Is it possible to go through a period of changing leadership in the market when the TSM strategy actually trails a more balanced approach? Well, the fact is, "slice and dice" wins much more often and generally by a wider margin. But don't take my word for it, check out the numbers.

Using the Dimensional Fund Advisors (DFA) Returns program, I ran Rolling 36 Month returns for the CRSP 1-10 TSM index and for a portfolio of 25% S&P 500 (large growth), 25% DFA Large Value, 25% DFA 6-10 Small Company, and 25% DFA 6-10 Small Value indexes. I then took the difference between the "25 x 4" portfolio and the TSM index for each period and created the following chart. Whenever the line is above zero, the 25 x 4 portfolio outperformed.

The Rolling 36 Month return is what an investor starting in any month since January, 1964 would have realized on the investment for the next three years, without fees or taxes considered. The returns are annualized. So, for example, an investor with the 25 x 4 portfolio starting in October, 1965 would have realized an annual return 12.6% per year better than the TSM investment. On the other hand, an investor in a TSM fund starting in April, 1996 would have realized an annual return 9.7% better than the 25 x 4 portfolio. I think it's interesting to note the first period on the chart when TSM outperformed (the area below the zero line). This was the peak of the "Nifty Fifty" era from 1968-1971. You can see what happened after that.

I took this analysis a step further and overlaid a 100% value stock strategy--50% DFA Large Value and 50% DFA 6-10 Small Value--with the 25 x 4 portfolio. Note the higher extremes (mostly on the upside) and the longer trends for the all-value approach.

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