Momentum vs Buy and Hold vs 60/40?

Last week we took a look at the difference between a buy and hold strategy of a Bitcoin, vs a momentum strategy of Bitcoin (long only).

I got a number of questions to the email, wanting me to look at different portfolios, different assets classes, all sorts of fun things.?

But first of all, I'm going to give you a sneak preview of what we'll be working on next month in the Trading Thunderdome, so stick with me here!

I am launching a whole new course for the Thunderdome members, taking everything else we've done up to this point and going to code.?

In addition to everything else already included in the Thunderdome:

?is a?self paced intensive professional trader program.?It is designed to be two sessions per week?but you can go as fast (or slow) as you like. You'll have access to everything forever.?In addition, you'll receive...

• Systems Mastery Course?($1997)
• Curvy Trading System?($997)
• Swing Beast Momentum System?($997)
• Equity Earning System?($997) - Only Thunderdome members get access to this.?
• LIFETIME Access to the Trading Lab?($4997)?Only?Thunderdome?members receive lifetime access to the Lab.

The rest of the?Memorial Day Sale (50% off) ends tonight.

---

Let's have a look at this backtest From January 2014 to May 2024:

• Momentum Long $SPY (S&P 500 ETF)?and $TLT (US Treasury Bonds ETF) - 2:1 margin
• Buy and hold $SPY and $TLT (50%) - No margin
• The traditional 60/40 portfolio 60% $SPY/ 40% $TLT - No Margin

It's all kinda similar, the 60/40 portfolio returned the most because it had the highest allocation to $SPY.?

But both 60/40 and Buy and Hold (basically the same thing) had -28% drawdowns and CAGR of 7ish%.

The momentum system also had 7% CAGR, but only had drawdowns of -12%.

So you essential get all the same returns, without the heartburn.?

Now let's look at all 11 S&P500 Sector ETF's the SPDR's

That is a straight line up for the momentum strategy, very low volatility, low drawdowns -4%, but only a 13% CAGR. While Buy and Hold had a -36% drawdown to only earn 10.89% CAGR

Now let's keep the 60/40 as our baseline, but change the basket of stocks we trade to the "FAANGMOrwhatever they are called" basket of stocks not including semiconductors.?

TSLA, META, GOOGL, AMZN, AAPL, NFLX, BRK-Band add in Energy and Utilities for the deflationary/staflationary hedge.?

Let's have a look at this backtest From?January 2014 to May 2024:

• Momentum Long (TSLA, META, GOOGL, AMZN, AAPL, NFLX, BRK-B, XLE, XLU)?-?2:1 margin
• Buy and hold?(TSLA, META, GOOGL, AMZN, AAPL, NFLX, BRK-B, XLE, XLU)?- No margin
• The traditional 60/40 portfolio 60% $SPY/ 40% $TLT - No Margin

Things got good, real quick here.?

First off, you can see the 60/40 portfolio is just barely better than it was in 2020, and still yet to recover the 2021 peak.?

If you are a 60/40 investor, it's easy to see why you would think the economy is so weak or stagnant.?

If you simply owned the top market cap stocks of the S&P500, energy ETF and utilities ETF, you'd be quite optimistic on life.?

And if you were timing it, you wouldn't have had to sit through a bear market...your account?kept hitting new all time highs, while everyone else was eating a 20-30% drawdown.?

Let's look at the metrics.

With the momentum strategy, you make 31% Compounded Annually with only a -7% drawdown.?

Buy and hold compounds at 23% (noice) but takes a -33% beating along the way.?

Sharpe Ratio is 2.68 vs 1.07 Sortino Ratio is 5.46 vs 1.52

These?are ratios give you the confidence to use leverage.?

And why not have a look at a basket of cryptos since 2017 - and?not the good newer ones either.?

• Momentum Long (BTC, ETH, LTC, BCH, XRP (yuck), XMR)?-no??margin
• Buy and hold?(BTC, ETH, LTC, BCH, XRP (yuck), XMR)?- No margin
• The traditional 60/40 portfolio 60% $SPY/ 40% $TLT - No Margin

Again the momentum strategy has the smoothest rising equity curve, but buy and hold outperforms here...remember, no margin was used in this example since it's actually a challenge to get access to margin for crypto.?

Still high levels of Sharpe and Sortino with low drawdowns relative to buy and hold.?

I mean -91% drawdown for buy and hold is not worth playing around with.?

You can get 46% CAGR (vs 50 CAGR) for only a -12% drawdown using momentum.?

The big lessons here, for me at least.?

Momentum, long only systems IN THE RIGHT ASSETS, far outperform buy and hold.?

It means you can use leverage safely to get better returns.?

The power law is at work here, the best assets have the best returns.

Again, the 50% discount ends tonight, this is the last chance.?