% |
trades |
%winning |
max |
|
|
Invest in |
return |
%/yr |
return |
/year |
trades |
%loss |
%dd |
dura |
|
system |
58.2 |
60.2 |
* |
6.5 |
89.5 |
-5.8 |
-7.9 |
2mos |
|
Oil |
14.3 |
15.9 |
22,244 |
-- |
-- |
-- |
-35.6 |
2.5yrs |
|
Gold |
9.8 |
12.4 |
4294 |
-- |
-- |
-- |
-61.8 |
18.9 yrs |
|
SP500 |
6.3 |
8.0 |
1100 |
-- |
-- |
-- |
-52.6 |
1.3 yrs |
|
Tbills |
5.3 |
5.6 |
728 |
-- |
-- |
-- |
-- |
-- |
|
CPI |
4.4 |
4.4 |
15 |
-- |
-- |
-- |
-- |
-- |
%/yr return is the compound average return over 43 years
rolling %/yr is the average annual return of 504 sets
of consecutive one-year returns since 1968
total% return is the present value of 100% versus 1968
max %loss the largest realized loss during the period
%dd is the largest drawdown
(unrealized loss
before the investment turns back up again)
dura is duration, how long a period before
the investment turns up from its lowest value
*122,670,000
N.B. %dd was immaterial during the flash crash of 1987.
The system was short and scored a +14% profit during
the three months that bracketed the crash.
system is the timing and selection method used by Copernicus to produce these results. Gold trading symbol is GLD. SP500 symbol is SPX or its equivalent. Tbills are 90-day U.S. Treasury Bills. CPI is the U.S. Consumer Price Index calculated and published by the Department of Commerce.
The process for this system uses the same methods as our earlier systems. Identify the stongest component in the portfolio that is, the one that is gaining value most rapidly. Then apply a timing mechanism that identifies the trend direction of the portfolio or the market as a whole. What is new in this most recent version is the timer is more powerful and quicker than any we have developed before.
But all that is only part of the job. I believe that it is also part of the developer's job, perhaps more important than the system itself, to prepare the user for any probable adverse, negative events in the future that could dampen or kill the user's confidence in the continued usefulness of the system.
For example, if a subscriber encounters one-year negative returns which were unexpected, he, or she, may think the system is a failure and stop using it. I have found that using rolling returns adds dimensions of understanding that clarifies exactly what can be expected in the future. (If you are not familiar with the concept, I recommend you review the original rolling-returns article here before we apply it to the current system.) Then click here to see how Goldilocks appears in rolling-returns environment.
Why does this system seem to work so well? I think the answer lies in the overwhelming frequency of positive, profitable months versus negative, losing weeks in the course of its history. Look here.
Further, it blithely ignores drawdowns, or better, converts them into profits by selling them short. That's why the system equity curve in the chart above appears to rise so smoothly compared with the agitated and protracted negative behaviors of some of the others. Click anywhere on the chart to enlarge and identify the1987 drawdown, the most notorious crash since 1929, and others.
•
Goldilocks, in our little story, doesn't go to the bears' house in the woods. They come to her house. They don't own the house. She does. In fact, it's a big one, more a medium-size hotel with a ritzy address like Boardwalk or Park Place. When the bears visit, 500 of them, if they are extra well mannered, she lets them stay a while as her guests--about 28 weeks in a typical year. When they misbehave, out they go. She's a tough cookie, sells them short!--about 20 weeks a year outside looking in. The rest of the time, the guests are well mannered Gold and Oil quietly adding to the wealth of the house.
Notes
GLD (ETF) is back linked to bullion prices for deep-term continuity. XOM (Exxon Mobil common stock) is back linked to West Texas Crude Oil.
Wherever we mention 'short selling' in Copernicus systems articles like this one you most probably know that no short selling is ever necessary. You buy inverse exchange-traded funds (ETFs) instead. Since you are buying, not selling short (which requires borrowing which is prohibited in tax-deferred or tax-empt retirement funds), you may freely use Goldilocks and similar systems in our family to accomplish the same end as short selling. This suggests we are giving advice. We are not. Check with your professional, i.e., licensed, adviser before adopting any new or unfamiliar procedure ln your trading or investing.
I note a recent tendency on our part to develop monthly systems analyses. Monthly seems able to beat weekly both in better returns and in risk contol. It certainly takes a lot less time and effort to monitor and apply--you read the signal once a month rather than weekly, 12 times per year rather than 52, trade 6-7 times a year rather than 12-14.
There is one hitch. I think people will wander off the plantation not hearing from the system provider for so long a time . . . lose interest, leave. This factor alone could prevent my further development of a monthly-based subscription no matter how good it looks. What do you think? Please write to me here one way or the other to let me know.
**A hedge investment offers price behavior opposite to your basic investment or simply to keep pace with or ahead of the ever rising cost of living (inflation--CPI).
~Copernicus
Posted
1/6/2012 5:15 p.m. EST
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