Yale Hirsch’s – Best 6 Months Timing Model (Backtest Findings)

The Best 6 Months Timing Model strategy by Yale Hirsch is an active and simple strategy that uses market timings and can be implemented using any asset class and portfolio.

Using this strategy, you do not need to be in the market 100% of the time and expose yourself to additional risk, unlike a passive/lazy strategy. You enter the market when the Best 6 Months Timing Model strategy gives an entry signal and exit when the strategy gives an exit signal.

In this article, we will describe in detail the structure of the Best 6 Months Timing Model strategy and backtest it on historical price data.

Looking ahead, we can say that according to our backtests over the past 16 years, the Best 6 Months Timing Model strategy has the following performance stats:

  • Compound annual return (CAR): 3.99%;
  • Maximum drawdown (MDD): -27.27%;
  • CAR/MDD ratio: 0.15;
  • Standard deviation: 11.68%;
  • Sharpe ratio (with a risk-free rate of 3%): 0.10.

Related reading: You are perhaps searching for other investment strategies? (We have hundreds)

Who Is Yale Hirsch

Yale Hirsch is the founder of the Hirsch Organization and creator of the famous Stock Trader’s Almanac.

The 1968 edition was the first edition, which allowed him to distill his lifelong interest in stock market history, cycles, and patterns into a practical working tool for the average investor. It was the first compilation of the market’s seasonal trends, combined with a calendar seasonality, and laid out for use by non-institutional investors. It also brought to the general public many “statistically predictable” market phenomena that have since become well known, such as the “Presidential Election Year Cycle”, “January Barometer”, “Santa Claus Rally”, and “Best Six Consecutive Months”.

The Hirsch Organization has also published several newsletters over the years, like Smart Money and Ground Floor, and currently publishes the Almanac Investor newsletter. It is a guide to market patterns, cycles, fundamental developments, strategies, and stock selection.

Mr. Hirsch wrote Don’t Sell Stocks on Monday in 1986 and The Capitalist Spirit: How Each and Every One of Us Can Make a Giant Difference in Our Fast-Changing World in 2010.

Yale Hirsch is frequently quoted in the press, including Barron’s, BusinessWeek, New York Times, and Wall Street Journal, and regularly appears on CNBC, FOX, Bloomberg, and CNN.

What Is The Best 6 Months Timing Model Portfolio

Since we need to have a portfolio to backtest this timing model, we will use the following five asset classes with equal portfolio weights:

Asset ClassPortfolio Weight
U.S. Stocks20%
Foreign Stocks20%
U.S. Bonds20%
U.S. REITs20%
World Commodities20%

Stocks In The Best 6 Months Timing Model Portfolio

Stocks are equity securities representing an ownership share in a corporation and giving the right to receive dividends if paid. Historically, stocks have shown the highest returns, outperforming all other asset classes such as bonds, gold, and real estate.

The Best 6 Months Timing Model Portfolio includes the following types of stocks:

  • U.S Stocks – U.S. large- and mid-cap growth and value stocks that virtually replicate the benchmark S&P 500 stock index;
  • Foreign Stocks – non-U.S. large- and mid-cap stocks of different countries outside US that are have a low correlation with U.S. stocks.

For stocks, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history:

Portfolio SectorETF NameETF Ticker
U.S StocksSPDR S&P 500 ETF TrustSPY
Foreign (International) StocksiShares MSCI EAFE ETFEFA

Bonds In The Best 6 Months Timing Model Portfolio

Bonds are fixed-income debt securities that are less profitable and more reliable than stocks. You are not a stakeholder of the business but a lender. Bondholders are paid before shareholders in case of bankruptcy, thus less risk.

Adding bonds to a portfolio reduces its overall return but makes it less volatile and more resilient to drawdowns during periods of crisis. Bonds have a low correlation with stocks, which improves portfolio diversification.

The Best 6 Months Timing Model Portfolio includes the following types of bonds:

  • U.S Bonds – short-, medium- and long-term U.S. treasury, municipal, and investment-grade corporate bonds.

For bonds, we have picked these ETFs, which are well diversified, have high liquidity, and a long performance history:

Portfolio SectorETF NameETF Ticker
U.S BondsVanguard Total Bond Market Index FundBND

REITs In The Best 6 Months Timing Model Portfolio

Real estate investment trusts (REITs) have the same rewards and risks as “traditional” stocks but also have a historically low correlation with “traditional” stocks and various types of bonds.

Including REITs in a portfolio reduces the overall correlation of portfolio assets and makes the portfolio itself more diversified and sustainable.

For REITs, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history:

Asset ClassETF NameETF Ticker
U.S REITsiShares U.S. Real Estate ETFIYR

Commodities In The Best 6 Months Timing Model Portfolio

Commodities are alternative types of investment and include metals, wood, oil, gas, grains, meat, and many other tangible commodities.

The peculiarity of commodities is that their market dynamics do not depend on each other and do not depend on the market dynamics of stocks, bonds, REITs, and other “traditional” assets. Including commodities in a portfolio reduces the overall correlation of portfolio assets, making the portfolio more diversified and sustainable.

For commodities, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history:

Asset CategoryETF NameETF Ticker
World CommoditiesInvesco DB Commodity Index Tracking FundDBC

Trading Rules Of The Best 6 Months Timing Model Strategy

Trading rules of the Best 6 Months Timing Model Strategy are following:

Trading Rules

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Backtesting Of The Best 6 Months Timing Model Strategy

Let’s backtest the Best 6 Months Timing Model Strategy under the following conditions:

  • Described ETFs with the appropriate weights are picked;
  • Historical quotes are adjusted for dividends and fixed interest payments;
  • The backtesting interval from 2007 to 2023.

Portfolio equity curve:

Best 6 Months Timing Model Strategy

Portfolio underwater curve (drawdowns, i.e., decline in value from a relative peak value to a relative trough):

Best 6 Months Timing Model Strategy rules

Portfolio monthly and annual returns:

YearJanFebMarAprMayJunJulAugSepOctNovDecYr%
20070.0%0.0%0.0%0.0%0.0%0.0%0.0%0.0%0.0%0.0%-1.4%-0.2%-1.6%
2008-1.8%1.1%0.6%4.3%0.3%0.0%0.0%0.0%0.0%0.0%-8.2%5.1%0.8%
2009-8.8%-8.9%5.0%9.0%0.2%0.0%0.0%0.0%0.0%0.0%3.9%1.6%0.6%
2010-4.2%2.7%4.5%2.2%1.2%0.0%0.0%0.0%0.0%0.0%-1.7%5.7%10.4%
20112.4%3.3%-0.2%3.9%-0.1%0.0%0.0%0.0%0.0%0.0%0.6%0.2%10.5%
20124.2%2.7%1.2%-0.1%0.4%0.0%0.0%0.0%0.0%0.0%0.5%1.2%10.6%
20133.0%-0.6%1.8%2.1%-0.7%0.0%0.0%0.0%0.0%0.0%-0.2%1.1%6.5%
2014-1.5%4.2%0.1%1.5%0.1%0.0%0.0%0.0%0.0%0.0%-0.3%-2.5%1.5%
20150.2%2.3%-1.3%1.0%0.5%0.0%0.0%0.0%0.0%0.0%-2.2%-1.8%-1.4%
2016-3.5%-0.7%5.7%2.0%0.3%0.0%0.0%0.0%0.0%0.0%0.3%2.7%6.7%
20171.0%2.0%-0.3%0.5%0.3%0.0%0.0%0.0%0.0%0.0%1.3%1.2%6.1%
20181.9%-3.8%0.6%1.0%-0.1%0.0%0.0%0.0%0.0%0.0%-0.9%-4.9%-6.2%
20196.8%1.8%1.7%1.6%-0.3%0.0%0.0%0.0%0.0%0.0%-0.0%2.5%14.8%
2020-1.6%-5.6%-12.7%5.5%-1.9%0.0%0.0%0.0%0.0%0.0%7.5%3.4%-6.6%
20210.1%3.4%2.2%5.1%0.5%0.0%0.0%0.0%0.0%0.0%-3.6%4.9%12.9%
2022-2.4%-1.0%3.7%-3.1%-0.1%0.0%0.0%0.0%0.0%0.0%5.6%-3.2%-0.9%
20236.0%-3.7%1.6%1.2%-0.6%0.0%N/AN/AN/AN/AN/AN/A4.2%

Performance statistics of the timing model strategy compared to the “Buy and Hold” strategy with the same portfolio:

Statistical MetricTiming ModelBuy and Hold
Annual Return %3.99%4.57%
Exposure %47.71%99.66%
Risk Adjusted Return %8.36%4.58%
Max. drawdown-27.27%-47.77%
CAR/MaxDD0.150.10
Standard Deviation11.68%16.19
Sharpe Ratio (3% risk-free)0.090.10

There are individual performance stats per asset class since inception:

TickerExposure %CARRARMax. Sys % DrawdownCAR/MDDAnual Standard Deviation (%)Sharpe Ratio (3% Risk-Free Rate)
SPY48.456.7513.92-33.720.214.260.26
EFA49.465.8411.81-34.260.1715.880.18
IYR49.026.5213.29-51.140.1323.170.15
BND48.411.342.78-13.360.13.89-0.43
DBC47.941.863.87-48.820.0414.81-0.08

Equity curve of the best-performing asset class (SPY):

Best 6 Months Timing Model Strategy backtest stocks

Conclusion On The Best 6 Months Timing Model Strategy

The active market timing strategy proved effective in the form of a much smaller drawdown, which is only -27.27%. The “buy and hold” strategy that is invested 100% of the time has a much higher drawdown of -47.77%.

FAQ:

How does the Best 6 Months Timing Model strategy differ from passive strategies?

Unlike passive or lazy strategies that keep you in the market consistently, the Best 6 Months Timing Model strategy suggests entering the market when it gives an entry signal and exiting when it provides an exit signal. This approach aims to reduce exposure to additional risk.

Who is Yale Hirsch, and what is his contribution to market analysis?

Yale Hirsch, the founder of the Hirsch Organization, is renowned for creating the Stock Trader’s Almanac. He introduced various market phenomena such as the “Presidential Election Year Cycle” and the “Best Six Consecutive Months.” His work has greatly influenced market analysis and understanding of seasonal trends.

How do stocks in the portfolio differ, and which ETFs are chosen?

The U.S. Stocks component includes large- and mid-cap growth and value stocks replicating the S&P 500 index. Foreign Stocks consist of non-U.S. large- and mid-cap stocks with low correlation to U.S. stocks. ETFs like SPDR S&P 500 (SPY) and iShares MSCI EAFE (EFA) are chosen for their diversification, liquidity, and historical performance.

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