Is it possible to have less drawdown in the Stars buy and hold strategy?
Yes you can but your performance will take a horrible beating. Stars with 40% TQQQ outperforms the S&P by 19 percentage points per year over the past 14 years and bonds underperform the S&P by 7% per year. The lost opportunity of bonds replacing TQQQ is 26% per year. In a 4 year cycle with one major down year that is over 100%. Why would you want to do that?
The only logical reason is you think we are at a market top. Remember drawdown does not produce a loss in a buy and hold strategy. With the Stars model you rebalance at lows and end up with 6 times as many shares as at the previous high (for a 20% correction in the S&P). Those shares are bought at 20 cents on the dollar. Even Buffet doesn’t get that good a deal.
If you were to start using Stars at a market high, you would be at new portfolio highs 18 months after the market low because the performance of TQQQ coming off a low is 5-8 times the S&P. Stars outperforms the S&P by about 50 percentage points per year coming off the market low. Everyone wants to own the fastest appreciating stocks at the market low.
Buy and hold strategies have created the most wealth for investors. Stars outperformed the S&P by a factor of 17 over the past 26 years. The next 25 years will probably be higher than that because the returns over the past 14 years indicate the factor could be as high as 48! The truth for the next 25 years is probably something like 25 times the S&P because we will probably have a more volatile market which favors higher multiples than the past.