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Kaeppel's Corner: If it's March, I Must Like Retail and Transports

By Jay Kaeppel, Optionetics.com | Mon February 25, 2013 1:00PM PT

OK, I know it's still February, but I believe in looking ahead.

Let’s face it, some things make no sense.  Like for instance, why would anyone be a Cubs fan?  I mean OK, sure I have the excuse that I was born and raised that way, and yes, Wrigley Field is a nice place to be on a sunny day, but seriously, 100 plus years of continuous play with not a single World Championship.  Like I said, some things make no sense.

For example, consider the idea of investing in the same two sector funds every single year during the month of March.   If we look at a relatively short history starting in 1990, we find that the S&P 500 has gained 15 times during the month of March and lost ground 8 times.  This works out to about a 65% winning percentage.  In addition, the average gain for the S&P 500 was +1.35%.  Not exactly an “exciting” number all by itself, still, if you made that every month it works out to about +17.5% compounded over 12 months.  My guess is that most investors would “take that” if they could get it.

But of course, if you are reading this article chances are you are one of those people afflicted with the “I’d like to do better than the market” bug.  Well, from what I can tell, your chances of beating the market during the month of March might be better than the odds of the Cubs winning a World Series (although, come to think of it, that isn’t actually saying very much).

Nevertheless, let’s take a closer look.

 

Jay’s Simple March Portfolio

For our purposes we will look at Fidelity Select Sector funds.  You could just as easily consider sector ETFs as a proxy (see below).  The “method” I will consider works as follows:

-At the close on the last trading day of February, buy Fidelity Select Retailing (ticker FSPRX) and Fidelity Select Transportation (ticker FSRFX), putting an equal dollar amount in each fund.

-At the close of the last trading day of March, sell both FSRPX and FSRFX.

OK, I must admit, it isn’t exactly rocket science.  In fact, let's be honest - it doesn't even remotely resemble anything involving rocket science (hey, what would you expect from a Cubs fan?).  Fortunately, in this case it doesn’t need to be.

Figure 1 display the growth of $1,000 invested as described above (since we are focusing solely on March performance it is assumed that the money is stuffed in a mattress the rest of the year.  For the record, I don’t recommend this.  It’s very uncomfortable) versus buying and holding the S&P 500 Index only during the month of March.

 

 Figure 1 – Growth of $1,000 using Jay’s March Portfolio (blue line) versus buying and holding the S&P 500 (red line)

 Figure 2 displays the year-by-year results

 

Year

Jay’s March

Portfolio % +(-)

S&P 500

% +(-)

Difference

1990

5.6

2.4

3.2

1991

5.2

2.2

3.0

1992

(2.2)

(2.2)

(0.0)

1993

7.2

1.9

5.4

1994

(2.4)

(4.6)

2.2

1995

1.2

2.7

(1.5)

1996

4.9

0.8

4.1

1997

2.1

(4.3)

6.4

1998

5.3

5.0

0.3

1999

3.6

3.9

(0.3)

2000

13.4

9.7

3.8

2001

(3.5)

(6.4)

2.9

2002

2.6

3.7

(1.0)

2003

3.1

0.8

2.2

2004

(0.6)

(1.6)

1.1

2005

0.4

(1.9)

2.3

2006

3.6

1.1

2.5

2007

0.3

1.0

(0.7)

2008

0.3

(0.6)

0.9

2009

12.7

8.5

4.1

2010

10.4

5.9

4.5

2011

2.0

(0.1)

2.1

2012

4.2

3.1

1.1

Average

3.5

1.4

2.1

Figure 2 – Year-by-Year Results

For the record:

-$1,000 invested using Jay’s March Portfolio since 1990 grew to $2,219.

-$1,000 invested in the S&P 500 only during the month of March grew to $1,357.

-The March Portfolio has gained ground in the month of March 17 of the last 23 years or 74% of the time.

-The S&P 500 has gained ground in the month of March 15 of the last 23 years, or 65% of the time.

-The average gain for the March portfolio +3.46%, versus +1.35% for the S&P 500.

-The March portfolio has outperformed the S&P 500 during the month of March during 18 of the last 23 years, or 78% of the time.

 

Alternatives

For those interested in using ETFs rather than Fidelity funds, the most likely alternative are displayed in Figure 3.

 

Fidelity Fund

ETF Ticker

ETF Name

FSRPX

RTH

Market Vectors Retail ETF

FSRFX

IYT

iShares Dow Jones Transportation Average

Figure 3 – ETF Alternatives to Fidelity Select funds

 

Summary

So does a simple two fund or two ETF portfolio guarantee bliss in the month of March?  Well, if history were always an accurate guide one could possibly make an argument in the affirmative.  But if history – stock market history in particular – has shown us anything it is that nothing is ever certain to repeat itself (OK, with the obvious exception of the Cubs not winning the World Series again this year, but I digress). 

Still, the real point is that it does not necessarily take a complex algorithm and a super powerful computer to “beat the market.”  What is required is neatly summed up in:

Jay’s Trading Maxim #2: To be successful in the markets you must, a) utilize a well thought out trading plan that includes some timing mechanism that has a realistic probability of generating positive returns over time, and b) the emotional and financial wherewithal to follow the plan. 

Gee, when I put it that way, it sounds so simple, doesn’t it?

Jay Kaeppel

Staff Writer and Trading Strategist

Optionetics.com ~ Your Options Education Site


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June 24, 2013  -  Kaeppel's Corner: How To Enjoy Market Summer Boredom


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