I ran Aberration on the 22 market portfolio, establishing
a baseline by using a Fixed Fractional betsize approach
which risked 2.5% of equity on every trade. From 1/1/1980
till 3/2/2001 this FF approach gave a compound annual growth
rate ("CAGR") of +70.46 percent per year, for over 20 years.
Each dollar of initial equity on 1/1/1980 had grown to
almost $67,000 by 3/2/2001.
Then I ran it again on the same portfolio for the same
time period, but using the TIMID + BOLD equity idea from
Van Tharp. CAGR increased to +96.84 percent per year.
Each dollar of initial equity had grown to $1.34 million
The neat thing is, that drawdown *OF* *TIMID* *EQUITY*
I found the results very attractive and decided to test the idea myself. The results that I got were not that appealing. Luckily, Mark was also kind enough to provide raw equity data so that those interested could analyse them and ponder the results. I would like to share my comments/concerns:
What I donâ€™t understand is why I should compare FF approach drawdown of TOTAL EQUITY with Timid&Bold approach drawdown of TIMID EQUITY (both of which are about 42%). While I understand that in the Timid&Bold approach we are concerned with the drawdown of timid equity, I would not have any problem with being concerned with the drawdown of timid equity only also in case of the FF approach, if only it could offer higher reward. I analysed Mark's data and I found the following drawdown figures (see the attached spreadsheet):
FIXED FRACTIONAL APPROACH:
Max %DD of Total Equity: -41.32%
Max %DD of Timid Equity: -30.14%
TIMID & BOLD APPROACH:
Max %DD of Total Equity: -57.91%
Max %DD of Timid Equity: -42.59%
Now, I think that on the basis of those figures, you cannot claim that Timid & Bold approach allows you to increase profits WITHOUT increasing the drawdown. If think a valid comparison could only be made, if drawdowns of *timid equities* OR *total equities* in the two position sizing approaches were the same. Then, however, it could turn out that when the drawdowns of total equity of both approaches are equal, the drawdowns of timid equity are also similar and the profit is much higher in the case of the good old FF approach.
This is what I have found in my tests, although not on a regular basis. There were some periods / portfolios / systems on which FF approach worked better, and there were others that benefited more from the Timid & Bold approach. The only thing that I would like to stress here is that you cannot expect the Timid & Bold approach to improve your MAR ratio without redefining the drawdown concept. But then you can redefine it as well in the FF approach and get "better" results.
Of course, I do not mean to downgrade or criticize Mark Johnsonâ€™s excellent input on this or other forums. In fact, it is perfectly possible that I have misunderstood the whole concept or Markâ€™s conclusions. If this is the case, please explain what I am missing.