To cash March 1973; back into stocks February 1975. A fraction of the pain of buy-and-hold, with T-bills earning about 7% along the way.
When the market broke — and where the strategy stood
From the peak in January 1973 to the bottom, a plain buy-and-hold investor lost about 48% of their money. It then took until July 1980 — roughly 8 years — just to get back to even. Over that same stretch, the worst our strategy ever fell was about 17%. A fraction of the pain, for a simple reason: the strategy steps out of the market when the trend turns down, and waits in safe Treasury bills until the trend turns back up.
One thing worth understanding when you look at the chart. The strategy went to cash in March 1973 and did not step back into stocks until February 1975. In the mid-1970s, Treasury bills paid around 7% a year — a lot. So even parked in cash, the line still drifts upward, because the cash itself was earning real money. Once the trend turned back up, the strategy climbed back into stocks and rode the recovery.
Here is the payoff. The strategy climbed back to new highs in September 1976, while the market was still about 12% underwater with years to go. While a buy-and-hold investor was still deep in the hole, the strategy was already making new money.
