📈 Backtesting "Winner Indexing" Strategy: Top 5 Market Cap Stocks

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In this video, I'll reply to ‪@TheWickedWay‬ comment of adjusting my "Market Leader 5" Strategy to a more focused approach of only keeping the top 5 market cap companies and selling the ones that drop out. It's even more an indexing strategy than a buy-and-hold strategy which could negatively affect capital gains and transaction costs -- but not for all investors. Some can tax-efficiently trade within specific government accounts etc.
Market Leader 5: • Market Leader 5 - The ...
Nothing in this video is financial advice - just math, backtesting, and education. DYOR!
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Опубликовано:

1 окт 2024

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Комментарии : 16

@newxs1672 2 месяца назад

Hey man, found channel out of luck and it's very interesting. Ty for all the work, finally someone who's trying New stuffs !

@finxter 2 месяца назад

Thanks, yeah I try my best to offer a unique perspective. Thanks for being here! ♥️

@HenryJames-cs2wl 2 месяца назад

You should try with a 20% trailing stop loss

@finxter 2 месяца назад

Yeah but when reinvest? It is not meant to be a trading strategy - the less activity the better IMO.

@mircea_h 2 месяца назад

Interesting back tests! Nice thought exercise I think this strategy gives high weight to bubble stocks, so the falling bank scenario has big chance of repeating. Maybe cap the max weight? Maybe filter out crazy PE like Cisco in the 2000s. Growth ETFs have some growth criteria in the rating, like sales growth, earnings, etc. to somehow measure the quality of the business also

@finxter 2 месяца назад

Thanks! Good thoughts. I don't like too many magic numbers like max weight or max P/E ratio. One magic number (=5 companies) is already in the strategy. The more magic numbers we add, the more brittle it becomes. The selection criteria of "growth ETFs" are also random and do not generally beat the market (=S&P 500), do they?

@TheWickedWay 2 месяца назад

One more quick question just for clarity. When your new formula sells a stock, because it fell out of the top 5, does it reinvest all of that money into the 1 new stock that just joined the top 5, or did it spread the money from the sale of the stock into the new one, as well as the other 4? For example, lets say that you sold a stock because it fell out of the top 5, one that has been in there for a while. Lets say it's worth has got up to ~$20K since it first got put in there. When you sell it, do you put all $20K from that stock sale into whatever new stock comes in, or do spread it out in chunks of $4K into all of the latest top 5?

@finxter 2 месяца назад

The latter - spreads it into all of the latest top 5.

@andys3010 2 месяца назад

Great video! Do you know what the sharp ratio is of the portfolio at the end?

@finxter 2 месяца назад

Thanks! No I didn't calculate sharpe ratio - would involve too much data wrangling given that we only have one trade per year. I don't think volatility is a good proxy for risk too...

@dieudonnezonou7968 2 месяца назад

i assume you started with random assumption of top 5, can you backtest the optimal number of top compagnies to use for this strategy?

@theYoutubeHandle 2 месяца назад

yes, it's 500.

@finxter 2 месяца назад

I tried everything from 1-10. My reasoning was that these numbers of individual holdings are still manageable for a retail investor. Transaction fees should not be too high. More than 10 becomes difficult. Less than 3 is not really diversified. The results were a bit better though for 3 compared to 5 (in most cases, only focusing on return). The risk would be higher though.

@finxter 2 месяца назад

Yeah, 500 is not a bad number. Not better return-wise though. ;)

@dieudonnezonou7968 2 месяца назад

@@finxterthanks it’s very interesting, one can use indicators like moving averages on sp500 to set the buying conditions with the aim to reduce downside volatility. instead of systamatically buying once per year.