The Chartist investment strategy is based upon our Chartist timing models which dictate our entry and exit into and out of the market. Our disciplined strategy has been developed over the past forty-four years of investing our own money. Our goal is to catch the primary trend of the market. We are neither predisposed to be bullish or bearish. We are whatever the market is technically telling us.
Our models, which dictate our buy and sell signals, are momentum-driven and they have produced favorable results in real time. We mainly rely on the buy and sell signals that are generated. However, as an added precaution, we establish a mental stop loss on the entire portfolio when we enter the market. Depending on the overall volatility, the stop loss is set between 8% and 12%. However, we always follow the dictates of our models. If they turn negative prior to the stop loss being triggered, we will exit the market. The stop loss is merely an added precaution.
On occasions, we will be whipsawed and sustain losses. However, this is the insurance we pay to meet our overall goal of avoiding market collapses and preserving capital
Because the market historically has been driven by bull and bear cycles lasting on average 4.5 years, the proper period to analyze our performance is over a full cycle. The last full cycle (bottom to next bottom) started in October 2002 and ended in March 2009. This cycle lasted 6.4 years, somewhat longer than the average cycle. The bullish phase lasted 5 years.
Over this full cycle (bull + bear), the S&P 500 lost 1.4% while the Actual Cash Account doubled in value, gaining 105%. The key to the Chartist over performance was our exit strategy which switched us to a money market fund for 90% of the worst bear market since the great depression.
Combining the full cycle with the current partial cycle shows the Actual Cash Account from April 2003 to November 2014, is ahead by 232.5%. The S&P500 over the same period is up by 193.4% with a bear market still needed to complete the cycle.
Over the 26.2 year life of the Actual Cash Account, the annualized return has been 10.7%. The S&P500 with dividends has returned 10.6%. All S&P500 numbers quoted above include dividends. The important statistic is the Cash Account avoided, to a large extent, the 2000 tech bubble loss of 47 % and 78% in the NASDAQ. In the Housing/Financial bubble of 2007-2008 the S&P 500 lost 55 % and the NASDAQ coughed up 53%, with the Cash Account giving back only 10 % from its high water mark. The magnitude of these losses is devastating not only to your portfolio but also to your psyche in a buy/hold strategy.
What sets the Chartist apart from the vast financial services field is we have an investment plan and we strictly adhere to it. Our Actual Cash Accounts using our own capital is testimony to the plan. They are the” record.” They are not fiction. We do not pretend to predict the market but we have a plan and stick to it. History is never rewritten because it is all fully documented in the “record”.
The Chart above presents a graphic picture of the current snapshot of the Chartist buy and sell signals since our buy of April 8, 2003 thru Wednesday November 12, 2014 covering 2,921 calendar days or 11.6 years. Over this span the S&P 500 with dividends has tacked on 193.43%, The Actual Cash Account has grown 232.45%. This period covers a bull market from 2003 thru the Bear market ending on March 9, 2009, one complete bull/bear cycle. The next bull/bear cycle started upon the completion of the bear on the next day. We are currently in the bullish phase with a bear yet to happen.
Not shown on the chartist a swap trade made on September 27, 2006 when we sold 11 Mutual Funds and replaced them with 14 Exchange Traded Funds on a dollar for dollar basis. Our first real sell of the bull market occurred on January 16, 2008 when we sold eleven ETFs and reduced by 50% six other ETFs. We sold approximately 80% of our holdings. We also advised 100% liquidation of our hotline recommendations. From the April 8,2003 buy to the January 16,2008 partial sell the Actual Cash Account gained $427,722, +99.82%. The S&P 500 with dividends gained +69.22%. The remainder of the funds was sold on August 5, 2008. From the 2003 buy to the final August sale, the Cash Account gained 99.5% while the S&P500 gained 60.3%.
Following the chart, the market bottomed on March 9, 2009. The S&P 500 had coughed up 55.31% at the March low. The economy was in the worst recession since the “depression years”. The financial system was in tatters, the mortgage financing system collapsed along with the security system that caused the failure.
Bailouts became the order of the day as huge sums were thrown at the problem. Desperate measures were enacted by Congress in late 2008 to save Fannie Mae and Freddie Mac and we saw the initiation or QE1. The Fed had about $800 Billion on its balance sheet at the time. Through a series of QEs, the Fed has ballooned its balance sheet to $4.4 Trillion with the end of QE 3+ now in the books to keep the economy above water. (The money was printed from thin air so to speak.)
As you can well imagine coming off of the train wreck the market was skittish. Our first buy/sell in the April-July timeframe showed a 1.8% loss. The next roundtrip from July 21, 2009 to May 19, 2010 resulted in a 22.6% profit. The November 5, 2010 to the sell on August 8, 2011 was a 9.8% loser. As previously stated, these whipsaws are the insurance we pay to avoid market collapses and preserve capital. The efficacy of using our exit strategy trading rules has proven them time and again.