This is, essentially, a method of creating a VOLATILITY ADJUSTED measure of system performance. The same methodology can be applied to any trading vehicle including stocks and mutual funds.
So, to find out just how profitable some of the better performing and famous tech stocks and mutual funds have been over the past 365 days I calculated a BUY AND HOLD net equity gain. Then, I ran the daily price fluctuations through a program I wrote to calculate drawdown and adjusted compound performance. I found the results very interesting.
For some of the biggest tech stocks and funds:
| STOCK | 1 mo.% | Annual% |
|---|---|---|
| DELL | 8.87% | 177.24% |
| MSFT | 5.14% | 82.56% |
| CPQ | 4.73% | 74.11% |
| INTC | 2.54% | 35.13% |
| IBM | 2.42% | 33.26% |
| MU | 2.01% | 26.96% |
| MCAF | 1.19% | 15.25% |
| ORCL | 1.05% | 13.38% |
| CSCO | 0.82% | 10.34% |
| CPU | 0.38% | 4.62% |
| COMS | 0.29% | 3.48% |
| IOM | 0.23% | 2.82% |
| ASND | 0.15% | 1.87% |
| NOVL | -.70% | -8.10% |
| USR | -.54% | -6.30% |
| LMVTX | 4.37% | 67.13% |
| VIGRX | 4.35% | 66.77% |
| VFINX | 3.12% | 44.54% |
| SPY | 2.94% | 41.60% |
What this table shows is some of the biggest and best performing tech stocks - mostly NASDAQ, their VOLATILITY (or DRAWDOWN) adjusted COMPOUND MONTHLY GAIN (past 365 days) and the ANNUALIZED GAIN based on 12 compoundings of the monthly gain.
At the end I have included LMVTX (Legg-Mason Value Trust), VIGRX (Vanguard S&P 500 Growth Index Fund), VFINX (Vanguard S&P 500 Index Fund), and SPY (S&P ADR - called SPYders). The VIGRX and SPY can be considered a proxy for the S&P 500 Index.
So, this way of measuring performance takes into account not only how much was made with a buy and hold, but how much drawdown had to be endured to make the gain. Obviously, the higher the max drawdown, the lower the performance figures.
My only comment about this is that if I am going to come up with a futures trading system it better beat a buy and hold of the S&P Index by a wide margin, otherwise it certainly isn't worth the trouble.
---Tom Loffman
Copyright, 1997
Tom Loffman, Equity Systems