Wondering what the real money portfolio has for drawdown atm. Both of my portfolios are taking a beating - volatile sideways to down market over the last three months has exposed Spa3 Investor to its worst scenario - whipsawing me into and out of positions at a furious pace as the market chops and changes from sector to sector with wild irrational swings. The churning is horrific. The biggest concern is the underperformance relative to the index. The index could well go into a correction here which on top of the underperformance would be extremely painful. Nearly all bap stocks on the list tonight are hanging on by the skin of their teeth.
I think this type of market exposes are serious flaw in the indicators used that create buy signals. The technical analysis does not support the buy signals.
To be fair, no system works 100% of the time. No one makes money in share trading 100% of the time. SWS is a positive/long trend following system so when there are no trends upwards, you lose money. In a sideways market you lose money. In a downward market you lose money then are in cash if it keeps declining.
If you can predict when the market turns and for how long it remains, please tell us the secret.
For a long mechanical system with buy and sell indicators, it performs well imo, but if you know of better ones with verified proof, please tell us which ones.
Totally agree with Phillip,it’s not a pleasant experience but one that will occur from time to time
After many years I have become used to the ups and downs and stay focussed on the long term position
While the mechanical approach will not appeal to everyone I have found it to be both profitable and more enjoyable than discretionary trading because I always feel at arm’s length from the market and can ignore the noise which is ever present
Agree with Phillip, I think everyone is feeling pain right now regardless of investing methodology. I think One could also build rules in around not taking BAP signals, based on either time since the original signal or distance to TSL. I haven’t researched this yet but could help in this type of fluctuating market
Yes I have been in drawdown since late August.
Not much you can do apart from widen your focus to the longer term and revisit the long term metrics for the system (i.e. circa 50% Win rate and a Win/Loss ratio of nearly 3 which is pretty good).
As others have pointed out the system requires a trending market / stocks to make coin so in the meantime the cost of active management is whipsaw / chop / loss trades etc - remember these loss trades / stop losses are what protects you from a Covid crash scenario which occurred in March 2020.
A couple of my recent losses have been a little high (DMP COH CSL etc) so I get what youare experiencing but they all come out in the wash eventually.
My thoughts would be to keep pushing through, follow the signals and you will either avoid a deeper fall (if it occurs) or you will have made yourself available to enjoy profits again when the market turns back up. Concentrating on 100% adherence to the process is key right now as opposed to outcome focus which really are random.
It’s difficult though and well done for raising the subject in the forum as it’s important that we understand we aren’t alone in these experiences.
Nobody expects a system to work 100 per cent of the time.
But I think what Ian and Andrew have pointed out is a very valid indication that this system needs to be refined, perhaps with confirmation using another sector-wide indicator. My capital is way down in recent months after following the signals religiously – I would have preferred SWS to not give any buy signals while the market is so choppy.
And Ian is absolutely correct to say that many of the buy signals totally defy technical analysis and more times than not the technical analysis was correct.
Yes, the SPA3 system does suffer as bit in the sideways markets. But long term I have seen the benefits.
I joined after the 2008 GFC, thought I could do better on my own, so I un-joined. Did not do better, rejoined in a sideways market, un-joined. Tried again on my own. Did not do better. Rejoined 2 years ago.
When I review my performance vs SPA3 Trader since 2008 I have missed out on $#00,000.00.
If you want to try different things I would strongly suggest you leave the major portion of your fund in SPA3 and try with a limited amount to do better than SPA3 using the same measuring system .
I have studied many many indicators, many trading systems, many traders, used top notch trading platforms, written my own code for my system. I have tried, and tried and tried. I have gained much knowledge on charting and trading.
When I rejoined 2 years ago I did an analysis of about 140 trades of the SPA3 Investor and compared the results to a slight tweak of when to buy or sell after the signal. This is a very small sample compared to the testing Gary has done. Gary does not recommend people tweaking his system.
This has given me a small improvement. I sent Gary my analysis. My tweak is to buy a few cents above the 11am high if the high is higher than the high of the signal day. If it were not higher then I would follow it down after close of market with a conditional buy above the previous day’s high. I apply this in the opposite direction when instructed to sell.
I have observed that the first stocks to give buy signals as the market starts a trend tend to give the better results. No testing has been done.
Remember this is a long term endeavour so the current sideways losses get made up in the trending market and you do not want to miss out on that or you will end up a poor investor like myself.
"My tweak is to buy a few cents above the 11am high if the high is higher than the high of the signal day. If it were not higher then I would follow it down after close of market with a conditional buy above the previous day’s high. I apply this in the opposite direction when instructed to sell."
That should move the 10.00AM SPA-effect to 11.00am
Thank you Nick, Malcolm & Phillip for your insights, which only come from previously experiencing market periods like we are enduring at the moment.
It is difficult for every investor (b&h, discretionary & systematic) to persevere thru times like now in the market, it’s just the degree of difficulty that differs from one person to the next. And the difference comes from how we think combined with our approach.
The approach will be the same one that protects, or not with b&h, if the market falls another 30%, and the one that will bring us out of drawdown when the market turns up again.
Turning off buy signals in a market like this one will also turn them off at other times that feel like this one but lead to juicy profitable run ups. The unsolvable problem is that we can’t see the future and will never know the difference in advance. The Law of Unintended Consequences.
In the near future we will release a Simulation tool that will allow you to research all the scenarios you wish to. The SPA3 Investor Simulator will provide great insight into how similar markets in the past have played out with different settings, such as with or w/o BAPs.
I will cover this downturn in detail in the coming week’s C&G Webinar.
Thanks everyone for your comments. Some very interesting discussion, which was the aim of the post. We are all Spa3 investors here, so I am sure we are all going through similar pain. The equity curve on my portfolios is complicated as I am contributing quite steadily to both. My expectation was that the contributions would smooth out the drawdown in the equity curve but I feel that over the last six months, as my position sizes are growing due to the contributions and the will to get the extra equity into the market, the effect is to leverage or compound the losses as the system cuts it’s losers and lets the winners run. I am working remotely, so can someone tell me what the drawdown is for the real money portfolio currently? We’ve all heard the term " this time it’s different" in the market and how it never is and the lessons of the past repeat, after all that is the philosophy all sound, probability based, back tested systems rely on to predict a return. However, my gut feel is that the particular pattern we have experienced lately is a perfect storm for Spa3. The volatility, and the way the market has chopped and changed sectors has meant that the buy signals have been coming thick and fast only to be stopped out very early with the paranoid market, leading to churning, and a significant under performance relative to the market at the market goes roughly sideways due to the nett sum of all sectors. The churning has even led me to introduce a rule to my investment plan where I will not take a buy signal if the TSL is within 4% of the closing price, in order to give the stocks a little leway to decide their direction and reduce the churning. Spa3 maximum drawdown, through the last twenty or so years is around 15% (?) I believe, and my gut feel is this market is pushing us there already while only being off its high by around 6%. In order to go to all cash, I would expect Spa3 would produce another 10 - 15% drawdown, which puts us in record territory.
The research period for Spa3 includes some horrible markets as we know, and I am a firm believer in the research but I can’t help asking myself “maybe this time it’s different”.
Looking forward to Gary addressing these questions and from discussions with David the simulator sounds like a wonderful tool to reassure us that no matter when you start, over the longer term Spa3 will produce the returns backed up by the research.
As far as mixing up the system with technical analysis, I don’t think that could ever work. The simplicity of the system and the research is its strength and technical analysis is such a “reading the chicken guts” type of pseudo science I could only imagine the carnage. Anything can happen!
Take care everyone and thanks for the replies.
It is simple enough to say add your own indicators and rules however the product is sold on a set and forget basis or at the very least follow our trades you won’t have to do anything. I am now having to improvise by adding my rules….if the trend is down then just don’t buy. There are many indicators that could be implemented that could show a down trend and perhaps eliminate some of the BUY signals. It appears that most of the BUY signals being produced at the moment are BAP after the stock has further trended down and just retraced. And on the other side of the coin when the trend is UP the sell signals often miss the majority of the upside profit before the SELL signal is flagged. Perhaps it’s time to take profit on percentages….which defeats the purpose of an automated system, of course unless built in to the system.
The market downturn is mainly about inflation and interest rate rises. Some stocks or ETF,s will perform better in that climate. You have to stick trust the system and buy or sell on the signals. I did not buy on the signals after the Covid crash and missed out on 10% of the markets recovery because I went on my gut feeling.
Trouble with taking percentage gain profit stops is you chop off potential big winners (like JHX last year) which are needed to pay for the losing trades.
I think Gary has done research on BAP trades and from memory they had a higher win rate than standard signals. Happy to be corrected though if that’s the case as I can’t locate the particular EUGM. I am not sure if BAP trades in particular market types has been researched though.
Be careful trying to ‘avoid losers’ though - I would love to do that too (and I can see your argument for it) but you are still betting against the edge by not taking the BUY trades. Unless of course you can add a consistent market / sector filter and the backtest supports it.
Looking forward to this simulation tool though.
I think the current draw down is approx. 12.6%, what it will end up being nobody knows. I feel this has been more frustrating then the covid crash as that was a quick correction ad people were in cash quicker. This down trend in the market has been slower, with lots of money shifting between sectors.
I started investing in May last year and to date I am underperforming the XJOA by 9.50%. Gary and David say that the strategy beats the market by 2-5% pa and you should allow at least 5 years. So to achieve this outperformance (10-25% over 5 years), over the next 3.5 years, I’ll need to see outperformance of 5.5% - 9.9% pa, which is very exciting
The only trade I “regret” doing is when I sold AFI soon after I bought it when I heard that Gary does not invest in this stock as it too closely mirrors the market. The stock is up 50% from the buy signal in April 2020
Thanks Paul. I think that confirms my gut feel - maximum drawdown for the system is I believe 16.2%, at the GFC which was a 54% correction. So 12.6% for a 6.4% market drop is particularly disproportionate. Due to whipsawing market and sectors. Should this continue for some time we could see a new maximum drawdown being printed.
I started using SPA3 investor over 12 months ago and I have been rigorously following the rules. I can not say that it has been a pleasant experience.
For most of the 12 months my account has been below what I started with. If you have made profit then giving some back is not as bad as going into drawdown from day one. Ian reported that the maximum drawdown of SPA3 was 16.2% in the GFC was 16.2%. My current drawdown in 16.05%
When I started my SPA3 portfolio the XAO was 6866 It is now 7490. That is a rise of 9%. I am down over the period over 8%. That is an underperformance of 17%!. Add to that what I lost using spa3 trader and also add the cost of the system and subscription fees - this has been a very expensive experiment.
I’ve found this a fascinating forum topic so thanks to all. I have been a member for a little over 12 months and have experienced the frustrations of some other members.
I get that a rules based system should really be followed 100% of the time, but suspect that I would struggle to keep going with the way it has panned out for me.
So I now only buy if:
- the XAO is above its 20 week moving average. If below, my view is that market is in a general downtrend.
- for BAP’s only if the buy price is at least 4% above TSL.
Whilst BAPs are said to be a “second chance” at a lower price they are also stocks that have lost a bit of momentum.
I’m not suggesting at all that my returns will be any better than if I followed the rules 100%, I haven’t got the data or software to back test. It suits me better though and so am more likely to continue.
These couple of rules mean that I have more cash on the sidelines at times. This is likely to cost me in a rising market but lately has been a good thing.
Good luck to all,
I am new here (2 weeks into my membership)…
Ivor Green’s post puzzles me - how can Ivor be down over 8 % or (17% underperformance compared to XAO) when the SPA3 Portfolio - Risk Profile 1 made 26.55% annual return (refer below screen shot)? Both following the same system and process!!! Am I missing something here?
Mani I would suggest that those figures are manually put in when the signal is flagged. For instance the recent call for SELL on NAB had it a few dollars higher then what I was able to sell for an open of the market. Calculate that over all calls and you probably get the difference in why this shows a profit and we don’t.