We Are Living in a Material(s) World – Part 2

  • SumoMe

In my last piece I wrote about a method for deciding when to hold basic materials stocks. In this piece, let’s take a look at another.

(See also We Are Living in a Material(s) World)

FSDPX is the ticker for Fidelity Select Basic Materials, whose first full month of trading was October 1986.  Our system (such as it is) for trading FSDPX is as simply to buy and hold FSDPX during the following months:

February/March/April/May/July/November/December

Not much of a “system” really.  Still, the results are interesting. For testing purposes we will assume that an annual rate of interest of 1% is earned while out FSDPX.  Monthly returns for FSDPX involve monthly total return data from Callan Associates.

Results

Figure 1 displays the growth of $1,000 invested in FSDPX only during the months listed above (blue line), versus buy-and-hold (red line).1Figure 1 – Growth of $1,000 invested in ticker FSDPX during favorable months (blue line) versus buy-and-hold (red line)

For the record:

Measure System Buy/Hold
$1,000 becomes $62,897 $15,853
Cumulative %+(-) +6,190% +1,485%
Average 12-mo % +(-) +15.5% +10.7%
Std. Deviation of 12-mo %+(-) 15.66% 20.24%
Maximum Drawdown -15.7% -56.1%

Figure 2 – FSDPX: Favorable Months vs. Buy-and-Hold

Summary

Over the course of 30 years this monthly system accumulated greater profits than a buy-and-hold approach (which, of course, does not in anyway guarantee that it will continue to in the future). Perhaps just as importantly, it reduced the volatility of the overall results – with 12-month standard deviation of 15.5% versus 20.24% for buy-and-hold, and a maximum drawdown of -15.7% versus -56.1% for buy and hold.

Jay Kaeppel

One thought on “We Are Living in a Material(s) World – Part 2

  1. Really interesting stuff, thank you.

    question about exits and entries:

    Ive read several of your monthly rotational strategies and I wonder if you’ve written more about the monthly exits and entries , rather than just buying with a market order at the open, maybe getting in with a limit or stop entry order, maybe getting in at 3-day cycle low.

    best regards

    /S

Leave a Reply

Your email address will not be published. Required fields are marked *

This blog is kept spam free by WP-SpamFree.