Nasdaq100 strategy

[claytonedk]

Hi, am I fool or the Nasdaq100 is by far the best strategy ? Outstanding gains with a medium DrawDown. Can you give me reasons to not invest using only this strategy for the long term (+20 years) ? Also, the strategy has an hedge so in bear markets it did well based on the backtests.

[Frank1 Grossmann]

The Nasdaq strategy was able to select value stocks (energy, pharma, consumer..) during 2022 instead of the usual FAANG high-flyers. This was the main reason for the better result. The same was the reason for the Dow30 and the sector rotation. All these did switch to defensive value stocks. The hedge did not help too much last year as Treasuries and Gold did not perform well.

[ABGUYAZ]

Clayton, did you end up following the nasdaq100 strategy? I am looking at following it starting Feb 2024.

[Peticolas]

I would just add that having 4 stocks is weak in terms of diversification, since those four COULD all be in tech. So if we had something analogous to the tech bubble burst in the early 2000s, you might experience losses far outside the historical losses included in the back testing.

[Frank1 Grossmann]

If you are using QuantTrader it is really easy to to use more than four stocks. You can go up to top 10 stocks. However, back testing this does normally not give better results.
Regards, Frank

[Peticolas]

Thanks Frank. I’m on a trial membership and I’m really impressed with your work here at LogicaInvest. I have worked on my own momentum strategies, since this seems to be the biggest anomaly to CAPM and efficient markets, but I have not achieved your risk-adjusted returns. I’m not familiar with the literature on mean reversion, and that may be my disadvantage.

I would love to try your QT software but I still don’t have a password. My browser keeps me logged into the site so it’s not an issue otherwise, but I can’t use QT without a password. I’ve submitted help requests through the contact us form, and I look forward to getting that issue resolved.

[maxwellhines]

markets are ran by monkeys and are not efficient don’t be fooled

[Peticolas]

Just so you know, I went back and looked at the blog posts and pulled the annual performance for the NASDAQ 100 from those posts. In a couple of years, the January post did not disclose annual results. If that was the case, I took 11 month results from the December post.

The NASDAQ 100 strategy page lists historical performance as:

2023: 29.5%
2022: 4.3%
2021: 56.6%
2020: 104.3%
2019: 31.3%

The blogs disclosed performance for those years as:

2023: 29.5%
2022: 2.8%
2021: 24.6%
2020: 5.8%
2019: 11.5%

I doubt this will be posted but if so, evaluate for yourselves.

[Frank1 Grossmann]

The historical performance of the strategies can be seen at the bottom of each strategy where is written:
Historical allocations and performance of NASDAQ 100 Strategy are available here.

The chart you see represents what the current strategy would have done historically. A big change came from the updated hedging strategy where we added inflation protected treasuries to the hedge to cope with rising rates as the old hedge was really a big drag to every strategy due to the bad treasury performance.

[Peticolas]

Thanks for the clarification, Frank. My fault. I missed that.

[Peticolas]

And although it’s an old post, the historical results for this strategy are excellent. I follow and code several momentum systems, and this beats mine and others I have seen. People are attracted to the Nasdaq 100 because that’s where the volatility is and you need some volatility in momentum strategies. The big downside in trading it exclusively is only four stocks. I suspect that limitation is a function of the smaller universe. The top 1% of stocks in the NASDAQ 100 is … one stock. In the Russell 2000, the top 1% is 20 stocks.

So I would be reluctant to trade it exclusively.

[Frank1 Grossmann]

Using QuantTrader you can easily pick up to top 10 Nasdaq stocks.

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