Frequently Asked Questions
Q: I mainly have only enough time for the MDM. In general it looks like the MDM has its own safeguards with really the only bad year in 2007 where it underperformed- do you have any insights on that year. What about this year (2011)? I also noted about Gils's account was down 50% in 2009 then recovered dramatically- I assume that the MDM does not have that large swings.
A: 2007 was an aberrant year not seen before where high volume down days did not lead to further sell offs in the general market, and follow through days did not continue much higher, thus many false signals resulted that year. Fortunately, the natural order of price/volume action resumed in 2008.
I have no insights on any year. The model takes price/volume action as it comes. It watches the market day to day and makes decisions on that basis. No one has been able to prove with regular consistency the ability to predict 1 week, 1 month, 1 year out, so I learned from William O'Neil that it is an exercise in futility. It is best to be in the now, closely watching each day as it comes, then acting accordingly. This applies to both the MDM and other services here on VoSI.
I can say that so far in 2011 (as of January 13, 2011), QE is alive and well thus we're getting aberrations of higher markets without a follow through day. These unusual periods always come to an end, thus those who change their models when things get tough end up losing out in the long run. I believe the long term success of my model rests in keeping it as it is for the most part, with only minor changes that prove out through rigorous testing not just in the last 35 years but in entirely different eras such as the 1920s and 1930s. That said, the model's its inherent logic has never changed.
MDM does not have large swings. It's worst drawdown was in 1999 at -15.7%, during the market's unusually choppy period which lasted from about February through August. This gives the model one of the best returns on a risk adjusted basis.