MarketTrak Question/Comment Message


Posted By: david   Date: Mon Dec 6, 2010

Title: re Greece and Ireland

Message:
  this year we have had "worse" performance than buy-and-hold . . .
 
  Is it possible that part of the "problem" is that several of our large dips have occurred as a result of justified or unjustified fears of a European country, such as Greece or Spain or Ireland, going near bankrupt, and/or the collapse of the Euro, and that, "our" models don't reflect or react quickly to "fear that a country in Europe will go bankrupt"? After all, in the last 26 years, we have not previously had substantial fears of Greece or Ireland collapsing . . . and our models presumably don't reflect that.
 
  Is there something that should be done to improve the models based on this idea?
 

Response:
  First let me say that I agree that our performance this year is not as good as last year's. The chart below shows our current results:

Forecast Model Performance
 
 Y-T-D
 165 Days
45 Days
 Buy and hold return
  9.15 percent
  3.42 percent
  5.51 percent
 Forecast model return
  7.13 percent
  3.69 percent
  4.67 percent
 Max model drawdown
  5.48 percent
  5.48 percent
  1.65 percent
 Total stops
 2
 1
 0
 Days long
 80
 41
 17
 Days cash
 131
 102
 26
 Days short
 22
 22
 2
 Trading days
 233
 165
 45

 As you can see, we had these returns with being mostly in cash. The benefit of being in cash is that it reduces portfolio risk.

 Certainly, the debt problems in Europe and our own deficit problems affected the market and our ability to predict it. Perhaps, forecasting one day ahead is too difficult in these volatile times. I am looking again at a five day model which would average out some of the volatility and give us a better estimate of the underlying trend. More on this later.

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