IMPORTANT:  You will spend five minutes reading this webpage then five hours studying the attachments…not because you have to, but because you’ll want to.  Plan accordingly.

I am going to give you something that no investment service or investment guru has been willing to provide to me.  Why are they unwilling to provide it?  Because it’s hard to produce and it exposes weaknesses in their products.  My request was simple……provide me with enough historical evidence to make a sound, logical investment decision.  Sounds reasonable doesn’t it?  I wanted to know how an investment performed in good times and bad times over the long haul.  I wanted to see various diversification efforts in action during bear markets.  Without these, I knew I would lose confidence and make bad decisions just like I’ve done in the past.  I also wanted to know the effect broker fees had on my investment performance.  I wanted to understand visually how my investments interacted with one another.  Basically, I wanted an interactive model that I could study and customize to my personal situation.

I know this is asking a lot but to me this is far more important than an enthusiastic, cold-calling broker telling me about his/her latest investment opportunity.  After all, who has my best interests in mind?  Me, not the broker.  I need facts, data, statistical evidence, the more the better.  I guess that’s one of the reasons I became an engineer.

So, in 2012 I decided to take my computer modeling skills used professionally as a chemical engineer and created an interactive model.  I created strategies then systems of strategies.  I went back in history as far as I possibly could and examined the data.  It wasn’t easy.   Every time I thought I was finished with R&D a new constraint would surface that would send me back to square one.  The modeling world and the real world are very different; biases must be considered; slippage must be controlled; compliance with Regulation T must be maintained (google SEC Regulation T cash account or go directly to the SEC website).  It requires back and forth communication and may take several iterations to create a strategy that’s trade-worthy.  After years of development I have a solution.

But, before I present my solution let me first define the problem.  Most of us are taught to buy and hold a diverse group of stocks, bonds and mutual funds.  Younger people should be “risk on” and lean toward stocks while older people should be more “risk off” and lean toward bonds.  The problem is that it’s hard to control risk while making a decent return on investment.  Frankly, there are times when nobody should be in stocks.  The buy-and-hold model simply can’t get out of harms way.

Here’s your first challenge. Download the Basic Buy-and-Hold Performance Calculator (7MB).  You will need Excel for the CAPTCHA protected download to be interactive.

There is a ton of information here but please bear with me.  Most of your questions will get answered as we go through this discussion.  You will find the model uses two stock mutual funds and two bond mutual funds.  Vary the split among them and try to maximize your compound annual growth rate (CAGR) while minimizing the maximum drawdown in the account (MaxDD%).  This is known as maximizing the MAR Ratio (CAGR/MaxDD%).  Keep an eye on Graph 2.  This is your pain gage.  Here you can watch your account reach new highs (breaks above 0%), go into a drawdown then reach new highs again over a 25-year period.  Were you able to stay within your personal pain threshold during the 2001-2003 and 2008-2009 downturns?  Are you happy with your CAGR?  Would you agree this buy-and-hold strategy involving stocks couldn’t get out of harms way in most if not all situations?


Ok, now reset the calculator to be equally balanced (0.25 each) and look at Graph 3:

This graph shows all the trailing (rolling) annual returns that occurred from 2003-2014 and the frequency at which they occurred.  They range from -19% to 25%, with the most prominent being 11%.  Notice the left side tail or as some call it, the negative fat tail.  This is PANIC in the market and does not show up in quoted volatility.  The volatility calculation uses mathematics that assumes the above curve is smooth and symmetrical with virtually no tails.

Why is this important?

Because when we buy a stock, stock ETF or stock-based mutual fund we’re probably taking on more risk that originally thought due to market panic.

The Tier I strategies I present will minimize the negative fat tail removing some risk from the system.  It’s also important to note the tail to the right in Graph 3.  This is euphoria in the market and is typically much shorter.  Ever hear the expression people hate losing money three times more than they like making it?  This sounds reasonable to me based on the lengths of the tails.  To gain a deeper understanding of this concept, study the “Skewness Example” tab in the Buy-and-Hold Performance Calculator to quantify deviations from symmetrically or normally distributed returns on investment.

This Basic Buy-and-Hold model, however, wasn’t enough proof that I couldn’t get buy-and-hold to work for me.  I was concerned that I may have biased the original fund selection.  I was also worried that two stock funds and two bond funds weren’t enough choices to diversify my way out of trouble.  So, I went back and reworked the Basic Buy-and-Hold Performance Calculator.  This time I knew I was disciplined in my selection.  If you send an email to support[at] with the subject “Please Send Enhanced Buy-and-Hold Performance Calculator” (9MB), I will forward it to you so you can try to improve your results.  I added a few more metrics, a few more funds such as growth, international and total bond market funds, as well as a brief discussion and an example of strategy development.  I think you’ll find the results very interesting.

Finally, the strategies!  I will present simple methods to trade mutual funds and exchange traded funds (ETFs) that have historically gotten out of harms way.  I call them Tier I strategies because they’re conservative (Tier II is moderate and Tier III is aggressive).  They don’t use leveraged instruments, short-selling or stop-losses.  They don’t require margin and can be used for an IRA account, a Roth IRA account as well as a personal account.  The account turnover rate averages about once per quarter keeping trading fees to a minimum.  Minor adjustments are made monthly requiring minimal attention from the investor.  Historically, these strategies have matched or exceeded the S&P500’s performance after reasonable trading expenses with about five times less risk.  They generally under-perform in bull markets and control losses in bear markets.  If you are a gambler, these will be boring to you.  They basically play chess with the stock market.  As the market becomes more volatile we move toward safety; as the market stabilizes we move from bonds and into stocks.  Essentially, we’re weighing upward price momentum against volatility and altering the portfolio accordingly.

What’s interesting to me is the more seasoned I become at strategy development the more focused I become on the drawdowns.  High annual returns are nice but I want to know about the pain one has to endure to get those high returns.  Most people seem to avoid this topic altogether even though it is such a critical piece of information.  Here’s why:  A strategy that loses 50% will need to double or gain 100% to return to the original account balance.  A strategy that loses 80% will need to go up five-fold or gain 400% to return to the original account balance.  A hard slide to the downside requires massive recovery.  Let’s keep this under control so we’re still in the game when better times emerge.

Here’s an example of holdings during a very scary market down-turn.  Notice that each strategy put some if not all of its positions into the safety (cash equivalent) of short-term U.S. government bonds (ticker: TWUSX) throughout 2008.  All three strategies had positive returns for the year.  The S&P500 index, however, was down 38.5% (price only, dividends not included) and had a whopping maximum drawdown (MaxDD) of 49.1%:

Now, let’s get into the details starting with the Mutual Fund Rotation Strategy. But before we do, please note that for security purposes the following downloads are protected by CAPTCHA. Once human verification is complete, you will receive your download. Use the back button to return to the website.

Here is the Mutual Fund Rotation Strategy Fund List (1.4MB) and all trades made over the 25-year performance period (tab 2).  Basically, this is 20,000+ mutual funds boiled down to 23 plus a cash equivalent used for model development.  Each mutual fund had to meet strict criteria and have a unique specific objective.  Unexpectedly, nearly all are Vanguard mutual funds.  There are two standard ways to execute the strategy: hold 10 positions or hold the top seven (7) Vanguard positions.  Selecting one over the other depends on personal preference, broker fees, account size, etc. (more on this later).  This strategy trades once per month two business days prior to the first business day of the following month; hence the -2 in the descriptor.

Next is the ETF Rotation Strategy.  Here is the ETF Rotation Strategy Fund List (0.4MB) and all trades made over the 12-year performance period (tab 2).  Notice they’re all highly liquid ETFs.  The Fund List is the ETF equivalent to the Mutual Fund Rotation Strategy.  For completeness four sectors were added that were not available as mutual funds.  It follows the same rules, holds 10 positions and trades on the same day of the month as its counterpart.

Now it’s time to get scrappy and control costs.  Work through the Adjusting Returns for Fees (0.4MB) spreadsheet.  Take your current Broker fee structure and maximize your returns while minimizing fees and drawdowns for the various strategies (tabs 1 and 2).  Pay attention to risk that occurred outside of model parameters (1987 stock market crash).  Research multiple broker fee structures if necessary to improve your results.

Now let’s pull it all together.  Download the Tier I Performance Calculator (10MB) and examine strategy performance.  For those who want to reduce their drawdowns even further, add a total bond market mutual fund or ETF as a separate holding.  These have historically tested very well as buy-and-hold instruments (as usual, you can view and judge for yourself).  Mix, match and weigh to personal preference.  Keep in mind that the ETF strategy begins in 2003 but the model needs 25 years of data.  Data prior to this are based on the Mutual Fund Rotation Strategy holding 10 positions.  Next, go to the slippage estimator and enter your particular broker fees and look at the performance metrics after fees.  Go back to the performance calculator tab, make adjustments and repeat until you’re happy with the outcome.

Next, let’s discuss Tier II strategies.  I am offering one Tier II investment strategy as part of a marketing campaign.  Participation is uncapped, it rotates a basket of 25 mid-cap stocks each month and is offered at a ridiculously low price to improve traffic.  This is an excellent strategy but keep in mind a Tier I strategy is less volatile and would be a better basis of an investment plan around which riskier strategies are built.  Feel free to download the Mid-Cap Rotation (-4) Performance Calculator (13MB) for historical details and interactions with Tier I offerings.   Inevitably, I will be asked questions about basket size.  So, as an FYI, historically this strategy has similar performance holding a basket of the top 15 positions but this increases trading pressure and risk.  Maximum drawdown increases considerably below 15 positions and should not be considered.

To complete the trading system, I am offering a Tier II large-cap rotation strategy.  It rotates a basket of 25 holdings each month and complements the Mid-Cap Rotation, Mutual Fund Rotation and ETF Rotation strategies.  Download the Large-Cap Rotation (-4) Performance Calculator (16MB) for details and interactions with the other strategies.

Want to see the holdings in real time?  Sign up for 12 months of service.  Each product has a 30-day Money Back Guarantee for first time subscribers.  You will get a monthly newsletter (email) with all the trade signals.  I will do my best to get this information to you the night before the switch.  Please allow one (1) business day for order processing.

Happy Investing!

FYI – I trade the strategies I develop with real money.  Even though I issue the disclaimer that “This service is for information and entertainment purposes only and not a recommendation to buy or sell any investment instrument,” I must limit membership for my own protection; Mutual Fund Rotation limit – 350 people; ETF Rotation limit – 400 people; Large-Cap Rotation – 800 people.  I currently trade the Mutual Fund Rotation Strategy with 10 positions (I’m a purist).  I also trade The Mid-Cap Rotation Strategy as well as several other Tier II stock strategies that I’ve developed.  I am not currently trading the ETF strategy.  Instead, I am using the cash equivalent SHY from the ETF strategy to test one of my Tier II stock strategies.  I am quite pleased with the performance of my current trading system.  However, as a developer I need to prove strategies work with real money so I reserve the right to change my personal holdings in any of my strategies at any time.

I’m sure most of you are wondering about “out of sample” performance.  Here’s how they’ve performed since 2014:

Out of Sample Annual Returns – Tier I Strategies


ETF Mutual Fund Mutual Fund
Year Rotation (-2) Rotation (-2) (Vanguard Top 7) (-2)  
1/1- 5/11/18 (0.2%) 0.4% (1.1%)
2017 16.8% 17.3% 17.4%
2016 0.4% 4.3% 5.0%
2015 (0.6%) (0.7%) (1.4%)
Out of Sample Annual Returns – Tier II Strategies


Mid-Cap Large-Cap
Year Rotation (-4) Rotation (-4)    
1/1- 5/11/18 5.0% 4.2%
2017 31.3% 24.5%
2016 22.9% 16.5%
2015 3.5% 5.3%
Cash Eq. Used: SHY SHY
Out of Sample Annual Returns – Comparisons


Basic Enhanced  
Buy-and-Hold Buy-and-Hold ETF ETF
Year (Equally Balanced) (Equally Balanced) SPY BND
1/1- 5/11/18 (2.5%) 0.6% 2.7% (1.7%)
2017 9.9% 15.0% 21.7% 3.8%
2016 7.6% 5.9% 12.0% 2.5%
2015 1.6% 0.1% 1.2% 0.6%
Cash Eq. Used: N/A N/A N/A N/A

References to Morningstar, Zacks Investment Research, Vanguard, etc. in all attachments are time specific to 2017.  These documents will not be modified for new time specific information such as the current Morningstar rating, expense ratios, etc.  You can keep an eye on these if you want.  The only time specific information the models use are price and variables derived from price (return, volatility, moving averages, etc.).  However, you should monitor mutual fund prospectuses for any changes in trading frequency restrictions or fee structures.

Finally, every effort has been made to create and present the above material and attachments in a factual manner.  However, it’s accuracy is not guaranteed.         

I hope you found this informative.  Best of luck to you and Happy Investing!