Post #4563 by rayvt on the Mechanical Investing board

Investment Strategies / Mechanical Investing

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Ahh, all those sayings, one for every opportunity and each one´s taste. Like "Bull markets don´t die with a roar, they die on a whimper" (or similar, can´t remember). In line with Jim´s "You have a lot of time to get out ... 3 months later avarage/usually -10%" (or similar).

But does this apply to Mania´s?
Nasdaq, Feb 2000...

Good question.
Probably doesn't apply to a mania.

Digging out an old timing spreadsheet I have this for the S&P 500 at that time.

2/27/00  1409 SPX (^GSPC)
12/31/00 1289 Sell signal.  down 8.5% from 2/27/00
9/16/01   966 That's the low.  But we are out.  Down 31.4%
3/3/02   1164 Buy signal
4/7/02   1123 Sell signal  down 3.5% from 3/3/02
9/29/02   800 That's the low.  But we are out.  Down 31.3%
4/13/03   893 Buy signal.
12/30/07 1412 Sell signal

This was GTT timing on SPX. Worked as designed. Take a small loss and save yourself from a huge loss.
It took a loss of -9%, but avoided a loss of -31%
Then took loss of -4% but avoided loss of -31%

Here is the Nasdaq (QQQ, incl dividends) with the same timing signals.

3/8/99    42.34
2/26/00   84.47 
12/30/00  49.37 sell signal   Down 51.0% from 2/26/00
                BUT, up 16.6% from inception 3/9/99.     
9/15/01   28.84 same date for low  Down 71.0% from 1/26/00
3/2/02    30.23 buy signal
4/7/02    29.07 sell signal  down 9.0% from 3/3/02
9/28/02   18.02 same date for low.  But we are out.  Down 40.9%
4/5/03    22.03 buy signal

It took a loss of -51%, but avoided a loss of -71%.
Then took loss of -9% but avoided loss of -41%

The advice is, don't buy into a mania. Look at it from the pre-mania.
QQQ went up 2.3 times from inception (3/10/1999) to the high on 3/27/2000.

Do not buy tulip bulbs.

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