My not so profound valuations and observations on Markets
My not so profound valuations and observations on Markets
As we all know dollar-cost averaging has been the go-to standard financial advice since Ben Graham first popularized it. So I was wondering how it would stack up against people trying to time the market. Specifically buying only when there is a 10 percent drop from the recent highs, then the last drop would count as a recent high (for example, a high at 100, drops to 90 buy-ins once, then 90 is the new recent high, and if it drops to 91 then buy in again etc etc).
I wrote the DCA as a monthly 100 dollar deposit to the S&P500 and growing the deposit amount at 2 percent inflation per year. Allowing the case of fractional shares of the S&P. I am using the historical data of S&P500 from 1993 to 2020. The code is as you can see below
moneyInvested = 0
counter = 0
totalShares = 0
num = 0
for row in csv_f:
if counter % 22 == 0:
num = num +1
monthlyDCA = 100 * (1.000054255**counter)
moneyInvested = monthlyDCA + moneyInvested
sharesBought = monthlyDCA/(float(row[5]))
totalShares = sharesBought + totalShares
counter += 1
print((3236*totalShares)/moneyInvested)
Where 3236 is the price of the S&P500 the day I did these calculations. We get a total return on capital of 269% gain from the money invested.
While the drawdown strategy code is as follows:
moneyInvested = 0
moneyToInvest = 0
counter = 0
totalShares = 0
highpoint = 457.739990
daySinceInvesting = 0
for row in csv_f:
if highpoint < float(row[5]):
highpoint = float(row[5])
if highpoint*.90 >float(row[5]):
sharesBought = moneyToInvest/(float(row[5]))
totalShares = totalShares + sharesBought
moneyInvested = moneyInvested + moneyToInvest
moneyToInvest = 0
highpoint = float(row[5])
dailyInvest = (100/22) * (1.000054255**counter)
moneyToInvest = dailyInvest + moneyToInvest
counter += 1
print((3236*totalShares)/moneyInvested)
The total return on capital is 236%. This shows that the DCA strategy works better, 13% better to be exact. I also played around with x percent drawdown, but none of them beat the DCA. This is due to long times out of the market, where there could be a bull market for a whole year until an x percentage drop, thus missing out on all the previous gains.