Examining Some Portfolio & ETF Results

Let's look at the SPY (S&P500) and QQQ (Nasdaq 100)


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Nasdaq QQQ ETF Result

We’ve discussed previously that there are several ways to utilize what’s available here on the NetPicks ETF Investor.  Please review the suggested entry & exit strategies here.

Remember, our objective with this approach to investing is not be highly speculative and consider this active trading.  That’s reserved for other approaches such our NetPicks Options Fast Track or NetPicks Counter Punch Trader.

Instead, I personally designed the strategy so I could trade low cost ETFs and most important to me, control the potential drawdowns that come from buy & hold.  I figured, if I could even meet the market returns, but do it with low cost ETFs and not experience those 50%+ drawdowns I’d take it any time. Of course, if I could beat the benchmarks then even better!

Let’s take a look at a 10+ period of time in performance with the SPY and QQQ as two good starting points for comparison.

In both cases, I bought the ETF when the Power Score + Long Term (LT) Trend both turned positive.  I exited in these examples when I the LT Trend went negative and had two consecutive weeks lower (for example:  -0.02 then -0.15) and the Power Score was negative on the second week lower to confirm.  You could of course alternately use the exit where the Power Score is negative two weeks with a confirming LT Trend.  The results won’t vary dramatically.  It becomes a matter of choosing and just being consistent.

SPY ETF Results:

S&P500 SPY ETF Results

The key numbers.  Regular buy and hold for this approximate 10 year period is about a 45% return.  However, this came with the largest drawdown of 57%.  That was during the painful declines of 2008-2009.  Along the way, there were a few other declines in the 10% – 20% range.

Our normal compounded return was about 71% and had a closed max drawdown of 8%.  You can see in this case we beat buy and hold handily but more important to me, the drawdown was fairly painless.  You’re going to lose with this method.  Don’t let that every pass you by.  This isn’t perfection but investing for the long-term where I can limit my max pain is always going to be favorable.

Note, if you used 2:1 compounding (which you could do in a non-retirement account for example) you could speculate a bit more and push your returns over the same period to 148% and though the drawdown was sharply higher at 16% that still is a far cry from buy and hold max of 57%.

Next, here’s the past results trading the same model as above on the QQQ – the Nasdaq 100 Large Cap Tracking ETF.  As you can see, the results are quite similar when you compare buy and hold to non-margined compounded returns (133% vs 130%.)

The advantages however are quite large when it comes to drawdowns.  Twice this market had a drawdown above 50% — the largest being 53.70%.  Trading with the NetPicks ETF Investor so far our largest drawdown came from two consecutive trades with sub 10% losses or just under 13% combined.

How much less stressed would you be being out of the market during most of these declines?  Especially when during the heat of the action you have no idea when or sometimes even if it will recover.  It feels a LOT better being on the sidelines in those scenarios.  Not to mention doing it with very low cost ETFs and not paying anyone a management fee.

Of course, with margin you could accelerate returns to 293% over the same period but you must be comfortable with the larger drawdown (though it was still much lower than buy and hold.)

Nasdaq QQQ ETF Result

We can’t of course predict that in all cases we’ll have either edge in returns or drawdowns.  But, the way the model is built it is designed to do both with a focus in particular on being out in large declines.  I’ll take that any day.

In the weeks ahead I’ll share more results by looking at sector funds, regions, etc…  This will continue to give you a bigger picture on expectations.  Let me know if any questions below.  Thanks!


1 Comment

  1. Trevor West says:

    Thanks Mark – exactly the kind of results data I was looking for. The low drawdowns are outstanding compared to buy&hold! Really interested to see how these drawdowns stack up in a portfolio of several low-correlated ETFs, as the ratio of portfolio profit to drawdown should be even better. Please keep the results coming.

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