Beat The Market by Appel

Author:Appel [Appel]
Language: eng
Format: epub
Published: 2010-08-10T19:05:11.359000+00:00

TWIBBS

58.2%

81.8%

18.2%

13.4%

–1.8%

+10.7% +11.6%

20.7%

–16.7%

Beat the Mark

et

From the Library of Melissa Wong

ptg

Creating the Best Blends of Risk and Reward in Your Portfolio 91

Notes

(A) Based on time spent in most bullish zones only.

(B) Both Baa and Treasury Bond-Stock Valuation Models

must be in most favorable zones.

(C) Either Baa or Treasury Bond-Stock Valuation Models

ptg

may be in most favorable zones.

(D) From the time the most favorable Weekly Breadth

Signal enters buy-hold position to the cancellation of hold signal. When applied within TWIBBS, certain conditions apply that

improve the performance of the Weekly Breadth Signal indicator.

“Annualized Rate of Return” is profit on a full-year basis for this particular signal. For example, the Baa Bond-Stock

Valuation Model, which is invested 36.6% of the time, produced average annual returns of +7.2%.

“Return While Invested” is the rate at which gains are

achieved. For example, the Baa Bond-Stock Valuation Model

produced profit of 548.73% while in the market 9.8 of the 26.8

years between 1981–2007. The rate of return was 21.0%, per

annum or twice the rate of return of buy-and-hold.

“Maximum Drawdown” is the worst interim loss taken by following this model, before profits reached new all-time highs. This is a measure of the minimum past risk of trading by this model. All the timing models have excellent risk/reward ratios over

a quarter of a century. Next, examine additional measurements

of past performance.

From the Library of Melissa Wong

92

Beat the Market

Risk-Return Relationships of Buy-and-Hold

Portfolios over the Years

Table 7.2 shows risk-return relationships for investment

portfolios including stocks and bonds, both maintained on a

buy-and-hold basis, from 1956–2005 (source: Ibbotson

ptg

Presentation Materials © 2006).

TABLE 7.2

Rates of Return and Risk Levels, Stock-Bond Portfolio

Allocations

Stock—Standard & Poor’s 500 Index; Bonds—U.S. Intermediate Government

Percent Percent Annual

Returns

Stocks

Bonds

Highest

Average

Lowest

100

0

+41.1%

+10.3%

–24.9%

90

10

+38.9

+10.2

–23.3

80

20

+34.4

+9.9

–20.0

70

30

+31.2

+9.6

–16.8

60

40

+29.2

+9.3

–13.6

50

50

+27.1

+8.9

–10.4

40

60

+26.0

+8.6

–7.2

30

70

+26.8

+8.1

–4.0

20

80

+27.6

+7.7

–3.9

10

90

+28.3

+7.2

–4.5

0

100

+29.1

+6.8

–5.1

The table is an historical evaluation of buy-and-hold investment portfolios with ratios of assets of stocks, represented by the Standard & Poor’s 500 Index and bonds, represented by the relatively low-risk, 10-year intermediate U.S. Government

treasury bond. The highest single year returns of portfolios of the ratios of bonds and stocks is shown, and the average performance of different blends and the largest historical risk levels are shown.

From the Library of Melissa Wong

Creating the Best Blends of Risk and Reward in Your Portfolio 93

In the analysis of timing indicators (refer to Table 7.1),

“Maximum Drawdowns” represent more stringent tests of risk

than “Lowest Annual Returns,” because losses during bear

markets often spread over more than just one year. They

exceed losses taken in any single year. Also, because the worst ptg

drawdowns are the moments of greatest loss, they are unlikely

to take place right at year’s end. To this extent, Table 7.2 underestimates actual historical risk levels.

Analysis of Table 7.2: The Best Pockets of

Investment Blends

It might be difficult to tolerate the risk of a portfolio 100%

committed to stocks. Between 1956–2005, portfolios fully

invested in the Standard & Poor’s 500 Index had their best year at +41.1%, an average annual gain of +10.3%, but a greatest

single-year loss of 24.9%.

Why Not Losing Is More Important Than

Winning

Portfolios fully committed to stocks would be the best performing of the portfolio mixes. However, actual losses of 24.9%

can be ruinous to a retired investor, living off his assets. For example,

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.