SPA3 investor vs buy and hold the spa3 portfolio in the ASX

I decided to do an experiment.
I was wondering if the “edge” in spa3 was the portfolio of stocks that were used or was it the SPA3 investor strategy.

So I compared the performance of the public portfolio (since it started in 2016) to buying and holding the same dollar value of each of the each of the equities in the SPA3 investor portfolio of shares.

I have charted the equity of the buy and hold of all the equities and overlaid (to exactly the same scale) the spa3 investor portfolio performance.

I attach the results

As you can see it seems that the buy and hold has substantially outperformed using the SPA3 strategy over the same period of time.

As of today if the buy and hold strategy had been followed since 2016 (starting with $80K) the capital would have been $261,618.59 with a profit of $181,618.59. Yet the public portfolio (also starting with $80k in 2016) has a balance of $181,630.16 with a profit of $101,630.16. That is $79,988.43 less than the buy and hold.

The public portfolio has a 13.52% annualised return since 2016, yet buying and holding the same shares over the same period gives a anualised return of 20.15%.

Food for thought. Is all that effort following the system worth it to get lower returns?

Thanks Ivor, I have not analysed the figures (too painful) but my SPA3 investor ASX portfolio falls WAY behind the index over the last 2 years. I also have some single ETF portfolios that I have been following the buy and sell signals and they too are underperforming the index. I started with SWS committing to 5 years (because that’s what the edge needs apparently) but I’m paying a monthly subscription to fall further and further behind. The next 3 years will need a very high return to achieve the few percent edge over the market.

I look forward to the SWS crew reassuring us that we will be winning in 3 years time.
Thanks for putting up your analysis for discussion.
Cheers, Neil

How many shares did the public portfolio start with, and how many shares did the buy and hold portfolio start with?

Hi Ivor,

Thanks for your post.

The SPA3 investor stocks universe has not always consisted of the current 40 stocks in the watchlist.

It started off with just 14 stocks. Then as further research was conducted and suitable candidates met the specific criteria they were also added to the list over several years.

So, you need to be careful when you are trying to capture what might have been. For example, in your analysis you will have positions in stocks that were not available at that time. They would not have been in the list and yet they will be contributing to your results.

The closest research that you can do quickly is to run a simulation that buys 40 stocks and “Mimics” the SPA3 Investor Universe. It takes only buy signals and never sells.

If you do that over the same time as the public portfolio you will see that it actually underperforms the Public portfolio, and that it also has very large draw down.

Here are the results.

We could also see what might have happened if we knew in advance which 40 stocks were going to be in the watchlist and run a simulation Portfolio to include all of them from 2015. That would be a fair comparison to your research using all 40 stocks.

Here are the results.

As you can see, the SPA3 Investor Equal weighted portfolio with 9 stocks easily outperformed the buy and hold portfolio you researched. So, would it be worth the time for the difference in performance? I’ll let you decide.

But remember that the results from this simulation are not possible to achieve. We didn’t know back in 2015 which stocks were going to be in the current watchlist on which you’ve based your analysis.

It’s a little like having the winning lotto numbers today for tonight’s draw.

The relative performance can also be seen in the Equity curves of each scenario below.

The green line below represents the SPA3 Investor ASX portfolio simulation using 9 positions from the current list of 40 stocks had they all been available at that time……which of course they weren’t.

The blue line is buy and hold those 40 stocks.

The black line is the SPA3 investor real life Public Portfolio

The Pink line is the ASX200 Accumulation index.

SPA3 Investor is a Decision Support System, and it aims to help investors decide when to be in the market and when to be on the sidelines.

In a rising market Buy and Hold will in many cases beat the use of timing……until such time that it doesn’t and the “holding” contributes to excessively large drawdowns.

Bear markets and when they occur in your investing lifespan matters and is referred to as Sequence of Returns Risk (SORR).

SPA3 Investor aims to help reduce SORR through the use of timing.

Hi David
I decided to rerun my evaluation over the period that I have been with SPA3 investor (Dec 2020). The number of stocks in the portfolio have not changed over that time.

Over that period SPA3 investor had -6.2% anualised return and is in a -23.20% current(max) drawdown.
Over the same period a
buy and hold of the SPA3 portfolio had +5.66% anualised return and is in a -15.44% current (max) drawdown.

Both return and drawdown win with buy and hold vs timing entries according to the SPA3 investor rules.

Hi Ivor,
Correct, over a very short term, 1.5 year time frame your Buy and Hold approach could indeed beat the SPA3 Investor portfolio.

But taking a close look at your simulation I see that there is a maximum trade drawdown of - 62% in the results. I wonder how your investing psychology would have handled that?

All large losses start as small ones. And if you close out one of those positions at the wrong time then that will have severe consequences for your overall portfolio performance. Remember hindsight is 20:20.

So whilst the example portfolio you’ve provided has a -15.44% maximum draw down it is still 100% invested. Would you be comfortable with that right now with current market conditions?

Going back to your original Buy & Hold analysis, how would you have dealt with the drawdown in excess of 30% during the COVID Crash?


The thing with a Buy & Hold portfolio is that is 100% invested and exposed to whatever happens to the market, all the time. I quickly ran a Buy and Hold simulation from your start date (11 Dec 2020) and found that this hypothetical portfolio is currently sitting at -14.79% draw down, with 6 stocks each having in excess of 30% losses currently.

How would this make you feel, with no current protection?

So the questions for you are;

What will you now do with your finding?

Will you invest precisely as per your finding for the next 20 yrs? 10, 5, 2 yrs? Or even 1.5 years as per the period of your backtest which is currently sitting on a 16.95% drawdown and Fully invested?

Are you comfortable that this will protect you in a 2008 or 2002 type bear market?

We have stated the period of investment as 5 years to measure performance. Others use ‘a full market cycle’ which typically includes at least one decent bull & one decent bear market.

This is our intention by using 5 years, however a better way to describe performance of any investing approach is to compare a full market cycle rather than just a singular time frame.

Hi David,
The point that I am making is that over the past 1.5 years that I have been with ShareWealth depsite the daily effort, entry cost of the system and subcription fees have caused me to loose much more money than doing very little. I currently have less than my inital capital. Both the index and buy and hold have substantially outperformed SPA3 investor. I am underwhelmed by the “protection” that the system has provided. As I mentioned my investment portfolio is currently under what I started with and was also underwater for most of last year (during the bull market). My portfolio is currently in >20% drawdown, well on its way to the >30% drawdown that you mentioned. Furthermore a 30% drawdown from a profitable portfolio is a lot easier to handle psychologically as compared to loosing and drawing down from original capital.

I know you quote 5 years but as you know “anything can happen”. Given the underperformance of SPA3 investor that I have observed in the last 1.5 years (during the bull and more recent bear markets) I am not convinced that the next 3.5 years will provide me with out-performance. What would you say in 3.5 years if the system is still underperforming? I wonder if the system has lost it’s edge.

You mention that this hypothetical portfolio is currently in a -14.79% drawdown. Yet that is a drawdown from a profitable position compared to my SPA3 investor portfolio that is in a >-20% drawdown and my portfolio is underwater.