Market Map: Staying the Course for the Long Term 2014

As the stock market performs it’s weekly and monthly gymnastics, we can wait patiently for the next tactical allocation shift, and thus, do other things with our time. In order to not become distracted with the market’s behavior and stay focussed on long term asset allocation, we can review 90 years of Market Map model data to discipline our reflexive brain circuitry. We have no need for technical “chart pattern” analysis, economists’/analysts’/TV personalities’ opinions, the Wall Street Journal, etc. We just rely on the body of evidence from our statistical analysis thereby using reliable components and prepare ourselves beforehand with predetermined dates on which to take action.

In chart 1 of the previous article, were presented the statistcal outcomes of various investing time frames using buy & hold. In viewing four 20 year periods and the most recent 10 year period of the Market Map model (below), we can see that the model did indeed provide positive outcomes.

Chart 1

1924 – 1943

Model vs. SP500 1924 -1943

Chart 2

1944 – 1963

Model vs. SP500  1944 - 1963

Chart 3

1964 – 1983

$1 growth  Model vs.  Buy Hold  SP500

Chart 4

1984 – 2003

Model vs. SP500 1983 - 2003

Chart 5

2004 – 2013

Model vs. SP500  2004 - 2013

Chart 6

Model using Nasdaq 100/QQQ and S&P500

Model NDX  SPX  25 yrs  1989 - 2013

Viewing returns from a different perspective, chart 7 below shows rolling 20 year returns of the 3 data series. The 20 year CGRs of Nasdaq 100 and S&P500 using the model have been trending up:

Chart 7

20 yr GAGR

Neutral Risk Profile study

As 2014 was identified as a “neutral risk profile” year in the January 22nd post, in order to get a sense of the signature of past neutral risk years, the chart below reveals the historical neutral years return distribution for the S&P500 buy&hold with the corresponding model returns included. The distribution is relatively even (there are equally large gains on the left compared to the losses on the right). The cumulative return for the Model outperformed the S&P500 as the model tends to capture profitable points during the year when applicable. Over the long term, the allocation may have been in cash when the market was going up and, conversely, going down. We just go with the flow.

Chart 8

Neutral trend years

Asset allocation since 1/17/14 = cash
Probability of allocation to TLT (iShares 20+ Year Treasury Bond ETF) on 7/O9/14 = 5O%
Probability of allocation to QQQ / SPY on 1O/O3/14 = 1OO%