We have been running this sample portfolio for three years now, sufficient time in our estimate to demonstrate the model's attractiveness. In order to highlight other viable strategies, in particular centering around options trading, we will be discontinuing the actual placement of trades in our virtual portfolio. Of course, trading with this methodology for our real clients at Northstar, our parent company, continues unabated.
This year has produced gains, namely 4.3% on an annualized basis. While disappointing, there will be periods where the strategy lags the overall market and the results are still positive. Prior years were a phenomenal 35.31% in 2012 and a 81.23% in 2011. Overall, the average three year return has been a very respectable 49.28%. A $100,000 portfolio invested in this model would have grown to $255,766. This compares very favorably to an investment in the S&P, which grew a $100,000 portfolio from $100,000 to $189,880 over the same period (with reinvested dividends), or an average of 27%.
Because this model also performs well in a sideways or downwards trending market- with the best performance occurring in periods of sharp downturns - many investors will find it attractive as compared to a buy-and-hold strategy.
Of particular note is that the maximum draw down of this strategy as opposed to a buy-and-hold approach. (A draw down is the dip in value of a portfolio from maximum peak to maximum low.) In times of market crashes = such as the 2000 crash or the 1929 crash - buy-and-hold investors face draw downs of 40% to 90%. Our momentum strategy has incurred maximum draw downs of 18%. Knowing this makes it easier for an investor to stomach being patient in periods of poor performance.