Author: mungofitch

Subject: 1-2-3 revisited

Date: 1/2/2019

Recommendations: 32

Anybody remember the 1-2-3 model posted here in 2002? https://boards.fool.com/so-its-this-simple-17832585.aspx Despite all the fancy timing work that has been done since then, Mr Sjuggerud`s method has some merits. His three indicators are of three entirely different types: technical, monetary, and value. This is perhaps more robust over very long time periods than a composite signal which is all technical, even if some components do nothing for long periods. I mention it because all three of its models are bearish at the moment, which has been pretty rare since it was first discussed here. The Fed`s in the way with rising short term rates. The index is below its 45 week moving average. The market P/E is above 17. (19.25 using "as known and reported" figures) The last times it was all bearish: Thirteen weeks starting Dec 2015, ten weeks in mid 2010, but other than that not since early June 2009. The article was published in September 2002, over 16 years ago. Since then 0 signals bullish (16% of the time): index-only CAGR -9.3% 1 signals bullish (38% of the time): index-only CAGR +7.4% 2 signals bullish (38% of the time): index-only CAGR +14.0% 3 signals bullish ( 8% of the time): index-only CAGR +2.0% I suspect some portion of the poor showing during periods with all three bullish is due to the fact that it didn`t add up to all that many weeks. Overall, if you had used "at least one signal bullish", ignoring dividends and interest you`d have done pretty well. Cash 16% of the time while the market was dropping at a rate of -9.3%/year, and long 84% of the time while it rose at +9.7%/year. Buy and hold had index-only returns of 6.5%/year. How have the signals have done individually? Ironically, it`s the moving average test that hasn`t worked. Bearish 7%, bullish 6.3%. Too many whipsaws, maybe? Signals are checked only weekly with this system. The other two have been good. P/E ratio bearish CAGR 4.5%, bullish CAGR 22.3%. Monetary bearish CAGR 0.5%, bullish CAGR 12.6%. The monetary model has actually been the most useful, since it has been bullish about half the time. Jim