Gyroscopic Investing

I'd be happy to run some backtests of various allocations or rotation based systems and post the results. For instance, I can run a backtest that switches between two portfolio allocations when some basic criteria is met such as the price of SPY breaking above it's X-day SMA or when two SMA's cross.

The biggest limitation is that I can only backtest as far back as the ticker symbols allow. The GLD etf for example only has history back through late-2004. I can get more history by using mutual fund counterparts such as using VTSMX instead of VTI. For GLD the best I can do is use the CEF fund - it has history back through the early 90s and then switch to using GLD when it becomes available in 2004.

Here's a sample:

Switch between: 75/25 total stock/total bond portfolio (VTSMX/VBMFX) and the PP (using VTSMX/VUSTX/VFISX and CEF before switching to GLD when it comes available in 2004)
When:  SPY is above/below its 200-day SMA.

I only look at the portfolio once per month to determine the switch, so the SMA crossover can occur at any point during the month but I won't be taking any action except based on what I see on say the 1st of the month.

1994-present

CAGR: 9.9%
Max daily DD: -18.5%

1994 -4.2
1995 30.3
1996 15.6
1997 25.5
1998 16.1
1999 13.1
2000 -1.5
2001 2.5
2002 7.1
2003 21.2
2004 7.0
2005 3.7
2006 13.8
2007 5.9
2008 -3.9
2009 18.6
2010 12.0
2011 -0.5
2012 12.2
2013 23.6
2014 9.3
2015 -2.0

Same as the above except 100% stocks when bullish.

Switch between: 100% total stock market (VTSMX) and the PP (using VTSMX/VUSTX/VFISX and CEF before switching to GLD when it comes available in 2004)
When:  SPY is above/below its 200-day SMA.

I only look at the portfolio once per month to determine the switch, so the SMA crossover can occur at any point during the month but I won't be taking any action except based on what I see on say the 1st of the month.

1994-present

CAGR: 11.2%
Max daily DD: -22.8%

1994 -4.8
1995 34.5
1996 19.8
1997 31.0
1998 17.0
1999 17.6
2000 -5.2
2001 2.5
2002 5.7
2003 27.7
2004 7.6
2005 3.7
2006 16.4
2007 4.8
2008 -5.0
2009 23.0
2010 12.7
2011 -3.9
2012 14.3
2013 33.3
2014 10.2
2015 -3.2

How many trades did your setup end up making?  As Ochotona showed and I looked at a while back, using 10 month MA is something done out there by folks.  I find even that is doing too much trading and is too whippy for my tastes.  On GLD, since my entry into the PP in Feb 2014, I would have gone in and out as shown below, and since it is a falling trend, I'm not sure what it would have gotten me except extra trades and headaches? 

Sure, I'd currently be in cash, I would likely tweak some extra gain out but at the expense of the extra work.

If this could be automated (I'm sure it can be at some brokerages) maybe I'd consider it.  But the bands/annual rebalance works for me.

Cortopassi wrote: How many trades did your setup end up making?  As Ochotona showed and I looked at a while back, using 10 month MA is something done out there by folks.  I find even that is doing too much trading and is too whippy for my tastes.  On GLD, since my entry into the PP in Feb 2014, I would have gone in and out as shown below, and since it is a falling trend, I'm not sure what it would have gotten me except extra trades and headaches? 

Sure, I'd currently be in cash, I would likely tweak some extra gain out but at the expense of the extra work.

If this could be automated (I'm sure it can be at some brokerages) maybe I'd consider it.  But the bands/annual rebalance works for me.

About 1.8 trades/yr on average. The 200-day SMA is a "slow" signal. In a trending market an index like the S&P500 will stay above or below it for a long time. It's much more problematic in sideways markets which is why you'd want to limit the number of trades opportunities.

Update: What you show in your chart is making a trade every single time gold crosses the threshold whereas in my test my trading window is only one day per month. That seems arbitrary but it will have a dampening effect on whipsaws.

I've seen this one mentioned before.

Once per month calculate trailing 3 month return of 4 PP assets. Invest in top 3.

1994-present

CAGR: 7.4%
Max daily DD: -20.0%

1994 -4.0
1995 21.3
1996 6.1
1997 12.1
1998 4.8
1999 4.7
2000 0.6
2001 2.7
2002 14.0
2003 9.5
2004 5.4
2005 5.7
2006 15.1
2007 14.0
2008 0.2
2009 13.2
2010 14.9
2011 18.5
2012 3.3
2013 2.2
2014 7.4
2015 -6.3