Investment using 300-SMA rule. Anyone tried it?


#1

I remember reading this article a few years back and being intrigued by the theory: http://seekingalpha.com/article/1824492-a-simple-and-timeless-way-to-trade-the-s-and-p-500-successfully

I never ended up trying it (but I’m considering building a tool to automatically warn me when determining events are reached), but was curious if anyone in the community had already tried it or has thoughts about it.


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#2

Looks a lot like momentum investing. In my memory, Meb Faber had published a similar paper and used a 250 days moving average, sometimes combined with a 50 days MA.

You might also be interested in Gary Antonacci’s work on Dual Momentum

or his other paper : http://www.optimalmomentum.com/RiskPremiaHarvesting.pdf

Be warned though : it is my experience that to a lot of mustachians (especially on MMM forum), this would be considered as market timing and people are kind to throwing anathema to market timers :wink:

However, Antonacci claims annual returns close to 15% (without including trading fees) since beginning of XXth century if my memory recalls correctly.

Anyway, building such a tool should not be an issue, when you have access to Yahoo finance API to get the market data!

If you ever choose to make the leap, I’d be interested to see your results. I have never been at ease with momentum investing, mostly because as a value investor, I “need” to compare the price of what I buy to its current value, which is not easy with such strategies.


#3

If this method is so profitable, he must be richer than Warren Buffet right? :slight_smile:


#4

I don’t remember him claiming that this is the most profitable investment method of all. Just that it is more profitable method than staying invested 100% of the time, and something that is automatable.


#5

It takes much more to be as rich or richer than Warren Buffett :slight_smile:

  • Buffett has had a much higher annual average return : until the 90’s it was at a staggering 29%, now it is more at 19%. Compound at this rate for 50 years and compare with 15%
  • What we also forget about Buffett, is that he also always has a lot cash available through the insurance companies he owns : GEICO, General Re. Not only can he invest at a high return rate, but he has much more principal to invest than anyone else
    -Finally, Buffett knew all his life how to circle himself with good business relationships : Kay Graham, the people at Tweedy Browne’s, and so on… They have been of tremendous help to bring him good business opportunities.

So that was just to say that someone using only a momentum strategy in his office with his own money coming from his salary (however big it is) won´t be able to reach Buffett´s level :slight_smile:

To come back to the subject, my point was just saying that if @pombeirp was interested in momentum strategies, then Antonacci has made quite a lot of research on this field.

And for my personal point of view, this style of investment does not suit my personality. I understand how it works, and I acknowledge that a good amount of research tends to show that it beats the market. However, when i buy something, I like to have a good idea of how much it is worth, with a margin of safety.

Momentum’s philosophy is ‘Buy High, sell higher’, whatever the intrinsic value of the underlying. It’s totally different from value investing, and although many says it works, I would not be able to sleep at ease with such a framework. :slight_smile:


#6

@Mobius I find this very interesting - thank you for sharing it.

I have some questions:

  1. Is there some tool on the web which one can use to find out the 300 day moving average of any chosen ETF? I have found on seeking alpha that there is 10,50,100 and 200 day moving average (enter ETF name -> momentum ->moving-averages) - but there are only these fixed periods available - I could not find any tool to allow me to increase the period to 300 days.
  2. Did you manage to build a tool automate the process of monitoring the 300 day moving average for a particular ETF and issue you a warning when the value drops below that moving average? would be so kind as to share how you did this? Or do you know if there is such a tool available on the web?

Also I am curious if you have adopted this strategy in your own portfolio and if so how has it worked out so far?

Thank you.


#7

geez, it’s a one liner in pandas + pandas-datareader. And if you don’t use pandas already and try to algotrade, you doing it wrong.


#8

I have to say I haven’t actually followed this strategy yet, but I have customized the IB charts to show me the SMA 300 (you can customize the number of days for a SMA data series) so that I can get a feel for it over time.