In response to some questions on the “Avoid Bad Days System” –we’ll call it the ABD System for short (Note to myself: come up with a better name) I wrote about here, this article includes some more details, fact, figures, etc.
*In a nutshell, the ABD System outperforms by being out of the market during a lot of bad days. It also does it by outperforming the overall market when the overall market has a bad year. To wit:
*During the 21 calendar years since 1946 when the Dow has showed a loss for the year, the ABD System outperformed the Dow 20 times and underperformed only once.
Concistency is another key:
*ABD System showed a gain during all 68 rolling 5-year periods and outperformed the Dow during 48 of 68 rolling 5-year periods.
*ABD System showed a gain during all 63 rolling 10-year periods and outperformed the Dow during 54 of 63 rolling 5-year periods.
1-Year Returns
| System | Buy/Hold | BadDays | System-Buy/Hold | |
| Average | 10.4% | 7.9% | (2.1%) | +2.5% |
| Median | 10.2% | 9.7% | (1.6%) | +2.1% |
| Std Dev | 11.9% | 15.5% | 8.5% | 9.0% |
| Ave/Std Dev | 0.87 | 0.51 | (0.24) | 0.27 |
| Max% | 36.4% | 44.0% | 15.3% | 20.1% |
| Min% | (16.4%) | (33.8%) | (23.0%) | (16.2%) |
| # Up | 59 | 51 | 33 | 40 |
| # Down | 13 | 21 | 39 | 32 |
Figure 1
5-Year Rolling Returns
| System | Buy/Hold | BadDays | System-Buy/Hold | |
| Average | 64.7% | 46.7% | (10.2%) | +18.0% |
| Median | 60.0% | 47.8% | (13.3%) | +21.3% |
| Std Dev | 36.2% | 45.9% | 16.4% | 26.6% |
| Ave/Std Dev | 1.79 | 1.02 | (0.62) | 0.68 |
| Max % | 149.7% | 199.8% | 37.4% | 72.0% |
| Min % | 2.6% | (23.0%) | (31.6%) | (56.6%) |
| # Up | 68 | 55 | 22 | 48 |
| # Down | 0 | 13 | 46 | 20 |
Figure 2 – Using 5-Year Look back at the end of each year
10-Year Rolling Returns
| System | Buy/Hold | BadDays | System-Buy/Hold | |
| Average | 176.4% | 114.5% | (21.1%) | +61.9% |
| Median | 156.3% | 96.6% | (21.6%) | +67.3% |
| Std Dev | 98.9% | 95.6% | 18.9% | 46.5% |
| Ave/StdDev | 1.78 | 1.20 | (1.12) | 1.33 |
| Max % | 408.2% | 323.4% | 19.2% | 141.9% |
| Min % | 26.1% | (29.5%) | (51.2%) | (44.6%) |
| # Up | 63 | 56 | 9 | 54 |
| # Down | 0 | 7 | 54 | 9 |
Figure 3 – Using 10-Year Look back at the end of each year
Year-by-Year Results
| Year | System | Buy/Hold | BadDays | System-
Buy/Hold |
| 1946 | 10.1 | (8.1) | (16.2) | 18.2 |
| 1947 | (3.7) | 2.2 | 6.6 | (6.0) |
| 1948 | (3.0) | (2.1) | 1.3 | (0.9) |
| 1949 | 11.2 | 12.9 | 1.9 | (1.7) |
| 1950 | 7.9 | 17.6 | 9.4 | (9.7) |
| 1951 | 30.4 | 14.4 | (12.0) | 16.1 |
| 1952 | 4.5 | 8.4 | 4.1 | (3.9) |
| 1953 | (1.2) | (3.8) | (2.3) | 2.5 |
| 1954 | 33.4 | 44.0 | 8.2 | (10.5) |
| 1955 | 11.8 | 20.8 | 8.3 | (8.9) |
| 1956 | 13.9 | 2.3 | (9.9) | 11.6 |
| 1957 | (5.1) | (12.8) | (7.8) | 7.7 |
| 1958 | 32.9 | 34.0 | 1.1 | (1.1) |
| 1959 | 8.6 | 16.4 | 7.5 | (7.8) |
| 1960 | 7.0 | (9.3) | (15.0) | 16.3 |
| 1961 | 23.2 | 18.7 | (3.3) | 4.4 |
| 1962 | 6.9 | (10.8) | (16.3) | 17.7 |
| 1963 | 17.8 | 17.0 | (0.4) | 0.8 |
| 1964 | 12.7 | 14.6 | 1.9 | (1.8) |
| 1965 | 16.7 | 10.9 | (4.7) | 5.8 |
| 1966 | (9.1) | (18.9) | (10.5) | 9.8 |
| 1967 | 15.2 | 15.2 | 0.3 | 0.0 |
| 1968 | 15.1 | 4.3 | (9.1) | 10.8 |
| 1969 | (7.3) | (15.2) | (8.2) | 7.9 |
| 1970 | 13.4 | 4.8 | (7.3) | 8.6 |
| 1971 | 18.2 | 6.1 | (10.0) | 12.1 |
| 1972 | 11.8 | 14.6 | 2.8 | (2.8) |
| 1973 | (8.9) | (16.6) | (8.1) | 7.7 |
| 1974 | (16.4) | (27.6) | (13.1) | 11.2 |
| 1975 | 36.4 | 38.3 | 1.7 | (1.9) |
| 1976 | 5.1 | 17.9 | 12.5 | (12.8) |
| 1977 | (6.1) | (17.3) | (11.7) | 11.2 |
| 1978 | 7.0 | (3.1) | (9.2) | 10.2 |
| 1979 | 0.5 | 4.2 | 4.0 | (3.7) |
| 1980 | 9.6 | 14.9 | 5.2 | (5.4) |
| 1981 | (1.9) | (9.2) | (7.2) | 7.3 |
| 1982 | 6.3 | 19.6 | 12.9 | (13.3) |
| 1983 | 10.3 | 20.3 | 9.3 | (9.9) |
| 1984 | 3.1 | (3.7) | (6.3) | 6.8 |
| 1985 | 19.4 | 27.7 | 7.2 | (8.2) |
| 1986 | 10.9 | 22.6 | 10.9 | (11.7) |
| 1987 | 22.3 | 2.3 | (16.2) | 20.1 |
| 1988 | 13.1 | 11.8 | (0.8) | 1.2 |
| 1989 | 19.2 | 27.0 | 6.9 | (7.8) |
| 1990 | 13.1 | (4.3) | (15.2) | 17.4 |
| 1991 | 28.2 | 20.3 | (5.9) | 7.9 |
| 1992 | 7.7 | 4.2 | (3.0) | 3.6 |
| 1993 | 13.5 | 13.7 | 0.5 | (0.2) |
| 1994 | 11.4 | 2.1 | (8.0) | 9.2 |
| 1995 | 29.7 | 33.5 | 3.2 | (3.7) |
| 1996 | 9.8 | 26.0 | 15.1 | (16.2) |
| 1997 | 34.0 | 22.6 | (8.2) | 11.4 |
| 1998 | 5.8 | 16.1 | 10.1 | (10.3) |
| 1999 | 23.6 | 25.2 | 1.6 | (1.6) |
| 2000 | 0.9 | (6.2) | (6.7) | 7.1 |
| 2001 | 3.1 | (7.1) | (9.6) | 10.2 |
| 2002 | (7.7) | (16.8) | (9.5) | 9.0 |
| 2003 | 36.1 | 25.3 | (7.7) | 10.8 |
| 2004 | 6.5 | 3.1 | (2.8) | 3.3 |
| 2005 | 2.8 | (0.6) | (3.0) | 3.4 |
| 2006 | 13.3 | 16.3 | 3.0 | (3.0) |
| 2007 | 3.2 | 6.4 | 3.4 | (3.2) |
| 2008 | (13.8) | (33.8) | (23.0) | 20.1 |
| 2009 | 18.1 | 18.8 | 0.9 | (0.8) |
| 2010 | 17.3 | 11.0 | (5.0) | 6.2 |
| 2011 | 7.3 | 5.5 | (1.3) | 1.8 |
| 2012 | 9.7 | 7.3 | (1.9) | 2.4 |
| 2013 | 23.9 | 26.5 | 2.4 | (2.6) |
| 2014 | (6.4) | 7.5 | 15.3 | (14.0) |
| 2015 | 9.6 | (2.2) | (10.6) | 11.9 |
| 2016 | 11.2 | 13.4 | 2.3 | (2.2) |
| 2017* | 13.1 | 18.3 | 4.8 | (5.1) |
Figure 4 – Annual % +/(-) for ABD System versus Buy-and-Hold
*thru 10/31/2017
Jay Kaeppel
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
Thanks for the update! May be great to combine this strategy with a timing mechanism. For instance only buying on those days when the Dow is above its 200 day SMA.
True. Or something that whipsaws less than the 200-day MA, like the S&P > than it was 12 months ago (based on end of month data). Most of the worst years for the system were in bear markets (73-74, 2002, 2008). On the other hand, you also miss part of strong recoveries that follow bear markets (1975, 2003, etc.) I think your drawdowns and other risk metrics would look better with a trend filter, though.