Sectors began breaching their 200-day thresholds in December 2007, ahead of the accelerating declines of 2008. A fraction of the pain of buy-and-hold.
When the market broke — and where the strategy stood
From the peak in October 2007 to the bottom, a plain buy-and-hold investor lost about 55% of their money. It then took until August 2012 — roughly 5 years — just to get back to even. Over that same stretch, the worst our strategy ever fell was about 15%. 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. Our strategy is really many small strategies, one for each slice of the market, and each one steps aside on its own. By December 2007, sectors had been in confirmed downtrends long enough to breach the 200-day threshold, and the rule began walking to cash — gradually, not in a single moment. Treasury bills paid very little in those years, so when the strategy was in cash its line is close to flat. That is why the line eases down and stair-steps back up rather than moving in one sharp jump.
Here is the payoff. The strategy climbed back to new highs in September 2009, while the market was still about 28% underwater with years to go. While a buy-and-hold investor was still deep in the hole, the strategy was already making new money.
