I Can’t Compare Trend Following to Buy and Hold Because It Is Not a Fair Fight? Who Said Fights Were Fair?

Buy and hold has been real tough in Japan since 1989 as the Nikkei shows:





One reader writes:

Correct, buy and holding the Nikkei has been unprofitable for some time. My point is that many systems work. You’ve hitched your post, as an author, to profiting from promoting 1 system. And there is nothing wrong with that. Attempting to bolster your argument by using a single example of failure to disparage a competing system is as unproductive as you not listing how many trend followers have failed, or not listing a single Nikkei trend follower who has been successful.

People select systems that are one market and hold forever, i.e. Nikkei, S&P, whatever. Trend following is a system, but it doesn’t hold one market forever–clearly. It is wholly appropriate to compare the 2 systems. The fact that one system is not so great, and relies on one market going up forever, doesn’t mean the system of trend following has to attempt to mimic a bad system for a fair comparison. That doesn’t make sense. People live one time. They can choose. Which system do they want? Some will continue to view a trend following system compared to a buy and hold system as not a fair fight, but such is life:

An entirely different issue is the accusation of survivorship bias. There is a chapter in Trend Commandments titled ‘Lucky Monkey’ dealing with survivor critiques. An excerpt:

To suggest that there is nothing to be learned from trend following performance success across many, many traders, spanning decades, in all types of markets, both up and down trends, is absurd. The life-changing question for you: Is there anything to learn from the numerous winning trend following traders, or do you view them as just lucky monkeys whose darts happened to hit all bull’s-eyes for decades? This is the fork in the road for you: luck or skill. The choice will alter your life.

Hit me with your best shot

5 thoughts on “I Can’t Compare Trend Following to Buy and Hold Because It Is Not a Fair Fight? Who Said Fights Were Fair?

  1. Any bread-and-butter trend following system (MA Crossover) with decent position sizing would have given at least 15% compounded return in NIkkei from 1984 to 2011. Any Nikkei trend-follower could not but help being successful.

  2. People use Buy and hold because they can’t find anyone who can identify changes in the trend of the market.  They can’t find anyone who can teach it (like you).  I try and have been identifying changes in the trend of the stock market for over 40 years.  But very few believe me.  I am pleased that you consider me one of your “Influences”  I llguess we have to keep trying, Michael.

  3. You are so right.  Most investors do not know what a crossover is.  I like to watch my individual investment vehicles with a 9/18 exponential moving average crossover.

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