Stocks Back Testing Result

Stocks Back Testing Result

We have previously explored what your returns will be if you take a more passive approach investing in Straits Times Index (STI), now let us consider the case where you are able to instead, take a more active approach to investing.

For this case, we will be using the Singapore Telecommunications (Singtel) stocks as our example instead of STI. Before we begin however, let us first consider the case where you apply the same passive strategy to investing in Singtel stocks.


As seen from the table above, the average IRR across the year from buying Singtel stocks, is calculated to be 13.4% when the passive strategy is applied.

Now let’s consider the case whereby you are omniscient and are able to predict when the price of the stock so that you will be able to buy the stocks when it is the cheapest and sell them when they are at their highest possible price.


To understand how the buying and selling will work, consider the diagram above. The green dots will be the point where you will start to buy the stock and the red dots will be where you will sell every stocks which you have accumulated. So from the first green dot to the first red dot, you will be investing in Singtel stocks every month. Once you have reached the red dot however, you will sell every stocks that you had bought for returns. From the first red dot to the second green dot however, you will not be investing in any stocks. Instead, you will be saving the amount you intended to invest during that period of time till the second green dot where you will be investing in Singtel stocks once again till the second red dot where you will sell again. This cycle will repeat for 10 years and the result of the calculation is as shown below.


In this case, the IRR for the 10 years is calculated to be 283%. By comparing the IRR of this active strategy of 283% with the IRR of the previous passive strategy of 13.4%, it is evident that if you can time the market properly, there will be a potential for you to earn even higher returns.

It is important to note however, that the IRR of 283% above is calculated based on the assumption that you are omniscient and are able to time the market with perfect accuracy. It is incredibly unlikely for you to receive such astronomically high returns. It is likely however, for you to receive returns that are higher than if you simply apply the passive strategy. Therefore, the lesson here is that if you are willing to put in the time and effort to actively manage your portfolio, there will always exist the potential for you to earn even higher returns.

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