“You are saying that only 0.10% of that return occurs on the first day of the week (Monday) with the other 1.75% backloaded into the last 4 days”.
That is not what I tried to say. When I talk about 5%/year slippage, I mean, instead of running the screen from Friday close to Friday Close, I run the same portfolios starting the following Monday close to the next Monday close. His original screen did 160%/year (give or take a few %), Friday to Friday. The same weekly portfolios did on average 155%/year, Monday to Monday close. That does not generally imply that stocks only slip 5%/year from Friday close to Monday close. The slippage I am talking about is the slippage in weekly returns that you get if you shift both ends of the trading week by one day, using the same portfolios. I used to be able to calculate this for Fridays, Mondays, Tuesdays, etc. I specifically use closing trades as those are verifiable by a back test and many brokers take those trades as real trades. I used RW’s new trailing stop feature, inputting a 1% trailing stop and noticed that the annualized gains reduced to 60%/year and the drawdown reduced to less than 20%. With such a small trailing stop, you could see that slippage from Friday to Monday was completely erratic as the program printed the Friday entrance and trailing exit prices, usually only a few days later.
“He should just keep in mind that simply because something has worked in the past does not mean it will in the future”.
“My big concern is that he is chasing a phantom and would ultimately be better served by using RW to develop a less frenetic and well diversified / lower turnover strategy which will let him take advantage of his small size to modestly outperform (5-10%/ yr) the SP500 on an aftertax annual basis. Sounds boring, but better than beating head against wall”.
That depends on the amount of money you can invest. If you have a few thousand $$ or less, his strategy is boring too, but it should give him roughly $900/year if you apply RW’s new trailing stop of 1%. As you said, there is no guarantee and there will be years of drawdowns of larger than $900.
As to trying to beat the S&P500, I think that is comparing apples and oranges, not because RW doesn’t have the historic compositions. RW compares your returns with the historic S&P500 returns, and those historic returns are based on market-cap weighted returns. Your portfolios in RW are equally weighted, and an equally weighted S&P500 does roughly 14%/year since 1999 (9%/year since October 2007), with current and historic compositions, it doesn’t really matter. Portfolio123 enables you to test both, RW only the current compositions.