Executive summary
Buy-and-hold is a wonderful strategy right up until it isn’t. Across the last two decades, simply owning the index compounded beautifully — and twice asked investors to stomach a fall of more than half their capital. This strategy answers a narrower, more practical question: how do you stay invested in strong markets without being destroyed by the weak ones?
It does that with a mechanical discipline — ride the strongest-trending large-cap names while the market is healthy, and step aside when it turns. Over 21 years on real, survivorship-bias-free history, it captured most of the index’s return — 11.4%/yr on the Nasdaq-100 and 9.3%/yr on the S&P 500, against the index’s 15.3% and 10.9% — while cutting the worst-case loss roughly in half, with a risk-adjusted return (Sharpe) equal to or better than buy-and-hold. And in the twelve-month stretches when the index fell hardest, this strategy came out ahead of buy-and-hold every single time.
The true cost — and what you keep
The trade-off on the top line is now modest. Over the full window buy-and-hold compounded somewhat faster — roughly 11–15% a year versus 9–11% for the strategy — because it was fully exposed during the long bull runs that dominate the record. But the strategy’s risk-adjusted return matched buy-and-hold on the Nasdaq-100 (Sharpe 0.77) and edged it on the S&P 500, and its worst 12-month stretch was roughly half as deep. You give up a slice of bull-market upside; you keep most of the compounding and shed most of the drawdown.
Most capital can’t sit through a 55% decline. Drawdowns force selling, trigger redemptions, and end careers. What this strategy buys is the ability to stay in the game at close to the index’s rate of return.
Where it adds most: the bear-market record
This is the signature of a defensive allocation: it captures most of the index in calm and rising markets and pulls clearly ahead in the downturns. The protection isn’t an accident of one lucky year — it shows up across the whole history, every time the market broke.
How it works, in plain terms
No black box. Three simple ideas:
- Own strength. Each week, rank the large-cap names by how cleanly and steadily they are trending, and hold the top 20.
- Stand aside in downtrends. A simple trend filter on the index switches off new buying when the market is below its long-term average — the rule that does the protecting.
- Size by calm. Quieter stocks get more capital, jumpier ones less, so no single name dominates the risk.
Methodology is Andreas Clenow’s, from Stocks on the Move. We implemented the weekly version faithfully and tested it without curve-fitting, on split- and dividend-adjusted prices.
Tested the hard way
Real history, including the losers. The test uses point-in-time index membership that includes the companies that later failed, were acquired, or dropped out — so the results aren’t flattered by quietly only trading today’s winners.
Skill, not luck. We re-ran the strategy 200 times with the stock-picking replaced by random selection, holding everything else fixed. The momentum ranking added return above those random versions in every test, landing in the top 1–2% of them — and the trend filter contributes most of the downside protection.
Costs, slippage and cash, stated plainly. We modelled Interactive Brokers commissions — they lower the return by under ~20 bps a year, immaterial. Slippage is modest too: the system trades a handful of liquid large caps, so even a pessimistic fill assumption costs about a point a year at most. The book is near-fully invested, and the small idle balance earns 0% in the headline — for a complete picture, add the true cash return you would earn at your own rate. The Deep Dive shows the full breakdown.
View the full 2005–2026 month-by-month performance
The complete monthly grid for both universes, with every year’s return and intra-year decline, lives on the Deep Dive — along with the random-portfolio stress test, the in-sample/out-of-sample checks, and the full risk-adjusted breakdown.
Who this is for
This suits a portfolio manager whose first job is to protect capital through the cycle — one who wants close to large-cap equity returns without sitting through a 55% drawdown to get them. Used as a defensive equity allocation or a drawdown-aware sleeve, it does a job buy-and-hold cannot. For a pure maximum-growth mandate with a genuine tolerance for 50%+ drawdowns, straight index exposure compounded somewhat faster over this window.
Let’s stress-test this for your mandate
No off-the-shelf backtest matches a real risk tolerance, capital constraint, or regulatory mandate. This study is a baseline demonstration of our research process. If you manage institutional capital, a family-office allocation, or a private portfolio, we can adapt the engine to your exact parameters.
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- Your universe: swap the Nasdaq-100 or S&P 500 for your watchlist, sector sleeves, or a global cross-asset basket.
- Real-world execution: your fee schedule, slippage assumptions, and borrowing costs.
- Custom risk overlays: volatility targeting, drawdown brakes, or a cash-yield sleeve.
Or audit it yourself
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→ Full Deep Dive with the complete methodology, monkey baseline, ablation, and risk-adjusted tables.