In one of my previous posts, I mentioned about timing the market, which is difficult to execute well in reality. However, there is one strategy which one can apply to do this.
I came across this book "The Ivy Portfolio" by Mebane Faber, in which he talks about the exceptional performance of Harvard and Yale endowment funds (That is how I knew about David F Swensen). Similarly, he preaches about asset allocation. In addition, he introduced readers to a method of when to buy and sell the assets.
The rule is simple. Dedicate one day of every month, check if the price of the asset class is above or below its 10-month simple moving average (SMA). If it is below the 10-month SMA, sell. If it is above, hold or buy. This strategy was backtested in his book and the annualised returns are about 9%. This review is done once a month only to factor out the noise in the market.
A link is provided at the end of the post, which shows the price charts of several asset classes with their 10-month SMA. The site also provides a link to a paper published by Faber, where this model is looked into in more detail.
Mebane Faber Site
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