Earning Curve - EC500 Cumulative Backtesting

Earning Curve Ten Year History

The EC500 Formula Outperformed the "Buy and Hold" Strategy by 183%

At the beginning of 2006, if $10,000 was invested in SPY...

... And it was then sold and repurchased based on the EC500 Formula, on December 30, 2016, it would have grown to $32,312

... If a "Buy and Hold" strategy was followed (invested and never sold), the investment would have grown to $17,642

Earning Curve Advantage
The amount gained is $32,312 versus $17,642. Advantage = $14,670 or 183%

Principles behind EC500

S&P 500 Importance

The S&P 500, NASDAQ Composite, Russell 2000, and Dow Jones Industrial Average are all examples of a "market index." An index provides a summary of the overall market by tracking some of the key stocks within that market. The Standard & Poor's 500 (S&P 500) Index tracks 500 large US companies across a wide span of industries and sectors. The stocks in the S&P 500 represent about 80% of the overall market's value.

The S&P 500 is the most commonly used measure of the US Stock Market. This index is highly regarded as being the most accurate gauge of the performance of large-cap American equities. When financial news reporters say "the stock market" is up or down, they are commenting that a market index, such as the S&P 500, is up or down. The top ten holdings recently were Apple, Microsoft, Exxon Mobil, Amazon.com, Berkshire Hathaway, Johnson & Johnson, Facebook, JPMorgan Chase, General Electric and AT&T.

The S&P 500 Index began in March of 1957. It originally held mostly industrial companies, plus some utilities and railroads. Financial companies were added in the 1970s. The S&P 500 is maintained by a committee of market professionals. The S&P 500 is a market value-weighted index of 500 stocks.

The S&P 500 Index is the benchmark standard for investing. Mutual fund and pension fund managers typically track their own performance against the S&P 500. The index sets the bar for investors' performance.

For these many reasons, the EC500 Strategy aims to maintain the highly desired risk, liquidity and diversifications factors inherent to the S&P 500, but still beat the S&P 500 performance!

Owning the S&P 500

Investors typically don't directly buy the S&P 500. Among other reasons, the cost of purchasing 500 individual stocks is high, so they look to purchase the equivalent index. There are several mutual funds and exchange-traded funds (ETFs) that hold the S&P 500's components in nearly the exact same weights. Buying the S&P 500 is easy through the use of exchange-traded funds.

The largest ETF in the world is the SPDR S&P 500 ETF (ticker: SPY), which has over $160 billion in total assets and charges a reasonable expense ratio. Investors have other ETF choices. There are differences as to how these funds operate, as well as their actual costs. These ETFs all hold the components at nearly identical weights as they hold in the index. These ETFs charge an expense ratio of a few basis points in annual fees.

The EC500 has been backtested, and in fact, can be applied to several other ETFs, but the SPY functions the best.

ETF Liquidity

In terms of ETFs, the most actively traded fund is the SPDR S&P 500. It is far and away the volume leader, with a typical range of 50 million to 250,000 million shares traded each day. It is managed by State Street Global Advisors, one of the largest managers of ETFs in the world. The SPDR S&P 500 Trust is an exchange-traded fund, which trades on the NYSE. SPDR is an acronym for the Standard & Poor's Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 Stock Market Index.

The SPDR S&P 500 ETF invests in equities. ETFs that invest in equities are generally more liquid if the securities are well known and widely traded. Because the S&P 500 stocks are well known, they are commonly held in investors' portfolios and the trading volume on them is high, which makes their liquidity of SPY high as well.

The EC500 strategy likes the SPDR S&P 500 ETF because of its convenience, low overhead costs and high liquidity.

Beating the Bear Market

Experienced investors know that the market has its ups and downs. Note that when the market is losing ground is when EC500 performs best against the index. There is a greater occurrence of EC500 transactions in down markets. In a bull, or up, market, less transactions occur and typically the EC500 investment rises with the market. In a bear, or down, market, the algorithm calculates more opportunities to beat the index. In 2008 when the S&P 500 and SPY both lost 37%, the EC500 engineered just a 10% SPY loss.

The EC500 Strategy gives investors a better sense of assurance when the market is losing ground, so that their investments won't be as devastated.

EC500 Backtesting Performance

2016 % SPY
Buy & Hold
% SPY with
EC500 Strategy
Buy & Hold
SPY with
EC500 Strategy
  SPY (%) EC500 SPY (%) ($) SPY ($) EC500 SPY
1-Year 18.48% 18.48% $11,848 $11,848
3-Year 9.11% 10.70% $12,990 $13,564
5-Year 12.81% 13.18% $18,271 $18,573
10-Year 6.29% 12.17% $18,413 $31,520

The backtesting performance is based on a $300 EC500 annual subscription fee, $10,000 starting principal investment, and a $4.95 transaction broker fee per trade.

The 10-year results include the best year for EC500, which was 2008. In that year, the S&P 500 and SPY each dropped approximately 38%, while the SPY with the EC500 Strategy fell just 9.9%.

Recent EC500 Win-Miss

S&P 500
Win = 1
Miss = 0
24 04/25/2017 3 0.53% 0 M1
23 03/01/2017 1 -0.59% 1 W3
22 09/29/2016 1 -0.93% 1 W2
21 09/23/2016 1 -0.57 1 W1
20 07/11/2016 5 1.49% 0 M1
19 06/24/2016 1 -3.60% 1 W2
18 03/14/2016 1 -0.13% 1 W1
17 02/25/2016 4 2.52% 0 M1
16 02/23/2016 1 -1.25% 1 W13
15 02/04/2016 2 -1.70% 1 W12
14 02/01/2016 1 -0.04% 1 W11
13 12/30/2015 1 -0.72% 1 W10
12 12/24/2015 1 -0.16% 1 W9
11 10/10/2015 2 -0.12% 1 W8
10 10/08/2015 5 -0.07% 1 W7
9 10/06/2015 1 -0.36% 1 W6
8 09/14/2015 1 -0.41% 1 W5
7 09/03/2015 2 -1.42% 1 W4
6 08/16/2015 1 -0.78% 1 W3
5 07/17/2015 3 -0.24% 1 W2
4 04/29/2015 1 -0.37% 1 W1
3 02/11/2015 5 1.50% 0 M1
2 01/27/2015 1 -1.34% 1 W2
1 01/23/2015 1 -0.55% 1 W1

Useful links

State Street Global Advisors
Investopedia: Exchange-Traded Fund (ETF)
Investopedia: Liquidity

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