Buy and hold investing on the S&P 500 index with a low cost mutual fund is a top performing system first made popular by Jack Bogle. Warren Buffett also recommends this strategy as a way to beat the majority of mutual fund managers and hedge fund managers. Most financial advisers recommend this buy and hold strategy if a client is going to hold their investments for at least ten years as the majority of ten year periods are profitable. The downside is the pain that has to be endured during bear market drawdowns and market crashes also when you enter into the market, how you accumulate your position over time, and when you need to start taking your money out. A buy and hold investor that started in March 2000 or January 2008 will not think it is as great a system as someone that started in March of 2003 or March of 2009. Could there be a better way?
There is a simple moving average strategy that beat buy and hold investing over the past 20 years. It is not complicated, it is a type of trend following system and only takes one action on the last day of the month to execute it. It almost doubles the returns in the S&P 500 index and cuts the drawdown of capital almost to almost one third. Unlike mutual funds and hedge funds, a good systematic moving average strategy can beat the S&P 500 index over time by staying long during bull markets and going to cash during bear markets.
The 200 day simple moving average of prices is one of the most popular stock market signals and backtesting shows since the year 2000 it has worked best as an end of month signal. Below are the results if you simply bought the $SPY ETF and held if price ended the month over the 200 day simple moving average but sold and stayed in cash if the $SPY price was under the 200 day SMA on the last day of the month. This is not the Holy Grail of trend trading the SPY ETF, it is just math. The 2oo day SMA is lost during bear markets and crashes and price stays above the 200 day SMA during bull markets. The end of month signal avoids all the intra-month false signals when price chops under and over this line. For a swing of position trader the signals will seem like a long time frame but for a buy and hold investor this will seem like an active short term strategy.
The market timing of the trade signals of the below 11 trades does not get much better than this avoiding the two major bear markets of the past 20 years but capturing almost all the bull market profits.
Here are four more $SPY moving average systems that beat buy and hold here.
Here are seven $QQQ moving average systems that beat buy and hold here.
Backtest data courtesy of ETFreplay.com
This post is not investment advice it is for informational purposes only.