Subject: Re: Yesterday's winners
In short, market tracking.

As an example, S&P 500 companies with the best stock price total return performance in the last 5 years, held for a month or held for up to a year, little difference.
You tend to outperform in the strong "up" markets, like 2003-2009 or 202-2021, then give the advantage back again when those periods end, like 2008-2009 or 2022. A tie at the end.

What works much better is five year rate of sales growth per share. Despite being very painful in bear markets, that has shown a long term advantage of 3-5%/year over the long run. Same test as above: S&P 500 firms, top 25 by the metric, held for 1,2,3,6,12 months then rebalanced to equal weight. Like the total return test, it works well in boom markets and does poorly in bears, but unlike looking at stock performance, it doesn't give back all the relative gains during the bear.

One good version of that: every month, put 1/24 of your portfolio into each of the 8 highest-growth-rate S&P firms you don't already own, and hold for three months. After trading costs, beat the S&P by 3.51%/year 2000-2024. This may or may not be the right juncture to start such a strategy, though...who knows when the current growth bandwagon will end?


Some years back I proposed a system for finding the best equity investment strategy.
* Split all of history into broad swaths of bull markets and bear markets. Don't test a timing signal, look at the market return directly with perfect hindsight.
* Take all the strategies you've been thinking of (assuming all-long equities all the time), and see the average rate of return of each one separately in bullish and bearish markets.
* Throw away the ones that worked best in bull markets. Just use the ones that did best in bear markets all the time. If an all-long strategy does well in bears, the bull stretches will take care of themselves : )
This has the bonus advantage that you never have to try to decide if you're in a bull market or a bear market.

Jim