GGT-TSP Performance through October 30, 2009

This wasn't a stellar month for the GGT-TSP plan, but we have protected ourselves overall and I think since we started the plan (August, 2008) we've done quite well, relative to the market.  What follows is a summary overview of performance; read the "Trading Plan for the TSP Funds, ver 1.0" blog for details on the strategy.

This blog entry will be a quick synopsis of the performance from inception.  Click on any image to see a larger view:

3-Fund 15-Performance graph (does not trade the AGG / F-Fund):

Here is the 3-TSP Fund Portfolio Summary, since inception:

Take a close look at the above table.  

• Total gain is 23.17%.
• 50% of the trades are winning trades -- this is normal
• When a trade wins, it wins (on average) $4,032, and when it loses, it loses (on average) $1,135
• The Mathematical Expectation of this strategy (ME) is 1.276, which is very good.
• The Compounded Rate of Return (CRR) is 19.52%.  As a reference, the 3-ETF buy-and-hold portofolio over the same period has a CRR of -15.28%
  

Given the above information, we can calculate the Pessimistic Return Ratio (PRR) of the strategy:

The PRR is (((W - (W^(1/2))) / T) * AW) / (((L + (L^(1/2))) / T) * AL)

Where:
W = Number of winning trades (in this case 8)
L = Number of losing trades (in this case 7)
T = Total number of all trades (winning and losing, in this case 15)
AW = Average winning trade amount (in this case $4,032)
AL = Average losing trade amount (in this case $1,135)


PRR = 1.905, which is very good.

This last graphic shows that we have a maximum drawdown (MDD) of 7.91% over the entire period.  The Calmar Ratio (CR) is a measure of reward to risk, and is given by:

CR = CRR / MDD

In this case, we have CR = 19.52 / 7.91 = 2.46, which again, is very good.

Summary of 3-ETF / Fund TSP Strategy

• Total gain is 23.17%.
• 50% of the trades are winning trades
• When a trade wins, it wins (on average) $4,032, and when it loses, it loses (on average) $1,135
• The Mathematical Expectation of this strategy (ME) is 1.276, which is very good.
• The Compounded Rate of Return (CRR) is 19.52%. 
• The Maximum Drawdown (MDD) of this strategy is 7.91%, as measured from 8/1/08.
• The Calmar Ratio (CR) of this strategy is 2.46
  

The system is a winner, even without the AGG / F-Fund in the strategy.

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4-Fund 15-Performance graph (DOES trade the AGG / F-Fund):

 

As can be seen above, the stats for the 4-ETF / Fund GGT TSP Strategy are as follows:

• Total gain is 19.43%.
• 55% of the trades are winning trades -- this is normal
• When a trade wins, it wins (on average) $2,270, and when it loses, it loses (on average) $781
• The Mathematical Expectation of this strategy (ME) is 1.131, which is very good.
• The Compounded Rate of Return (CRR) is 16.37%.
• The calculated Pessimistic Return Ratio (PRR) is 1.886 (calculate this for yourself)

 We see from the above graphic that the Maximum Drawdown is 5.77%.  This allows us to calculate the Calmar Ratio (CR):

CR = CRR / MDD = 16.37 / 5.77 = 2.83

Summary of 4-ETF / Fund TSP Strategy

• Total gain is 19.43%.
• 55% of the trades are winning trades -- this is normal
• When a trade wins, it wins (on average) $2,270, and when it loses, it loses (on average) $781
• The Mathematical Expectation of this strategy (ME) is 1.131, which is good.
• The Compounded Rate of Return (CRR) is 16.37%.
• The calculated Pessimistic Return Ratio (PRR) is 1.886 (calculate this for yourself)
• The Maximum Drawdown (MDD) of this trategy is 5.77%, as measured from 8/1/08.
• The Calmar Ratio (CR) of this strategy is 2.83

Commentary

It's important to note that removing the bond fund (AGG / F-Fund) from our investing strategy increases gain, but it also increases risk, as determined by the Calmar Ratio (CR).  For longer-term investing, the higher CR is the better choice if you are looking for better "units" of return/risk ratio.  If you can stomach the slightly higher drawdown potential of the 3-ETF strategy (7.91% vs. 5.77%), and realizing that a strategy will ALWAYS LOSE MORE AT SOME POINT IN THE FUTURE THAN IT HAS LOST IN THE PAST, then you can probably do better with a 3-ETF strategy, compared to the 4-ETF strategy.

As always, comments are appreciated.

Regards,

pgd