If Santa is mad…
There is an interesting side study that reveals itself from this study. Recall our Turn of Year statistics suggest the prognosis was not good the following year when the Turn of Year periods were negative. Our -1 ratings appear during the Sell in May periods after those negative Turn of Years. “Get out or get short” (below) shows the performance during all of the -1 rating periods.
If you simply wished to manage, say, a retirement account, with long-only exposure involved, you could take the following approach.
|Long-only exposure rating||Exposure|
This approach also returned almost the identical result as Buy and Hold, but achieved it with an S&P Beta of 0.60%, which gives you 40% of your capital to invest elsewhere. In addition, the largest drawdown was 24.26% as compared to the 52.58% drawdown incurred with Buy and Hold from May 19, 2008 through March 3, 2009.
Trading does not need to be overly complicated. The above seasonal model could be expanded upon and optimized but is solid and only requires three trade dates: Jan. 19, April 20 and Oct. 28. Such simplicity not only frees up time but also reduces cost from errors, slippage and fees.