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Trend Following Food for Thought

“Depth is the percentage loss from an equity peak to an equity valley based on a fixed reference starting equity. $ Depth is the dollar loss from an equity peak to an equity valley. Prior peak represents the last monthly equity high prior to the beginning of the Drawdown. Valley is the monthly date where the Drawdowns lowest level occurred. Length is the duration in months of the Drawdown, which is the number of months between Prior Peak and New Peak. Recovery is the duration in months starting from the first month after the Valley of the Drawdown to the month of a new equity Peak, which includes the new Peak month.”
Definition from Trade Center

Hypothetical questions to consider:

  • How do you feel about peak to valley drawdowns?
  • How do you feel about recovery?
  • How would you feel about an average major peak to valley
    drawdown of -34.0%?
  • How would you feel about an average drawdown duration of 7.0 months?
  • Would you run for the hills?
  • But what if the average time to recoup the drawdown was only 7.0 months?
  • Sound better?
  • What if the average rolling 60 month (5 year) period gave
    a return of +225%?
  • What if the track record showed NO 60 month periods resulting in a loss?
  • Last but not least, what if a hypothetical $1,000 investment increased to $400,000, over nearly 30 years, but over the same time period the S&P 500 increased to only $40,000?
  • A 10-fold difference in return? Yes, that is the example.

This is all just food for thought. Think about the trend following numbers. The numbers paint a picture.

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