Past performance is no indicator of future returns... Too great expectations

“Are you among the 80 per cent of investors who still base their predictions for future returns on past returns?
One of the most oft-repeated lines in the financial world is “past performance is no indicator of future returns” or a variant thereof. Sounds good in theory but it’s somewhat counter-intuitive.”

This article by Morningstar ‘Too great expectations’ is interesting;
Too great expectations…

Maybe this is where I’m going wrong? I have not advanced my portfolio in 2 months since the initial recapitalisation of losses from the Covid-19 crash. Gains have not outweighed loss in the Spa3 Trader portfolio, in fact losses have been incurred to value of 5k. There has not been a number of stocks that have advanced sufficiently enough.
At one point I held 23 stocks to try to get the spread required for the edge to work, but this then fell victim to Fridays (04/09/2020) downturn so sold 13 and went to 3/4 cash.
Once again I have missed out on holding the few stocks that have gone up sufficiently to capture positive gains in the portfolio.

I’m beginning to wonder if the system works in this market; (ranging to volatile), and maybe I should consider the entire market risk profile as High Risk, and just trade 1 or two stocks with larger weighting, as I did when the first downturn happened.
Are my expectations too high?

Yeah I’m down a touch as well the past few months, but I think the thing to remember is that your probably still ahead of jan.

That’s my assumption. No systems perfect and in this market I would imagine it not being the best for, however once things normalise, that’s when it should outperform.

That’s my opinion as a user haha,

I don’t think you can make any useful judgments over a short period , months or even a year or 2
In my experience,The edge only really becomes apparent after years of trading because of the different cycles in the market. You have to stick with the process, individual trades mean nothing

My context:
If you look at the Index ETF VAS (ASX 300) it shows a sideways market since the end of May. It is hard to make money with a trend system such as Spa3 Investor in this type of market. You need to be a swing trader in this market (good luck with that). In a bear market, you will mostly be in cash, and in a bull market, you will probably be fully invested. For the Investor system you need to look at results over at least 5 rolling years and compare it to similar types of investments.
Think of the stock market as a casino. Unless you have a +ve edge (the house at a casino) probability is that you will lose. Spa is researched and back tested to give a +ve edge when followed in the manner suggested. As in the casino, every trade/bet is a random event and the larger the sample of events, the closer to the edge you come. The more everyone plays or the more trades you take, the more dollars are made toward the edge that has been calculated.
The difference between a casino and the Spa system is that there are 3 ways the market moves - up, down or sideways. The casino only needs patrons to play their games. Spa will work well in an upward trending market. The other times, not so much if at all. Over time, the edge overcomes the other 2 markets. There is no easy or fast way to riches unless you are a lucky gambler and quit while you are ahead.

Having been with sharewealth on and off over the years I can tell you from my experience generally speaking you need to get your number of trades up to get to what the system averages are in terms of win / loss ratio unless you Start in really good period.You will have a high turnover of loss trades and these are generally quick In and out trades but when you get a winner it can last for months. The loss trades are generally quite small whereas the winners are generally pretty good.The guys have these stats in there training course somewhere but off the top of my head the win loss is 55/45 and the wins are 4 times as the size of the losses.There are some years you have a drought and other years you have a flood but you have to be in it to win it.These days I trade the investor system only due to my lack of time to trade which is why I gave Spa 3 away.All I can say is trust the system. In the early days when sharewealth was known as sharefinder I did a lot of the courses that Gary did around the country as well as the group meetings and I learnt more from these than previously trying to learn fundamental analysis.There are probably many trading systems that work but you need to stick to a system to let it work.I have met many traders that buy systems and try and tweak it and go searching for the foolproof system that never have losses and end up giving away and moving on to the next system.There are many systems out there (mostly very average at best)There is no holy grail.You will have losses but over time there wins will far outweigh the losses given time.If you look at most charts of trading returns you will find that most will have a dip in them when they start but will move up.Its just a question of time and none of us know when that will be.I started with investor just as the COVID hit the market with my biggest winner being REA but I have also had 7-8 loss trades.I move on to hopefully The next winning trade.

Thanks for the input,
Currently, using SPA3 ASX Trader, and losses have outweighed gains for 3 months now. Telstra didn’t help, it was looking good there for a few days.
There have been some fantastic winners over this recent period but was not in them, and after they signalled lost track of them and dealt with new entries as they came up as they do every Friday. I only found them by going through the daily Sell stocks to see what I missed out on.

Several things I have come to consider with the experience of the current market;
a. The SPA3T edge only really works profitably in a tear away bull market, other times it seems to be break even, to slightly gainful in just covering the costs and losses of the huge amount of trades it generates.
b. You need to be able to track the pack for the winners, once identified stick with them.
c. Maybe there needs to be greater market risk restrictions/conditions for trading when System market risk signals MOSTLY Low Risk but in reality things like economy, are high risk.
d. I might make adjustments to limit trades to 1/10th of capital, unless I’m able to identify more accurately out performing stocks from the ongoing selection.

At times recently I have completely lost faith in this system, to the point of dropping it altogether until the economy goes into recovery and market sentiment is again in “secular bullish” conditions.
I simply can’t see the point of doing these high turnover trades in hope of getting one or two gainers to make it worthwhile. Holding a fully invested portfolio that can go into negative with a single day of market correction seems wasteful of time and capital.
I would much prefer to take only 3x SPA3 Trader trades and concentrate on them, even if it means entering after entry signal, and not have to worry about a large amount of stock holdings that can mostly be in arrears within a down day on the market.
It’s easier to sell 2 to 3 stocks and be back in cash without having to spend a lot of time sorting out what to keep and what to sell from a fully invested portfolio. And because you’re holding only 3 stocks the weighting could be higher.

I don’t like to muck around too much with the system, but the system is mucking me around.

At this point I will be reducing to cash the remaining 10 SPA3T stocks over the next week, and won’t be taking any more trades until there is a way to focus on a few out performing gainers. Otherwise, I’ll turn to SPA3 Investor and gear up, over a longer time period, to the 8 stock limit of that system.

Hi John,

Past performance is no indicator of future returns…quite right. As we know “Anything can happen”, particularly over the shorter term.

Wakefield summed it up perfectly. That’s why we run Public portfolios as just one example of a Benchmark that you can use to measure your performance against.

Phillip showed a chart of the ASX300 which could be used as a benchmark for comparative purposes.
The All Ordinaries accumulation index ($XAOA) is another, and since the beginning of this year that index is down 8.09%, clearly signaling “bumpy” market conditions.

Over this same timeframe the SPA3 Trader Public Portfolio (Risk Profile 1) has returned 7.64%

To have real meaning your progress needs to be measured over a number of years. (As an example, SPA3 Investor recommends a 5 year timeframe as the minimum) The main reason being is that you need to create a sufficient sample size of trades for the system’s edge to manifest itself in your portfolio.

This can only happen if you follow and execute according to the rules of the system on a consistent and disciplined manner. Even then there will be bumps in your portfolio that will challenge your ability to stay on task.

It’s the staying on task that is the greatest challenge for most investors, however it is something which all investors can learn…for some it takes place quickly and for others it may take many months or even years.

Hi John,
Your post yesterday suggests you have a desire to introduce subjectivity to your trading. Your last para (cashing your remaining 10 stocks) suggests you can foresee a HMR or exit signals on those stocks this week? Prior to that you talk about taking only 3 positions which would be highly unusual with SPA3 Trader. Entry should only ever be after an entry signal. I suggest you align your investment plan as closely as possible with the SPA3 Trader RP1 investment plan supplied by SWS (refer education section) then follow it rigorously as per David’s post. Otherwise, if you wish to have less positions / turnover / admin. then turn to SPA3 Investor as you hinted.

David McCulloch,
I get this is the reason why a lot of users have opted out of Trader.
Getting set is the difficult part with this system, There appear to be quite a bit of off market / pre-market buying the day after the new entry buy signals appear, at open there seems to be a rush to get set that pushes price into 10% plus zones.

After getting set at reasonable entry levels prior to Volatility Stop and Profit Stop’s kicking in leaves small room for growth, pips in fact if you are quick. Occasionally we get a run beyond that.

I’ve always said, with these trader type systems, that it’s difficult to get set at close to the signal trigger price due to ‘privileged’ pre-market buying.

At the rate of trades I’m currently doing (August for example: 130 last 30 days) multiplied over 5 years makes my head spin. That’s an horrendous amount of trading to prove up a system.
I don’t doubt it works, just that there are catches only real time trading exposes.

Bruce Watkins,
Thanks for the input / critique. Subjectivity does exist at every stage of the trade; do I take that trade that has opened well above the signal price? Or do I wait for prices to settle until the next day or day after? This decision alone can introduce subjectivity and potential losses. Do I take the following Profit Stop exit when all indicators are positive and support levels have held into the next few days, equals subjectivity.
I hear what you’re saying; ‘if you can’t stand the heat get out of the kitchen’.

The thing is I like the diversity of stock selections of the Trader system, but not the rampant quick inflation the signals tend to generate, or the sheer number of stocks it throw up. I have often wondered if this system actually artificially inflates stock prices temporarily as they look like they do on the charts around each signal event. And that those with a pre-market advantage need retail and novice traders to gain their system’s edge.

Sorry I don’t want to sound like a whinger, maybe its more a cry for help? In getting feedback and some understanding how others have learnt to deal with the Trader system. Is my growing frustration just my own?

John, my previous comments were for the Investor system. It is (imo) greatly magnified in the Trader system. Unless you get a big mover (pbh or apt or similar) early, I believe it will only mostly work in a bull market where small and micro caps can outperform. Again, just my view.

For both Trader and Investor, I believe the (S&P300/100 Cumulative 4W New Highs-New Lows) is a very good way combined with (ATR- TS) for confirming my earlier sentiment that markets are turning high risk, and this should be systemized to be reflective for the down scaling of number of positions held, even going to cash to beat the rush out the door.
Determination of which positions to hold is then indicative of the systemized Market Sector Risk profile, and which stocks are actually out performing the remaining Low Risk Sectors.
You could even hold High Sector Risk stocks if they too remain to be out performing Sectors, if the stocks are making new highs based on the Swing Chart.

Very disappointed the market didn’t crash, clearly personal expectations do not reflect overall market sentiment! Even the Energy Sector looks like it will recover next week, opening up a whole new area of trades that will be well sold down.

Words 6 and 7 in your post previous to the one above tells me that you are not mechanical with a mechanical system.

As long as I can protect capital and make money, I am subjectively what I am. :slightly_smiling_face:
With SWS I was not wanting a Black Box experience, but one I can work within, and this system allows you to do that. And it’s a great learning experience along the way.


Took some time to read through your posts on this thread. You should feel very blessed that SWS Members are taking some of their precious time to try to help you.

SPA3 Trader is a MECHANICAL SYSTEM. When you follow it mechanically your comments about it will have some credence.

During Low Market Risk periods it is a pretty active system. The more activity, the bigger the challenge to follow it mechanically. Trading is a tough caper and it is multiple degrees tougher trying to do it subjectively than objectively with a mechanical system that has an historically provable edge.

No system is in sync with the market 100% of the time. Which makes the psychological challenge bigger for some.

The SPA3 Trader mechanical system works AS IS. How do we know? From the Risk Profile 1 public portfolio. Which has massively outperformed and is making new all-time highs when the ASX200 Accum index is not. As shown in this equity curve.

Great that you discuss discretionary trading ideas on the SWS Forum. But when you do can you please back it with evidence gained from research from a large sample that demonstrates a better edge or that improves the edge.

Without evidence it is just an opinion. And trading subjective opinions filled with biases external to the market doesn’t work over a large sample.

Best Regards,

Sure, firstly; This is the General discussoin thread, as such discussion is the purpose here.
Secondly you seem to take the black and white opinion that I am not trading within system, but I am. Thirdly This system IS NOT a black box system that only gives you stocks to trade, yes it does do that but it also gives you explorative tools to use. If I can develop these tools into something that will turn a falling portfolio equity curve into a flat line then I WILL use it. And you can criticise that all you want.
After all it is my decision to actually place the trade is it not? Sometimes I choose not this equals ‘no risk’.

Trading this system as mechanical will only reproduce the Public Portfolio equity curve as a base lin, that is all.
Otherwise, take away all the Beyond charts tools for exploration and lock it down, and I will go elsewhere.

p.s. thanks for all the General Discussion user feedback, it gives me something to think about…

Wow! If you find the greater value of the SWS systems to be the BC tools, then you are overpaying hugely for that information. You can pay $0 for charting tools at Incredible Charts, or for a small monthly fee, you can get their premium service which is akin to their name.
As the State Bank of Victoria advertising used to say: “It’s your money Ralph!” and we all know what happened to them.

Personal attacks are not warranted or appreciated.
Yes, the value of SWS tools are intrinsic part of the value that I chose to pay for them. Incredible charts is limited to fixed indicator scans only.

To Garry Stone; in your personal portfolio (not Public system one) can you say that you take every single trade the system throws up, every day? Because I don’t, I can’t with limited funds. So I have to cherry-pick the trades I do take, be carefull in times of econiomic uncertainty, as probably most people do.This alone introduces subjectivity and discretionary elements. This is where good system tools come in, that I use for the purpose of refining the trades the system throws up. Asking me to back up any post with: “from research from a large sample that demonstrates a better edge or that improves the edge.” is asking me and everyone with similar ideas NOT to post on this forum. Or provide the tools for me to do that with and I will make that attempt.
Clearly what I wish to discuss here is not what you want to hear or want posted on your forums.

OK I’m going to quit this forum for other places, please feel free to delete any post I have made on subjects that you do not want to hear about, in fact I will delete all posts I have made in a short time.

maybe just me, I saw no personal attacks. Anyway, good luck with your future endeavours, I do not think Gary [or anyone else] needs to discuss their personal portfolio decisions on this forum. This is one of very few sites to have public portfolios warts and all, that in itself shows integrity , for me anyway.

John, What I get from this is that you are saying the system is not working for you but it is apparent from your posts that you are expecting favourable results within a very short time frame; however, it does not work like that. Losses in the short term are quite likely and you need to adjust and plan for that.If you want fewer positions I suggest you try SPA Investor, follow it mechanically and give it at least 5 years.Personally I have found it very worthwhile.
All the best!