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How good is "buy and hold the S&P"?
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Occasionally you'll see an article that dismisses
a futures trading system because "it isn't much
better than the performance of a simple buy and
hold strategy".
So, let's see what the performance of Buy and Hold
actually is.
ENTER:
buy the S&P cash index at market on
close, on 21 April 1982. Pay 115.72.
WORST DRAWDOWN:
peak on 05 October 1987 @ 328.08
valley on 20 October 1987 @ 216.46
drawdown = -34.02%
EXIT:
sell at market on close, on 04 June 1999, at 1327.75
DURATION:
the holding period (820421 to 990604) is 17.12 years.
PERFORMANCE:
initial investment of 115.72 grew to 1327.75 in 17.12
years. COMPOUND ANNUAL GROWTH RATE = 15.32% per year.
So we see that buy and hold has a reward-to-risk ratio
of 0.45. CAGR/MAXDD = 0.45.
DISCUSSION:
this may be "great" for stocks, since 80% of professionally
managed mutual funds fail to beat the S&P. But it
is truly *awful* for mechanical futures trading systems
that employ geometric betsize selection. It turns out
to be EASY to beat buy-and-hold on a risk adjusted basis.
Mechanical futures systems can and do achieve much
better results, routinely.
--
Mark Johnson Silicon Valley, California mark@xxxxxxxxxxxx
"... The world will little note, nor long remember, what we
say here..." -Abraham Lincoln, "The Gettysburg Address"
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