In my previous article I wrote about a simple “system” – if you can even call it that – that involves buying retailing stocks four months out of the year and holding cash the rest of the year. As ridiculously simple as that sounds the fact of the matter is that if you earned just 1% of annualized interest while out of retailing stocks, the system outperformed a buy-and-hold approach by a fairly wide margin.
While the results of that simple system aren’t bad, as always, one can’t help but to look for ways to improve things. So this article will detail what I refer to as – and by the way, this is what I sound like when I refer to myself in the third person – “Jay’s Energetic Market Shoppers” System, or JEMS (clever, no?) for short. The name is derived from the investment vehicles involved:
1. J stands for, well, OK, Jay….
2. E stands for “Energetic”: Energy stocks have showed a historical tendency to rally in the spring so we will hold Fidelity Select Energy (ticker FSENX) during the month of April (other possibilities include tickers XLE and ENPIX).
3. M stands for “Market”: The stock market tends to perform well during November, December and January. We are already planning to hold retail stocks during November, but for December and January we will hold an S&P 500 index fund. For the purposes of this test we will use the S&P 500 Index itself from 1988 into 1997. From there we will use the ETF ticker SPY. Someone who wanted to keep it all in the Fidelity family could use ticker VFINX. (Another possibility is ticker BLPIX).
4. S is or “Shoppers”: Just as with the original system, we will hold Fidelity Select Sector Retailing (ticker FSRPX) during February, March, October and November (other possibilities include tickers XLY and CYPIX).
During May, June, July, August and September we will hold cash.
So here is the “lineup”
January SPY
February FSRPX
March FSRPX
April FSENX
May Cash
June Cash
July Cash
August Cash
September Cash
October FSRPX
November FSRPX
December SPY
So how does it work out? Not too badly. Figure 1 displays the growth of $1,000 using the JEMS System versus buying and holding the S&P 500.
Figure 1 – Growth of $1,000 using “Jay’s Energetic Market Shoppers” System versus buying and holding the S&P 500 since 1988.Figure 2 displays the year-by-year results.
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JEMS
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S&P 500
|
|
JEMS
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S&P 500
|
|
|
Annual %
|
Annual %
|
Difference
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$1,000
|
$1,000
|
|
|
1988
|
25.4
|
12.4
|
7.0
|
1,254
|
1,124
|
|
1989
|
12.4
|
27.3
|
(27.6)
|
1,410
|
1,430
|
|
1990
|
12.2
|
(6.6)
|
28.7
|
1,582
|
1,336
|
|
1991
|
36.6
|
26.3
|
(9.4)
|
2,161
|
1,688
|
|
1992
|
27.7
|
4.5
|
16.6
|
2,760
|
1,763
|
|
1993
|
10.5
|
7.1
|
(0.1)
|
3,050
|
1,888
|
|
1994
|
10.5
|
(1.5)
|
0.7
|
3,369
|
1,859
|
|
1995
|
8.1
|
34.1
|
(31.1)
|
3,642
|
2,493
|
|
1996
|
19.5
|
20.3
|
(2.1)
|
4,353
|
2,998
|
|
1997
|
14.2
|
31.0
|
(18.4)
|
4,970
|
3,927
|
|
1998
|
50.5
|
26.7
|
14.3
|
7,479
|
4,975
|
|
1999
|
42.4
|
19.5
|
(7.9)
|
10,652
|
5,946
|
|
2000
|
(2.4)
|
(10.1)
|
19.4
|
10,400
|
5,343
|
|
2001
|
15.6
|
(13.0)
|
16.8
|
12,027
|
4,646
|
|
2002
|
3.5
|
(23.4)
|
36.9
|
12,450
|
3,561
|
|
2003
|
10.5
|
26.4
|
(16.6)
|
13,755
|
4,500
|
|
2004
|
18.9
|
9.0
|
4.6
|
16,354
|
4,905
|
|
2005
|
(1.1)
|
3.0
|
6.2
|
16,182
|
5,052
|
|
2006
|
14.8
|
13.6
|
(3.7)
|
18,574
|
5,740
|
|
2007
|
2.4
|
3.5
|
(5.3)
|
19,027
|
5,943
|
|
2008
|
(30.4)
|
(38.5)
|
7.0
|
13,237
|
3,656
|
|
2009
|
33.2
|
23.5
|
1.0
|
17,635
|
4,513
|
|
2010
|
32.5
|
12.8
|
14.0
|
23,366
|
5,090
|
|
2011
|
17.2
|
(0.0)
|
14.0
|
27,381
|
5,090
|
|
2012
|
21.3
|
13.4
|
4.7
|
33,204
|
5,772
|
|
2013
|
16.7
|
29.6
|
(18.2)
|
38,752
|
7,481
|
|
|
|||||
|
Average
|
16.3
|
9.6
|
1.3
|
||
|
StdDev
|
16.1
|
17.9
|
|||
|
Ave/SD
|
1.011
|
0.540
|
For the record:
-The JEMS System sported an average annual gain of +16.3%
-Buy/Hold sported an average annual gain of +9.6%
-$1,000 invested using the system grew to $38,752
-$1,000 invested using Buy/Hold grew to $7,481
-The JEMS system showed a gain in 23 of 26 calendar years (88.5%)
-The JEMS system showed a loss in 3 of 26 calendar years (12.5%)
-Buy/Hold showed a gain in 19 of 26 calendar years (73.1%)
-Buy/Hold showed a loss in 7 of 26 calendar years (26.9%)
-JEMS outperformed Buy/Hold in 15 of 26 calendar years (57.7%)
-Buy/Hold outperformed JEMS in 11 of 26 calendar years (42.3%)
Summary
So is the JEMS System the “world beater” system that everyone should be using? Well, on the plus side the long-term results are impressive relative to buy and hold. On the downside, there is still the sharp drawdown of 2008 that one would have had to continue to trade through. Also, the reality is that for most investors, a system like this involves more of a “leap of faith” than they are comfortable with.
Of course, as a proud graduate of “The School of Whatever Works” and as a founding member (OK, so far the only member) of “Seasonalaholics Unanimous!”……
………that’s just the way I like it.
Jay Kaeppel
English