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Published: October 19, 2010
It's crazy, but true…
You can invest for just half the year and take the other half
off… and beat the market.
It sounds crazy, but it's worked extremely well over the last 60
years.
Let me explain…
Down in my office, we're putting the finishing touches on an
advanced, systematic way to safely invest in stocks and
commodities. It's called True Wealth Systems.
Computer and statistics expert Richard Smith – one of the Ph.Ds
on the
True Wealth Systems team – tested this particular simple system:
You own stocks for the six months starting October 31. And you
don't own them for the six months starting May 1.
That's it.
Simple... but powerful…
Out of 60 trades, 46 were winners and 14 were losers, for a
winning percentage of 77%. The average gain for those trades is
about 7% in six months (not including dividends).
Astoundingly, that's better than the market's 12-month compound
annual gain over those 60 years. Said simply, you can beat the
market's 12-month return with just six months' investing. (We
didn't count transaction costs, but we didn't count any interest
on our cash for each half-year out of the market, either.)
Past performance is no guarantee of future results, of course.
But the weight of the evidence is stunning… One academic study
on this phenomenon shows it's true over time in 36 out of 37
countries tested.
Richard dialed it in even deeper for us…
He found that most of the gains come between the end of October
and early January (after the January Effect - a general increase
in stock prices in the month of January)… And the winning
percentage is higher, too.
In hindsight, the optimal trade was October 26th to January
10th. The average gain was 5.7%… and there were only five losing
years. (Richard used a 9% stop-loss on this as well.)
No guarantees about the future, of course. But the history is
powerful… Richard adds, "Even taking this trade back to 1920 has
strong results … Using a 15% stop, it's been profitable 83% of
the time (only had 14 losing years) and made 5.9% profit, on
average."
Why should this simple system work? Nobody knows for sure. I
think that's a good thing. If everyone knew WHY it worked, it
WOULDN'T work.
Want to take half the year off, and still beat the stock
market's return? Then put on the Halloween Trade.
I don't blame you for being skeptical of this type of trade. I'm
typically skeptical of these sorts of timing systems. It sounds
"too easy." But the historical results are extraordinary… so
it's worth paying attention to them.
At the very least, you can add one "Halloween Trade" to your
portfolio… maybe a double-long stock index ETF (like SSO) as
your Halloween Trade position.
Another alternative is Richard's October to January trade… You
capture most of the gains, with a higher winning percentage, and
you're in the trade for just two-and-a-half months.
Something to think about this Halloween…
--Steve Sjuggerud
Editor
Daily Wealth
Note: This article originally appeared on
Daily Wealth |
