Gyroscopic Investing

I am squinting at Fig. 7.3 on page 145 of Mebane Faber's 2009 book, "The Ivy Portfolio". He shows the 10 month moving average trend-following technique applied to the US stock market from 1900-2008.

It's not a high quality graphic, but it shows pretty well that the 10-month simple moving average trendfollower recovered from the drawdown in about 6 years. The Buy & hold investor took year longer, looks like 13 or so years. Faber mentions the trendfollower still had a drawdown of -44.04% vs. -83.66% for buy-and-hold

During times like these, that's good information to know.

I won't post the chart here due to copyright concerns.

So following the trend is better because it worked that one time?
What type of portfolio was that? Was it diversified between at least, stocks and bonds?

Introvert wrote: So following the trend is better because it worked that one time?
What type of portfolio was that? Was it diversified between at least, stocks and bonds?

Trend-following has been verified as a working model throughout all of the 20th century and it worked spectacularly well during the last two bears we had. Again, I won't show the figure in Faber's book due to copyright, but when you run the 10 month moving average on the SP500 from 1950 on portfoliovisualizer.com, you get:

                                  CAGR        StdDev        MaxDD      Sharpe ratio      US Market correlation
Trendfollowing            11.1%        10.8%      -24.38%          0.64                    0.72
Raw SP500                11.1%        14.8%      -50.39%          0.50                      1.00

Which do you prefer?