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The "Big MAC" investment timing model is one that deploys moving average crossovers of the JSE ALSH index to determine buy and sell signals. What makes the Big MAC different to all our other investment timing models is that it is one based purely on market technicals (moving averages), whereas SuperModel, LBYC and Cash/Equity rely on macro-fundamentals (economic indicators, interest and yield spreads and so forth.)

The advantage with the Big Mac is that it is calculated daily, whereas most of the macro-models are only calculated monthly. Additionally, the Big Mac is back-tested to 1985, or 27 years, which is much longer than the 16 years of our breadth-based timing models such as LazyBoy and HedgeTrader. Finally, the Big Mac is startlingly simple.

Deploying Big Mac along with SuperModel, LBYC and Cash/Equity allows you to build your own diversified "Investment Grade Hedge Fund" where you allocate 25% of your equity to each investment model. As each model buys and sells, you move 25% of your funds into and out of the stock market.

The Big Mac is a moving average crossover (MAC) system that deploys a short-term moving average and a longer term moving average. When the short term average crosses up over the long term average we generate a BUY signal. When the short term falls under the long term we generate a SELL signal. The exact durations of the short and long term averages are proprietary to us although they are displayed on the trading systems charts in JBAR. The moving averages were chosen such that they maximise a certain group of trading characteristics of the resulting timing model, namely win-rate, gain-to-loss ratio and net points gained over the 27 year back-tested period. These are shown below:
 

The specific trades made over the 27 year period are shown below. We can see that whilst it does not avoid the beginning stages of bear markets it does a fine job of staying out the market for a big chunk of the bear markets where the most damage is done. The downside with this model, as with most based on moving averages, is that she can be a bit late in getting back in again. But this downside is largely negated with the fact that the model keeps you long for the bulk of a bull markets' move which tends to be much bigger than the initial rebound we missed.


The final thing we now need to compare is the cumulative performance of a JSE buy-and-hold strategy versus the Big Mac timing model. We assumed a starting capital of R1, brokerage fees of 0.3% and interest earned on cash at a conservative prime less 5%. The timing model does not short, it merely moves into cash when a SELL signal is observed:


The timing model delivered almost two times the performance of the buy & hold, but for far less risk since it was only exposing you to market related risk for 72% of the time. The other 28% of the time when the timing model was tucked away in cash earning prime less 5%, the JSE was experiencing violent volatility during large corrections and bear markets. This is aptly demonstrated with the below chart that compares the rolling 3-month returns of the two strategies:

We see that the timing model averaged worst case draw-downs around the -10% mark but the JSE buy+hold investor frequently visited  -20% and even -30% territory. The performance of "The Big Mac" in the current bull market that commenced in March 2009 is shown below as it appears in the weekly JBAR report in the TOP40 TIMERS section:

OTHER INVESTMENT MODELS --> | SuperMODEL | Long-Bond Yield Curve | Cash/Equity Model |
 
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