We conducted a 31 year backtest on the PITBULL Ver 1.0 mechanical timing strategy, which uses the Prime Repo Rate to derive entry/exit market signals. The predominant test was on the JSE ALSH Index.

The chart below shows the ALSH Index (log scaled) and the MPI indicator and periods we were vested in the stock market (blue shaded areas) versus periods we were in a bank account earning Prime minus 3.5% interest (when the MPI indicator was below the green SIGNAL line). Obviously if you had used money market instruments during the non-vested periods your returns would have been even higher (click on image for larger view)

Yes, there were occasions when we were sitting on the sidelines whilst markets were going up, such as after the great crash in 1987 (JSE up 35%), the 1994-1996 bull run (JSE up 22%) and more prominently the lead-up to the great crash of 2009, but consider that (1) the system kept you out of big crashes which were characteristic of these periods, which meant you slept better and (b) interest rates were high during these periods so you were doing much better anyway.

For example in the 50 month period from 1987 to 1991 when we were avoiding the market, the JSE had a massive 45% crash but bounced strongly back to gain 35% overall - but we earned 75% interest during this period as the Repo rate climbed from 12 to 21% and probably did not have to invest in heartburn medication! The same for the 2006-2009 period. On EVERY occassion we got out the market, we fared better with fixed deposits than what the JSE achieved - and with far LESS RISK to boot - as shown by the 21 transactions that made up the 31 year investment strategy below.

Overall strategy returns for the ALSH buy+hold and switching strategy are shown below:

Now 22.01% doesn't sound that much more than 15.35% but remember this is COMPOUNDED over 31 years and as you can see from the graph it makes a MASSIVE difference! We see we were invested in the stock market for only 50.5% of the time.

It is interesting to note that the 10 periods (excluding the current period) we were "in the stock market" we averaged 56.9% growth. But the periods we were "safely in the bank" we averaged 24.8% growth while the JSE only managed to average 5.2% growth! 

The 31 year backtest above was done on the ALSH index. You can create your own implementation of this strategy with a SATRIX40 or equivalent ETF. Just for interest, we ran the same back-tests on some of the largest individual shares on the JSE as well as some other JSE indices. We only ran the backtests for the last 13 years though (our database only went this far), and some of the results are displayed below.

Results (not shown here) for smaller-cap shares were mixed so it is recommended to stick with a tracker index (ETF) or to create your own "Index" of 5 large cap shares (like our "BLUECHIP" portfolio). Generally speaking whether choosing individual large-cap shares, or mini-indexes you create yourself of large cap shares, you should stick to issues that historically outperform the ALSH index to improve your results (this is exactly what our BLUECHIP index does). Martin Zweig found this system to work much better with an equal weighted (as opposed to market cap weighted) index of the S&P500 but unfortunately nobody offers such a tracker fund yet.
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