What happened after the Great Depression to the trend-follower

[ochotona]

I am squinting at Fig. 7.3 on page 145 of Mebane Faber's 2009 book, "The Ivy Portfolio". He shows the 10 month moving average trend-following technique applied to the US stock market from 1900-2008.

It's not a high quality graphic, but it shows pretty well that the 10-month simple moving average trendfollower recovered from the drawdown in about 6 years. The Buy & hold investor took year longer, looks like 13 or so years. Faber mentions the trendfollower still had a drawdown of -44.04% vs. -83.66% for buy-and-hold

During times like these, that's good information to know.

I won't post the chart here due to copyright concerns.

[Introvert]

So following the trend is better because it worked that one time?
What type of portfolio was that? Was it diversified between at least, stocks and bonds?

[ochotona]

So following the trend is better because it worked that one time?
What type of portfolio was that? Was it diversified between at least, stocks and bonds?

Trend-following has been verified as a working model throughout all of the 20th century and it worked spectacularly well during the last two bears we had. Again, I won't show the figure in Faber's book due to copyright, but when you run the 10 month moving average on the SP500 from 1950 on portfoliovisualizer.com, you get:

                                  CAGR        StdDev        MaxDD      Sharpe ratio      US Market correlation
Trendfollowing            11.1%        10.8%      -24.38%          0.64                    0.72
Raw SP500                11.1%        14.8%      -50.39%          0.50                      1.00

Which do you prefer?