• As of Feb-24-2018 VFMO holds 637 Russell 3000 stocks, selected according to a rules-based screen for relatively strong recent performance and liquidity. They show a 1-year average return of 62%.
• Using similar screening criteria we selected a portfolio of 639 stocks on Feb-24-2018 which had a 1-year average return of 71%. It holds 501 stocks in common with VFMO.
• Similar screening rules selected 576 stocks on Feb-24-2017 which showed an average return of 105% over the preceding year, but 0% return over the following 6 months to Aug-24-2018.
• Vanguard’s easily replicated selection process appears to be greatly influenced by survivorship bias. It is unlikely that VFMO will show a higher return than MTUM or SPY in the future.

• Based on its historic trend, the stock market appears to be overvalued.
• The Shiller Cyclically Adjusted Price to Earnings Ratio P/E10 is at high level of 33.5 (and P/E5 of 28.0), and a market correction is possible.
• Similar conditions for the P/E5, and S&P-real’s position relative to the long-time trend, were observed only 3-times in the past: in 1937, 1998 and 2006.
• The historic trend suggests a total probable real loss of about 15% over the next two years.
• Analysts’ long-term forecasts of stock returns made 7 years ago appear to have been unrealistically low.

• The Cyclically Adjusted Price to Earnings Ratio (CAPE ratio) is at 32.1, a very high level which signals overvaluation of stocks and low forward returns, according to Shiller.
• This level was only exceeded twice in the last 136 years, in Sep-1929 and from Jul-1997 to Jul-2001, with market declines of 77% and 45% then recorded.
• The Moving Average CAPE Ratio Methodology used here references stock market valuation to a 35-year moving average of the Shiller CAPE ratio instead of the 1881-2017 long-term average.
• Based on the 35-year moving average methodology, historic market performance points towards continuing up-market conditions, possibly for a number of years.
• To avoid the bear market, exit stocks when the spread between the 5-month and 25-month moving averages of S&P-real becomes negative and simultaneously the CAPE-Cycle-ID score is 0 or -2.

• The founder of Vanguard, Jack Bogle, says that over the next decade a conservative portfolio of bonds will only return about 3% a year and stocks about 4% a year.
• However, returns can be improved with a dynamic asset-allocation strategy that adjusts stock- and bond-fund holdings in a retirement account according to market climate.
• The Vanguard LifeStrategy Moderate Growth Fund (VSMGX) holds static investments of 60% equity and 40% bond funds and is compared to our dynamic strategy model.
• Our iM-DMAC(60:40) model, designed for retirement saving and withdrawal management, holds identical assets as VSMGX in up-market conditions but switches to 100% bond funds during equity down-market periods.
• The result, the iM-DMAC(60:40) vastly outperforms VSMGX.

• The Cyclically Adjusted Price to Earnings Ratio (CAPE ratio) is at 30.2, a very high level which signals overvaluation of stocks and low forward returns, according to Shiller.
• This level was only exceeded twice in the last 136 years, from Aug-1929 to Sep-1929 and from Jun-1997 to Jan-2002, with market declines of 77% and 45% then recorded.
• The Moving Average CAPE Ratio Methodology used here references stock market valuation to a 35-year moving average of the Shiller CAPE ratio instead of the 1881-2017 long-term average.  
• Based on the 35-year moving average methodology, historic market performance points towards continuing up-market conditions, possibly for a number of years.
• To avoid the bear market, exit stocks when the spread between the 5-month and 25-month moving averages of S&P-real becomes negative and simultaneously the CAPE-Cycle-ID score is 0 or -2.

Shiller warns in his recent commentary The Coming Bear Market? :
Read more >

• The “Anti-VIX” ETN ZIV is designed to increase in value when the volatility of the S&P 500 decreases, as measured by the prices of VIX futures contracts.
• The model buys ZIV only during up-markets when the VIX > 17 and rising, otherwise during up-markets it buys either QLD or DDM, or IEF when upmarket conditions are absent.
• A backtest of the model from Jan-2011 to Jul-2017 produced a high 60% annualized return with a maximum drawdown of -16% with only 41realized trades.

• The “Anti-VIX” ETF SVXY is designed to increase in value when the volatility of the S&P 500 decreases, as measured by the prices of VIX futures contracts.
• Extended data of SVXY, the ProShares Short VIX Short-Term Futures ETF, from Jan-2006 to the fund’s inception date was calculated from its proxy, the S&P 500 VIX Short-Term Futures Index.
• SVXY is intended for short-term use. Using the extended price data, a buy-and-hold strategy of the hypothetical SVXY resulted in a huge loss of over 90% from 2007 to 2009.
• The model buys SVXY only during up-markets when the VIX > 17 and rising, otherwise during up-markets it buys either QLD or DDM, or IEF when upmarket conditions are absent.
• A backtest of the model from Jan-2007 to Jul-2017 produced a high 70% annualized return with a maximum drawdown of -27% with only 76 realized trades.

• The Vanguard Dividend Growth Fund-VDIGX is closed to new investors. Want-to-be investors can possibly do better than the fund by investing only in a few positions of the fund’s holdings.
• The iM-Best10(VDIGX)-Trader relies on the expertise of the Vanguard’s advisors to make the primary stock selection. VDIGX currently holds 45 large-cap stocks from which the Trader periodically picks its stocks.
• The Trader invests in the ten highest ranked stocks of VDIGX. This strategy, postulated in 2014, has produced to Jun-2017 a 3-year return of more than double that of VDIGX.
• The 3-year performance of the Trader was 64.1% versus 28.4% for VDIGX, giving an excess return of 35.7%. Trading frequency was low, with positions held on average for 126 days.