How to DOUBLE your return with half the risk

This post is for the Investors amongst you rather than the traders, although it is something that you should ALL be aware of regardless of your stance.

If you have or plan to obtain a Stock Market Almanac – this strategy is in there and has been for a number of years!

Here it is:

https://www.stocktradersalmanac.com/Strategy.aspx

a quick look at the % returns and you’d be forgiven to thinking the Buy and Hold strategy returns better % – you miss the worst down days as they tend to happen May-Oct!!!!

The base of the strategy is:

  • Go LONG the DJIA on 1st trading day of NOVEMBER each year
  • SELL out of the position last trading day of APRIL each year
  • sit in cash until 1st trading day of November and then go ALL in
  • Repeat the process without fail every year

From the stats the Nasdaq and DJIA have worked best with the S&P500 doing its job compared to a full on buy and hold strategy but just not as well.

This offers you LESS (actually half) risk than buying and holding and returns MORE profits.

It just does not make sense to be a buy and hold investor – it never has!

You can tune the timing of the entry to when a MACD gives you the go ahead at the allotted times near Nov and April – but in all honesty just buying 1st November will give you very very similar returns to the MACD method.

This is NOT guaranteed to return as some years will be winners and other years (sometimes in a row) will be losing years, BUT over the long term you can see the stats work.

This strategy REALLY outperformed the traditional Buy and Hold method during 1966-1982 – the rest of the time performance was believe it or not fairly similar its just during the 1966-1982 period you’d made a shed load of $ return and from then it compounded better than the buy and hold method (see attached spreadsheet below – Figures not verified from source)

The question is will the periods transcending into 2016 damage the performance built up so far from 2000 or leave them unscathed? Only time will tell on this.

USA Stock Market Analysis – Worst Best Buy and Hold stats 1950-2014

  • The one certainty is do not whatever you do just buy May and sell October it just does not work – you’d kick yourself
  • Apart from a 16 year period from 1966 the buy and hold method has kept pace with the 6 month Nov-April strategy fairly well (little in it really)
  • The GREEN / UP cycles account for very good rates of return for both the buy and hold and Nov-April strategy (as you’d expect from an UP cycle)
  • It’s during the RED / DOWN cycles that lets returns down on both sides (as you’d EXPECT – its a DOWN cycle!!!)
  • The thing to watch for at the end of October 2016 is whether the buy and hold option is significantly down compared to the Nov-Apr 6 month period – that will tell you whether its best to employ the Nov-Apr 6 month strategy during the DOWN cycles.
  • I keep telling you these Time Cycles are very important – a simple strategy would be to be a buy and hold during the UP cycles and then revert to the 6 month Nov-April strategy during the DOWN cycles

Now to put all that into some sort of monetary perspective, lets assume that in 1950 you had $10,000 to invest if you’d of traded the money as I pertain to, here’s the results over the same period of time:

  • @ 5% compound return = £227,047
  • @10% compound return = £4,457,916
  • @15% compound return = £76,676,412

So you can see 10% annual returns on the $10k matches the return over 64 years!

Please do your own research for accuracy as I only transferred figures and did not verify opening/closing levels etc.

Here’s a link to Stock Charts MACD strategy with the 6month set-up: http://stockcharts.com/school/doku.php?id=chart_school:trading_strategies:six_month_cycle_macd

 

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