Attention Shoppers! Part I

  • SumoMe

Hi, my name is Jay and I am a Seasonalaholic.  Now typically when someone confesses to being an “aholic” of some sort or another it because they recognize they have a problem and wish to correct it.  That’s not the case here.  In fact the “support” group that I belong to is not “Seasonalaholics Anonymous” but rather “Seasonalaholics Unanimous!” (OK, in the interest of full disclosure, so far I am the only member and yes, the monthly meetings aren’t terribly lively, but I digress).

Still I can’t help but think there are others out there who might join someday – especially after they consider things like the seasonal tendencies for retailing stocks.  To whit: what would have happened had an investor invested in Fidelity Select Sector Retailing fund (ticker FSRPX):

-During the months of February, March, October and November

-And then earned 1% of annualized interest while out of the market the other 8 months.

The answer is contained in Figure 1 which displays the growth of $1,000 invested as described above.

jotm20140127-01Figure 1 – Growth of $1,000 invested in FSRPX during February, March, October, November (blue line) versus buying and holding the S&P 500 red line) since January 1988.

Now it is pretty impossible to not notice the, ahem, “slight drawdown” experienced during the October, November 2008 period.  Still, despite the fact that I have tried very hard scrub that particular time period from my memory bank, I still have some vague recollection that virtually no sector of the stock market was left unscathed during that period.  And the rebound has been pretty nice.

So is this really a viable strategy?  Well, under the category of “Everything is Relative”, Figure 2 displays the year-by-year performance of this “system” versus buying and holding the S&P 500.

System S&P 500   System S&P 500
Annual % Annual % Difference

$1,000

$1,000

1988

18.6

12.4

6.2

1,186

1,124

1989

(1.0)

27.3

(28.2)

1,174

1,430

1990

21.3

(6.6)

27.8

1,424

1,336

1991

16.2

26.3

(10.1)

1,654

1,688

1992

20.4

4.5

15.9

1,992

1,763

1993

6.2

7.1

(0.9)

2,115

1,888

1994

(1.5)

(1.5)

0.0

2,083

1,859

1995

2.3

34.1

(31.8)

2,131

2,493

1996

17.4

20.3

(2.9)

2,500

2,998

1997

11.9

31.0

(19.1)

2,798

3,927

1998

40.1

26.7

13.4

3,919

4,975

1999

10.8

19.5

(8.7)

4,344

5,946

2000

8.5

(10.1)

18.7

4,714

5,343

2001

3.1

(13.0)

16.1

4,859

4,646

2002

12.8

(23.4)

36.2

5,480

3,561

2003

9.1

26.4

(17.3)

5,977

4,500

2004

12.8

9.0

3.8

6,744

4,905

2005

8.5

3.0

5.5

7,316

5,052

2006

9.2

13.6

(4.4)

7,991

5,740

2007

(2.4)

3.5

(6.0)

7,797

5,943

2008

(32.0)

(38.5)

6.5

5,303

3,656

2009

23.7

23.5

0.2

6,559

4,513

2010

26.0

12.8

13.2

8,263

5,090

2011

13.2

(0.0)

13.2

9,355

5,090

2012

17.3

13.4

3.9

10,976

5,772

2013

10.7

29.6

(18.9)

12,155

7,481

 
Average

10.9

9.6

1.3

 +1,115% +648%
StdDev

12.8

17.9

Ave/SD

0.849

0.540

Figure 2 – “System” versus S&P 500 Buy and Hold

 

Summary

The difference in the average annual return is not large (+10.9% for the system versus +9.6% for the S&P 500).  But this difference adds up over time.  Since January 1988 the system has gained +1,115% versus + 648% for the S&P 500 (while only being in the market 33% of the time. The true “numbers geeks” will notice that the standard deviation of annual returns for the system is only 2/3rds as large as that for the S&P 500 – i.e., much less volatility).

So I ask again, is this really a viable strategy?  Perhaps.  But the truth is that it can get a whole lot better – as I will detail the next time I write.

Jay Kaeppel

One thought on “Attention Shoppers! Part I

  1. Even though the market is still open as I write this, and things may change, I couldn’t help but notice a news article saying that retail was up 1.7% today as the broad S&P market was basically flat. Yes! Ok, I don’t want to get too excited. It was only one day of data. But still…….

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