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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 263193  
Subject: Sell in June and go away Date: 6/20/2009 7:09 PM
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This is a long post, so here is an executive summary:
- A new method of implementing the seasonal timing idea is presented, which
recommends selling in June and going away, rather than the usual May.
- For the backtest, the total returns are 6.36%/year better than buy and hold.
- On a particular risk metric, this has less than 44% of the risk of buy-and-hold.
- This is specifically recommended for use with the S&P Equal Weight index, tracked by RSP.
- Don't give up, there's a link to a pretty picture further down the message.


I am a big fan of Sy Harding's seasonal timing system.
The general idea can be summarized as follows:
- The market tends to do worse from May to October than the rest of the year.
Nobody knows why, but it was first noticed in the 18th century, and
remains true on average. It's not always true, but often enough to
shift the risk-reward calculation for equities quite a bit seasonally.
- The best date to sell around May is when the market stops rising.
- The best date to buy around October is when the market starts rising again.
Mr Harding's excellent write-up on his system is here:
www.streetsmartreport.com/sts.html

Mr Harding uses a simple MACD (a technical analysis trend-following
metric) to form the definition of "rising". It works well.

However, I have long wondered if there might not be a better simple metric.
As Zeelotes has pointed out, the number of new highs and new lows on the
Nasdaq exchange lately is an extremely potent stock market predictor.
This can be used as a slower-cycle predictor by looking at which number
is greater than the other, which is the usual method. I call this
the "new highs minus new lows positive" signal. Or, it can be used as a
short-cycle predictor by looking at whether the ratio of new highs
lately to the number of new lows lately is rising. I call this version
the "new highs minus new lows rising" signal. It reacts much more
quickly, and gives a lot more signals per year---it isn't very much
use just by itself for this reason. This signal is implemented
simply by looking at two exponential moving averages (EMA's) and
if the shorter-term one is above the longer-term one, the line
is considered to be rising.

So, here's what I have done-
- I started with Sy Harding's signal generation method.
e.g., around April-May, sell out of the market on the first day
on or after a certain cut-off date that the MACD goes bearish.
- I looked for a short term new-highs-minus-new-lows signal that
has about the same number of signals per year as a MACD.
- I substituted the NH-NL-rising for the MACD. So, we have:
around April-May, sell out of the market on the first day
on or after a certain cut-off date that the NHH-NL-rising goes bearish.
And similarly, around October-November, buy back into the market
when the NH-NL-rising signals goes bullish.

So, this leaves us with a few things to tune.
What is the earliest date in Apr-May that the sell signal can be triggered?
What is the earliest date in Oct-Nov that the buy signal can be triggered?
Which particular moving averages will we use for the NH-NL-rising signal?
What are we trying to maximize?

Let's start with the last one. Since we're looking at a fairly
passive system, with only two trades per year, it seems that a
metric which is fairly "patient" would be good. I used the rolling-year
downside deviation with minimum acceptable return (MAR) of 10%.
This is a metric which says that any 12-month period with a return
over the MAR is risk zero, that any shortfall below 10% has a risk
equal to the square of the size of the shortfall. Thus, a return
of 8% (a shortfall of 2%) is four times as risky as a return of 9%
(a shortfall of only 1%)---double the shortfall, four times the risk.

The second metric is easier: a high long run return for US equities,
measured as the compound annual growth rate (CAGR). But trading what?
The S&P 500 index is dominated by the price movements of a relatively
small number of really huge companies, since the weight of each
company in the index is proportional to the total market value of
the company. I prefer to use the S&P 500 equal Weight index, also
published by Standard & Poors, which weights all 500 of the
companies equally: each one is 0.2% of the index. This index
performs just a tiny bit better on average through the years, and
is not quite as subject to wild gyrations. It's also a little more predictable.
So, the returns quoted here are for the S&P 500 Equal Weight.
I have included dividends. This index is easy to track by buying
the Rydex exchange traded fund with ticker RSP. For pricing data,
I have used the actual prices of RSP for its history since 2003.
Prior to that, I used the "official" S&P equal weight total return
index from S&P back to 1990. Prior to that, I have used another
reputable source for a reconstructed version of the same thing.
This earliest data assumes that you have exactly equal weights
every day, which isn't true of the official index which rebalances
quarterly. Therefore the returns in the earliest years of this
test are slightly higher than what you would have had in real life.

So, now all of that groundwork is out of the way, here are the
results of the test.

Buy and hold the S&P 500 Equal Weight Total Return index
Test period Jan 3 1978 to June 2 2009
CAGR 13.24% Risk based on downside deviation = 11.037%
Probability of a positive rolling year 80.37%
Worst rolling year -51.67%
Ulcer Index 11.70%

Seasonal system (two trades per year):
Long winter S&P 500 Equal Weight Total Return, cash summer
Test period Jan 3 1978 to June 2 2009
CAGR 18.43% Risk based on downside deviation = 4.733%
(42.88% of the risk of buy-and-hold, 6.47%/year higher returns)
Probability of a positive rolling year 90.86%
Worst rolling year -24.88%
Ulcer Index 6.43% (54.9% of the risk of buy-and-hold on this risk metric)
Percent of the time long the market: 64.4%

Here are all the magic tuning values used in this test:
- Earliest sell date at market close June 5th
- Earliest buy date at close October 14th
- Data source for the new highs and new lows: Pinnacle Data file B2 (Nasdaq)
- For each day, calculate the % of Nasdaq issues which hit new 52-week
highs on that day minus the % of issues that hit new lows.
Calculate two exponential moving averages of this series of values.
- The two EMA's used are 5 and 17 days. 5&18 is about equivalent.
- If the EMA5 is above the EMA17, it is bullish. I also counted
it bullish even if it's a really tiny bit lower, by up to 0.05%.
This is probably just random noise, but I mention it for completeness' sake.

Here is a graph of the portfolio values for buy and hold (blue) as well
as for the cash-in-summer approach described here (pink).
stonewellfunds.com/NHNLseasonal.jpg
In winter the two are the same, holding the S&P equal weight, and in
summer the trading system holds cash (3 month T-bill rates).

I highlighted a few of the years that the system really made things worse.
However, note that the returns were worse, but still positive/good in these particular years (2nd column).
That's no guarantee for the future---nothing works all the time.
The strength of the system seems to be in its ability to dodge a really
large summer loss from time to sime, such as 1978, 1981, 1987, 1990, 1998, 1999, 2001, 2002, and 2008.
(and apparently also 1971 and 1974, though they aren't in this test)
Conversely when it doesn't work and you're worse off, the year is
usually still good, and it's pretty rare to be worse off by very much.

Year   Buy and hold   Seasonal portfolio    Advantage   Sell at close on   Buy at close on
1978 11.6% 22.0% 10.5% 1978-06-05 1978-11-09
1979 26.2% 28.5% 2.3% 1979-06-19 1979-10-31
1980 34.8% 23.3% -11.5% 1980-07-28 1980-10-14
1981 5.0% 22.7% 17.7% 1981-06-05 1981-10-14
1982 29.2% 3.5% -25.7% 1982-06-07 1982-10-14
1983 33.0% 34.8% 1.8% 1983-06-08 1983-11-10
1984 3.5% -3.7% -7.2% 1984-07-06 1984-10-15
1985 32.3% 37.2% 4.9% 1985-06-07 1985-10-14
1986 22.1% 26.3% 4.2% 1986-06-09 1986-10-14
1987 10.3% 35.6% 25.3% 1987-06-30 1987-11-02
1988 17.0% 16.1% -0.9% 1988-06-28 1988-10-18
1989 30.6% 33.5% 2.8% 1989-06-09 1989-11-10
1990 -14.2% 14.6% 28.8% 1990-06-07 1990-10-18
1991 36.4% 36.8% 0.4% 1991-06-07 1991-10-15
1992 15.6% 17.6% 2.0% 1992-06-09 1992-10-14
1993 15.0% 9.8% -5.2% 1993-06-08 1993-10-14
1994 1.3% -1.1% -2.4% 1994-06-20 1994-10-14
1995 33.0% 26.8% -6.1% 1995-06-27 1995-10-16
1996 17.2% 17.7% 0.5% 1996-06-05 1996-10-15
1997 30.3% 24.9% -5.4% 1997-07-21 1997-11-21
1998 12.0% 35.3% 23.2% 1998-06-05 1998-10-14
1999 9.5% 22.2% 12.7% 1999-06-14 1999-10-26
2000 8.9% 10.8% 1.9% 2000-07-21 2000-10-20
2001 2.7% 21.0% 18.4% 2001-06-08 2001-10-15
2002 -15.5% 13.7% 29.2% 2002-06-05 2002-10-14
2003 35.3% 24.6% -10.7% 2003-06-11 2003-10-14
2004 15.4% 12.8% -2.5% 2004-06-14 2004-10-27
2005 10.8% 9.8% -0.9% 2005-06-24 2005-10-24
2006 13.1% 6.7% -6.4% 2006-06-06 2006-10-16
2007 -0.6% 3.2% 3.8% 2007-06-06 2007-10-31
2008 -37.0% -2.1% 34.9% 2008-06-09 2008-10-15



Some observations:
In my testing this approach works very much better with the S&P
Equal Weight index than it does with the standard S&P 500 index.
Both work, but the equal-weight works much better.
Trading the S&P total return index, performance increases by about "only " 1%/yr.
So, if you're going to use this system with one hold, buy RSP in winter not SPY.
However, it should add value for any portfolio concentrated in US large caps.

There is a quick and dirty way to find out the current NH-NL-rising signal.
Go to this URL each day starting on the earliest signal date.
http://stockcharts.com/h-sc/ui?s=$NAHL&p=D&yr=0&...
If the blue line is higher than the red line, the signal is bullish.
(If the two are extremely close to tied, call it bullish)
You won't get exactly the same result, since different data sources have
slightly different counts for Nasdaq highs and lows, but the end result
will probably be so similar that any difference will be statistical noise.

Note that this variant of the system is in the market a fair bit
longer on average in May-June than Sy Harding's approach. This is
particularly useful for those who are using mechanical investing (quant)
approaches, as these tend to do quite well on average in May.
It's also good for anyone who just plain likes to be in the
market a larger fraction of the year.

What has it done for me lately? This was a harsh winter, right?
The year ending June 1 2009 returned +11.9%, versus -28.8% for buy-and-hold on the same index.
So, even though there was a big dip during the winter, it was regained.

All figures in this write-up include dividends.
However, I didn't include trading costs. These days, trading RSP at
Interactive Brokers costs about 0.052% per trade including the bid/ask
gap and the commissions, which adds up to about 0.1%/year, definitely under 0.2%.
No big deal.

Conclusion:
If used over a long period of time, I very much believe that this
seasonal approach will reduce risks by a large amount, at very little or
no long run average cost. In testing the long run cost was negative,
i.e. it actually improved returns a lot (over 6%/year). However, even
without that it's very much worthwhile given the huge risk reductions.

Jim

PS, this is my 5000th post!
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Author: Houndstooth2 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 218653 of 263193
Subject: Re: Sell in June and go away Date: 6/21/2009 9:24 AM
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Fantastic post.

One quick question. Using your quick and dirty graph of NH-NL, it showed a brief sell signal in mid-May, and then another about a week ago. I presume your data is better than this, but when did your sell signal come this year?

Any suggestions on how to use the quick-and-dirty graph?

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Author: mali6491 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 218654 of 263193
Subject: Re: Sell in June and go away Date: 6/21/2009 11:25 AM
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Great post as always. Thank you.

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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 218656 of 263193
Subject: Re: Sell in June and go away Date: 6/21/2009 11:49 AM
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Using your quick and dirty graph of NH-NL, it showed a brief sell signal
in mid-May, and then another about a week ago. I presume your data is
better than this, but when did your sell signal come this year?


Actually the difference between data sets is very minor.
I wouldn't recommend developing a model on one data set then using
it on another one, but any given source is probably good enough.

As for this year, you're right, there was a sell in May then another
one in June. However, for this seasonal system the one in May doesn't
count because it's too early. So this is how you'd use it:
- Ignore the signal till June 5th each year. This is the magic tuned date.
- If the EMA crossover is bearish (blue line below red line) at close on
June 5th, that's your sell signal for the year.
- If not, each day starting June 5th, check to see whether the blue
line has dropped below the red line. As soon as it does, that's your sell.
- Same thing starting October 14th for your buy signal: ignore the
EMA crossover till then, buy Oct 14th if it's positive then, or wait
for it to go positive (blue above red).
- Do not look at the EMA's for the rest of the year.

That's why you'd ignore the May sell signal on this chart---it wasn't
June 5th yet. The first date on or after June 5th that the blue
line dropped below the red line was June 15th, this year's sell signal.

Any suggestions on how to use the quick-and-dirty graph?

As for how to use this little signal, I think it's a nice way to fine
tune a signal date that you are expecting for other reasons, as here.
However I would *not* recommend using it as a timing signal by itself
because it gives way too many signals per year.
But, as an example, let's say you thought that March 9th was a low in
the market for other reasons and you were looking for some confirmation
before buying back into the market. This signal gave a buy on
March 11th at close, which might add to your short term confidence.
That signal got more and more certain (the blue line was WAY above
the red line), and lasted till May 14th. During that time various
indices rose between 9.7% (S&P) and 10.5% (Russell 2000). However, the
vast majority of signals on this metric are much shorter and less certain.
The S&P Equal Weight Total Return index returns +19.2% CAGR while
this signal is bullish and +5.7% when it's bearish, which is very
poor distinguishing ability for something with so many signals.
Bottom line: it works fine for this purpose (fine tuning a seasonal
entry or exit date), but don't try it for other purposes.


The one exception: (note this section has nothing to do with seasonality):
If you use longer term EMA's this "NH-NL rising" method gets reasonably good.
e.g., lookbacks of a couple of weeks and a couple of months, give or take.
Here's how I use that:
If "NH-NL positive" signal is bullish (Zeelotes' signal), the market is
rising, stay long, and ignore the "NL-NL rising" signal. Call it "bull", state #1.
If "NH-NL positive" signal is bearish, check the "NL-NL rising" signal (EMA crossover).
If "NH-NL positive" signal is bearish and "NL-NL rising" bearish, you're just plain in a bear market, state #2.
If "NH-NL positive" signal is bearish and "NL-NL rising" bullish you're in a bear rally, state #3.
Here are the last few signals from that approach:
2008-06-09  Bear        (right:  Nasdaq100 dropped  -8.8%)
2008-07-21 Bear rally (wrong: Nasdaq100 dropped -5.4%)
2008-09-09 Bear (right: Nasdaq100 dropped -34.1%)
2008-10-21 Bear rally (wrong: Nasdaq100 dropped -3.3%)
2008-11-13 Bear (right: Nasdaq100 dropped -4.7%)
2008-11-28 Bear rally (right: Nasdaq100 rose +0.1%)
2009-02-17 Bear (right: Nasdaq100 dropped -1.6%)
2009-03-13 Bear rally (right: Nasdaq100 rose +14.7%)
2009-04-13 Bull (right: Nasdaq100 rose +36.5% so far)
The February signal was only 5 days after the recent top, but the market
dropped 7.4% in that week so it hurt things quite a bit.
Obviously you'd be in the market in bulls and out of the market in
bears, but it's up to you whether or not to be in the market during
bear rallies. The signals are more frequent and whipsaws are common,
though the average return during bear rallies is quite high, over 40%/yr.
A strategy of 100% long on bull, 100% long on bear rally, and 25% short/75% cash
when bearish would be up 59.5% since the signal 2008-06-09 (one tough year).

Jim

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Author: ozzfan1317 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 218660 of 263193
Subject: Re: Sell in June and go away Date: 6/21/2009 7:54 PM
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Wouldnt it just be easier to research individual companies and invest in them rather than try to time short term movments in the market?

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Author: DocSawyer One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 218661 of 263193
Subject: Re: Sell in June and go away Date: 6/21/2009 8:48 PM
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PS, this is my 5000th post!

Congratulations on number 5000

Thank you

Looking forward to the next 5000

D S

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Author: klouche Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 218663 of 263193
Subject: Re: Sell in June and go away Date: 6/21/2009 10:31 PM
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Way to go Jim. Of course I will try and tinker with this. Any idea of the ratio of risk adjusted return vs. buy and hold. By my back of the envelope calculation looks to be around 3:1.

Another suggestion, the name; "Sell in June before the swoon"

KL

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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 218670 of 263193
Subject: Re: Sell in June and go away Date: 6/22/2009 10:35 AM
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Wouldnt it just be easier to research individual companies and invest
in them rather than try to time short term movments in the market?


Well, yeah, sure!
The only problem with that is that it requires two skills.
Valuing a company, and knowing how good you are at valuing a company.
These skills are in short supply, and the second one is by far the
most important and creates all the danger.
Sometimes "good enough" is just fine, and that's the goal of the seasonal system.

I have to agree it's a lot easier than usual right now to pick stocks
right now that should earn you 15-20%/year in the next few years, though
of course you don't know how soon you will make the money because the
market can remain very low or very high for an arbitrarily long period of time.

One idea---
Wells Fargo is now or will shortly be making $40 billion/year in pretax
pre-provision earnings. Sure, they'll have some more writeoffs, but
let's consider the steady state situation after the dust settles some more.
Loan loss provisions in normal times are not more than 15% of interest
income, and let's estimate a 38% tax rate. This leaves $22bn profit for
what is arguably one of the best-run banks in the world, on a market cap
of (right now) just a pinch under $100 billion. A P/E of 4.55 before
you even consider any possible value from future growth.
Price is $23.39 right now. I'll take a wild and aggressive stab at EPS
in ten years over $12 per share, with a terminal P/E of 12.5, plus
an average of 2.5%/year dividends, for a CAGR of around 23%/year.
I could be wrong by quite a lot and it would still be a great investment.
Mr Buffett's comments and actions are telling--(Berkshire is the largest
shareholder of Wells)--he spent all his personal remaining cash
to buy WFC because he "just couldn't resist it when it got to the low 20's".
He said he wishes he could buy the whole company.
I normally don't go near banks, but this is one of the few exceptions I'd consider.
I own the shares, I own the preferred, and I've written puts repeatedly.
I sure hope I have enough of skill #2!

Jim

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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 218677 of 263193
Subject: Re: Sell in June and go away Date: 6/22/2009 4:09 PM
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Any idea of the ratio of risk adjusted return vs. buy and hold.

Well, the ratio you get is very much a function of the metrics you use.
Even total returns are tricky---is an 11% return a 10% improvement on a 10% return?
Or is it a 1% improvement?
Or is it a 25% improvement because any fool can make 6%, so you should
count it as "fool rate plus 4% increased to fool rate plus 5%?"

But, I think I can say with some certainty that the risk reduction is
at least 35.6%, which is the fraction of the time spent in cash,
and I believe the system probably will not hurt long run returns, so the
reward/risk ratio is probably improved by at least a factor of 1.55.

At the more aggressive end of things, if I simply take the ratio
of CAGR to rolling-year downside deviation with MAR=10%.
Bear in mind both of these figures are taken from a backtest which
was optimized for exactly these two figures! caveat investor.
Buy-and-hold is reward/risk of 1.09 and the system is reward/risk of 3.01.
So, you could see it as an improvement of a factor of 2.76.
However, I think that's a little bit starry-eyed.

I'd be happy promising this: no more than 2/3 the risk with returns which
are probably in the range of -1%/yr worse to +3%/yr better in the long run.

As another example, I expect that a portfolio of 50% cash 50% stock held
all the time might be expected to have both higher risk and lower
returns than a portfolio which is 25% cash and 75% seasonal cash-or-stock,
where risk is defined as before using the rolling-year downside deviation.
In the backtest the 75%-or-0%-long seasonal strategy reports 39% of the
risk of 100% long buy-and-hold with +2.8%/year higher returns. The
half-long-half-cash all the time approach reports 63% of the risk of
100% buy-and-hold with returns -2.2%/year lower. These are only
backtests, which I don't take as gospel, but it gives you an idea.

Jim

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Author: Rabelais Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 220411 of 263193
Subject: Re: Sell in June and go away Date: 10/28/2009 2:58 PM
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Jim,

Have you looked at using a weekly signal instead of daily? Do you know what that would do to returns for the system? If used last year, it looks like the sell would have been on 6/16 and the buy on 12/1 (http://stockcharts.com/h-sc/ui?s=$NAHL&p=W&st=2008-0...), and no sell this year, which both appear to be improvements in return. Care to backtest?

Thank you for your support,

JRB

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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 220461 of 263193
Subject: Re: Sell in June and go away Date: 10/30/2009 11:40 AM
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Have you looked at using a weekly signal instead of daily?

Not a huge difference.
Of course, it depends on what day of the week you check each week,
but for one of the possible runs, the results were as follows:

System as described, checking daily: CAGR improved by 6.37%, with 55.4% of the risk of buy and hold.

Checking weekly: CAGR improved by 5.31%, with risk 56.8% of buy and hold.

This is for all signals happening at close on the first trading day of the week.
Monday close, usually.

For another run, with signals at close on the last trading day of the
week (at close on Friday, generally), the results were similar:
CAGR improved by 5.64%, with 58.7% of the risk of buy and hold.
I'm not saying this was better, it's probably just noise. My intent
is just to give you an idea of the magnitude of variation from one run to another.

Jim

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Author: Rabelais Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 220577 of 263193
Subject: Re: Sell in June and go away Date: 11/6/2009 12:30 PM
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System as described, checking daily: CAGR improved by 6.37%, with 55.4% of the risk of buy and hold.

Checking weekly: CAGR improved by 5.31%, with risk 56.8% of buy and hold.


Thanks for checking. It looks like the daily signals work better, and the last two years were anomalous.

What if, instead of moving to cash, you switched to Consumer Staples and/or Health Care equal weight or market cap (i.e., RHS, RYH, XLP, XLV) for the summer? Would this help returns or risk?

Thank you for your support,

Ron

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Author: gabkw Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 258144 of 263193
Subject: Re: Sell in June and go away Date: 9/2/2015 6:24 PM
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Jim- I know this is an old post. I followed Sy Harding's approach with a portion of my retirement account. But as you know, he is no longer with us. May he rest in peace.

Has there been any update to your original research? I am currently trying to convince some of my retired friends to get out of "buy and hold" through their brokers and reduce their risk in retirement by going to a seasonal timing approach. Not having much luck convincing them though.

Thanks for your input to the MI board! I am long time lurker on this board and have learned a helluva lot from you and others over the years.

gab

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 258146 of 263193
Subject: Re: Sell in June and go away Date: 9/2/2015 6:55 PM
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I am currently trying to convince some of my retired friends to get out of "buy and hold" through their brokers and reduce their risk in retirement by going to a seasonal timing approach. Not having much luck convincing them though.

That's probably a thankless thing to do, if you value the friendship. When it works, they'll be feeling okay, and say "I would have already been in the market, so this is no big deal."
When it fails --- and *every* technique has times when it doesn't work -- they'll be angry at you for making them lose money.

What I do for people is give them a few links to papers & articles & books, and recommend they read them and ask me questions if they have any. And tell them what I do (in broad terms).

But, like (some) wives they'll believe a drunken bum lying in the gutter before they'll believe someone they know. Not that I'm calling brokers drunken bums of course.

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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 258165 of 263193
Subject: Re: Sell in June and go away Date: 9/3/2015 5:39 PM
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Jim- I know this is an old post.
I followed Sy Harding's approach with a portion of my retirement account.
But as you know, he is no longer with us. May he rest in peace.


In fact no, I had not heard about Sy. Nice guy.
I was a subscriber for several years, but that was several years ago.

[You're lucky I saw this post...I almost always read the forums only in threaded mode,
so I normally never see anything added to any thread older than a week or so.
Not that getting a reply from me counts as luck]

Any update to the seasonal research?
Nope.
The last version I came up with seems to work well.
Basically Sy Harding's method, but using a breadth indicator rather than a MACD for the date fine tuning.

But really, I have never been super comfortable with the seasonal method.
Despite its working surprisingly well on average, to my annoyance.
It has no link whatsoever to valuation nor to bull/bear momentum.

I recommend the latter as working a bit better.
http://boards.fool.com/monthly-timing-29448264.aspx

Take a spreadsheet, at the end of each calendar month plug in nothing
but the S&P open/high/low/close for the month easily found at Yahoo,
and it tells you whether to be long or cash for the next full month.

There are a few different monthly-cycle simple momentum signals,
so there are a few possible combinations you could make, but they're all nice.
e.g., I have one variant with the following stats:
One signal every 21 months on average. That's the part I like best.
One round trip every 3.5 years on average, not exactly labour intensive.
Since January 1930, rates of real total return bearish and bullish: -9.7% and +8.9%
Since January 1989, rates of real total return bearish and bullish: -11.9% and +10.3%
Bullish 91% of the time.
Long/cash portfolio since 1978 would have returned 9.49% versus 8.07% for buy and hold.
This is basically the same as the one in the post, but adding one more model based on Coppock to the vote.
So, it's bullish if any one of five models is bullish instead of if any one of four is bullish.
That's why it's bullish so much of the time.
But it sure counts as KISS.
It was bearish for 11 months during the credit crunch but has otherwise been bullish continuously since spring 2003.
Which, if you think about it, would have been pretty darned good advice.
It said to sell at end May 2008 with S&P 1400, and to buy at end April 2009 with S&P 873.
Or rather it would have, had it existed at the time.

If that sounds like it's something you're strongly interested in, drop me a line and I can send you a spreadsheet.

But frankly for retired folks (like my lazy self), the easiest
way to beat the market by a bit is to ditch all your mutual funds and
put half your equity money into Berkshire. That's what I do.
If you need income, just sell a bit now and then. Many brokers will do preprogrammed sell orders for you, too.
My latest in a never ending set of posts on its valuation.
http://boards.fool.com/25-column-value-31897051.aspx
The reason for the recommendation is that
(a) it's essentially unkillable, more like an asset class than a stock
(b) though the level of outperformance may be modest these days, it's extraordinarily predictable, and
(c) right now Berkshire is moderately undervalued and the broad US market is more-than-moderately overvalued.
So, there should be a nice one time boost from mean reversion between
now and the top of the next bull, in addition to item (b).
In combination, starting from today it would not be unreasonable to
anticipate outperforming SPY by 5%/year in the next decade, for any ending date
that the two are somewhat equally over- or under-valued. 3%/yr should be a fish in a barrel.
What more could you reasonably expect, and what would be easier?

Jim

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Author: geocarw Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 258167 of 263193
Subject: Re: Sell in June and go away Date: 9/3/2015 6:11 PM
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It said to sell at end May 2008 with S&P 1400, and to buy at end April 2009 with S&P 873. Or rather it would have, had it existed at the time. If that sounds like it's something you're strongly interested in, drop me a line and I can send you a spreadsheet.

I, for one, would love to have your spreadsheet, Thanks in advance and thanks for sharing your investment knowledge on these boards!

George

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Author: klouche Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 258168 of 263193
Subject: Re: Sell in June and go away Date: 9/3/2015 6:12 PM
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Here's the equal weighted S&P500 since 1957 vs. a seasonal approach for same:


Year Seasonal B&H
1957 5.4 (11.0)
1958 28.7 58.9
1959 15.9 14.4
1960 3.5 (0.2)
1961 25.0 29.7
1962 13.8 (10.5)
1963 16.7 23.9
1964 9.5 19.9
1965 20.6 24.9
1966 13.9 (8.1)
1967 29.5 37.1
1968 12.1 26.6
1969 (10.0) (17.3)
1970 5.6 6.5
1971 34.0 17.9
1972 16.8 11.0
1973 (25.0) (21.2)
1974 0.9 (21.1)
1975 51.2 57.3
1976 39.5 36.7
1977 3.9 (1.5)
1978 10.4 9.4
1979 33.0 30.1
1980 4.0 31.7
1981 26.2 5.7
1982 13.8 31.5
1983 28.4 31.6
1984 1.8 3.8
1985 30.5 31.8
1986 22.2 18.8
1987 38.5 8.1
1988 17.0 22.1
1989 21.2 27.0
1990 10.2 (11.0)
1991 35.4 37.6
1992 12.9 15.8
1993 7.5 15.5
1994 (0.5) 1.8
1995 24.0 32.9
1996 19.3 20.5
1997 8.0 29.4
1998 26.8 14.1
1999 25.0 12.5
2000 14.6 11.3
2001 12.2 2.0
2002 8.4 (16.4)
2003 12.2 41.7
2004 18.4 17.8
2005 2.4 7.9
2006 12.5 16.4
2007 4.8 0.9
2008 (1.5) (38.0)
2009 12.7 49.1
2010 20.4 22.4
2011 10.6 0.2
2012 15.7 17.6
2013 19.3 36.4
2014 7.2 14.5
2015 3.2 (5.2)


As of today, seasonal wins for 2015 by 8 percentage points. But in 2014 and 2009, seasonal loses in a major way.

However, over the long haul, seasonal is a steady improvement over buy and hold and begs the question: why are we in screens?


Seasonal B&H
CAGR: 14.70 13.17
TR: 302,266 137,679
GSD(20: 11.83 18.85
DD(20): 5.78 12.03
MDD: (33.7) (59.0)
UI(20): 5.17 10.43
Sharpe 0.86 0.54
Beta 0.47 1.10
TI(20): 20.99 8.50
AT: 1.89 1.79


http://gtr1.backtest.org/2013/?h1::sp500.a:et1:cashif:month%...

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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 258169 of 263193
Subject: Re: Sell in June and go away Date: 9/3/2015 6:54 PM
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Here's the equal weighted S&P500 since 1957 vs. a seasonal approach for same:

I find quite an improvement form the adaptive systems like Sy Harding's.
i.e., it picks an earliest sell date in the spring, but doesn't actually sell till the market turns down a bit.

Anyway, here's mine. Also trading equal weight, compared to equal weight B&H.

1970     -8.1%      2.6%
1971 28.7% 19.0%
1972 17.7% 12.3%
1973 -11.8% -21.2%
1974 -6.0% -19.0%
1975 57.7% 53.2%
1976 24.8% 35.2%
1977 -21.0% -2.3%
1978 26.8% 11.6%
1979 26.0% 26.2%
1980 24.8% 34.8%
1981 17.2% 5.0%
1982 8.2% 29.2%
1983 36.2% 33.0%
1984 -7.3% 3.5%
1985 38.9% 32.3%
1986 29.3% 22.1%
1987 34.0% 10.3%
1988 15.0% 17.0%
1989 30.1% 30.6%
1990 14.7% -14.2%
1991 39.4% 36.4%
1992 17.4% 15.6%
1993 10.1% 15.0%
1994 -1.5% 1.3%
1995 25.7% 33.0%
1996 19.5% 17.2%
1997 22.7% 30.3%
1998 41.3% 12.0%
1999 15.4% 9.5%
2000 17.1% 8.9%
2001 19.4% 2.7%
2002 13.9% -15.5%
2003 23.8% 35.2%
2004 8.9% 15.4%
2005 12.9% 10.8%
2006 5.9% 13.5%
2007 1.4% -0.6%
2008 4.1% -37.0%
2009 12.8% 42.1%
2010 5.0% 20.6%
2011 8.4% -0.2%
2012 10.9% 18.2%
2013 18.9% 31.2%
2014 17.2% 15.1%
2015 3.4% -4.9% (to today's close)

Your date range is longer than mine in this table.
But it looks like for 1970-2014 inclusive yours is system 15.0%, B&H 13.7%, CAGR advantage +1.4% (plus a huge reduction in risk)
My system and my figures show system 15.6%, B&H 12.9%, CAGR advantage +2.7% (plus a huge reduction in risk)

The differences may be in part due to differences in the testing method used.

My year by year results my be off by a day, I did a quickie calculation for that,
so that might be why the B&H results differ as well, average 2% diff.

My system has trailed by a lot in recent years.
Classic sign of overtuning? Or of a system with no lasting value? Or just a bad stretch?
Outperformance +3.1% for 1970-2002, underperformance of -4.7%/year 2003-2013.

Jim

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Author: klouche Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 258171 of 263193
Subject: Re: Sell in June and go away Date: 9/3/2015 8:08 PM
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My system has trailed by a lot in recent years.
Classic sign of overtuning? Or of a system with no lasting value? Or just a bad stretch?
Outperformance +3.1% for 1970-2002, underperformance of -4.7%/year 2003-2013.


If you start with a snap back year after a downturn, like 2003; it is difficult for seasonal to beat. Snap back years are B&H winners, by a large margin.

My simple seasonal system since 19991231, a top; beats B&H CAGR by one point, but larger risk reduction.

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Author: GanznSchmuck Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 258172 of 263193
Subject: Re: Sell in June and go away Date: 9/3/2015 9:05 PM
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I would love to see the spreadsheet as well! Thank you!

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