No. of Recommendations: 12
A few random thoughts to add to the discussion.
Period of Time Evaluating My Historical Portfolio ReturnsWhen it comes to the period examined for evaluating my success I like it to reflect the normal period of the market which is historically at or around 70% bullish and 30% bearish. It doesn't really matter if you use any peak to trough move from 10% to 30% you'll still end up around 70% bullish. So in my evaluation of my past results I want to include a period of time that is reflective of that and includes a minimum of two 20% bear markets.
The Importance of Mitigating Bear Market DevastationIn the 90s I realized that the most important focus of my research had to be on avoiding the lion's share of devastation caused by a bear market. A significant amount of a bull market's gains are reclaimed by the bear market that follows. This table illustrates that point:
https://www.zeelotes.org/Training/SP500_Gains_Recl...In light of this from the late 90s until today I've focused my attention on identifying major market peaks that have a high potential of a bear market following. Basically, it was creating a basket full of indicators that have historically done this well - breadth, macroeconomic, sentiment, etc. - and then combine them into a consensus score. When this score reaches fifteen or above there is a warning shot over the bow, but when it hits twenty or above it is time to take decisive action moving either completely to cash, or taking on inverse ETF positions or shorting stocks. Here is a chart showing what I'm talking about for 2007-2009.
https://www.zeelotes.org/Training/ST_Bearish_Score...I also create a consensus score to identify bottoms/troughs in similar fashion.
When it comes to using the MI Screens developed over the years, if you use this sort of approach for avoiding bear markets you'll find that the returns from some of them are massively better than others during the bullish period. In fact, the Shorting screens developed do best when the bullish consensus score reaches a high number. But NOT as shorts, but held long! And the final capitulation period of a bear market sees these same screens do best held as shorts. That is just how the markets roll.
