Does 10-Month Moving-Average Timing (dshort / Faber) actually work?

REAL

A measurable edge that survived the checks we ran.

The claim

Hold the index above its 10-month moving average; go to cash below it -- catch the trend, dodge the bears — Mebane Faber / dshort

What we did

Tested against Buy & hold SPY / honest reconstruction.

The result

Result: 71-yr S&P test: +7.2%/yr vs buy-hold +7.7%, maxDD -26% vs -53% (Sharpe 0.72 vs 0.58)

71-yr S&P test: +7.2%/yr vs buy-hold +7.7%, maxDD -26% vs -53% (Sharpe 0.72 vs 0.58)

Verdict

The famous trend-timing rule dshort tracks monthly -- now tested ourselves over 71 years, through 1973-74, 2000-02 and 2008. Verdict: it gives up just ~0.5%/yr for HALF the worst drawdown (-26% vs -53%) and a better Sharpe (0.72 vs 0.58) -- the bear-market insurance is real. The catch is regime: in the recent 2010-2026 decade (no slow bears, one fast 2020 crash a monthly signal can't dodge) it LAGGED buy-hold by ~4.5%/yr. Real protection, but it costs you in the long bulls.

What the test did and did not do

net of real costs
tested out of sample
point-in-time data
checked for look-ahead

Almost nobody publishing a backtest says which of these they did. We list the ones we failed as well as the ones we passed.

Tested 2026-06-23. The same treatment, applied to every other system, is on the test bench.

All findings All Weather (Ray Dalio) →

Written with AI assistance from our own test database. The numbers are computed, not composed.
General market commentary for education, not personalised investment advice. Backtested results are hypothetical. Trading carries a real risk of loss.