A slow stock-market rule helped during prolonged equity bears, but it could not reliably protect against fast crashes. The historical study also rejected applying the same rule to bitcoin.
This research began with the Taxable KISS 5.2 stock overlay. The original study record documented its weakness in the 1973–1974 decline and compared a small set of frozen monthly alternatives. The later after-tax review evaluated version 5.3 separately; the figures here should not be read as today’s portfolio performance.
The candidate taken forward
After two consecutive monthly observations below the 10-month moving average, and a decline of at least 10% from the trailing 12-month high, the candidate cut the stock sleeve to 20% of its normal exposure. Two observations above the average restored full exposure. Signals from a completed month applied to the following month.
The long sample uses Shiller monthly S&P price and dividend proxies, Treasury-bill cash and a 10-basis-point cost when the target changes. Monthly average prices and approximated dividend accrual make this a historical proxy study. It did not model investor taxes or daily ETF fills.
| Window | Bear-protocol total return | Buy-and-hold total return | Protocol / buy-and-hold maximum drawdown |
|---|---|---|---|
| February 1966–August 1982 | 210.9% | 129.5% | −11.9% / −39.2% |
| January 1973–October 1974 | −9.0% | −37.5% | −10.4% / −39.0% |
| 2000–2009 | 69.4% | −6.9% | −18.3% / −49.0% |
| 2019–June 2023 holdout | 53.2% | 79.4% | −18.9% / −19.3% |
There were 13 reductions in the 59-year 1960–2018 sample. The holdout illustrates the cost: the rule trailed buy and hold and barely changed maximum drawdown through the fast COVID shock.
Rejected additions
Requiring the recovery’s trough to be at least six months old delayed re-entry without improving drawdown in the tested secular-bear windows. CAPE caps at 20, 25 or 30 did not offer a persuasive improvement once foregone returns and current-vintage valuation data were considered.
Applying the stock rule to bitcoin without changing its parameters also failed the intended early-exit objective. It entered defensive states only after roughly 39%–55% declines in the three bubble windows tested. The stock rule did not become a bitcoin rule simply because both assets experience bear markets.
The whole portfolio changes the answer
In a 60% stock / 30% gold / 10% cash proxy, annual rebalancing plus the new stock protocol produced 9.23% CAGR and a −17.7% maximum drawdown over 1960–2018. Annual rebalancing alone produced 9.12% and −26.4%. Removing annual rebalancing weakened the overlay’s result.
The same stock overlay barely helped an equal-weight stock/bitcoin/gold/cash portfolio because bitcoin dominated its largest loss. Early gold-history constraints also make the long diversified sample historical context rather than a continuously executable U.S. investment record.
A promising stock-sleeve result therefore needed a daily, investable, full-portfolio and after-tax check. The subsequent tax-lot study supplied part of that check and found no simple policy that won across all starting dates.