How to Outperform Hedge Funds with Just a Few Trades

From Acting Man, by Dimitri Speck

A Simple Way

In their efforts to beat the market, many investors are spending a lot of time searching for rare undiscovered gems or sophisticated trading rules.

There is actually a simpler way.

Not everything is simple – but some things actually are.

I will show below how one could have beaten the market by a sizable margin over approximately the past 90 years – with only two trades per month, while being invested only one third of the time and without employing any leverage.

Gains are Only Generated Around the Turn of the Month

Take a look at the following chart. It shows the capital gains delivered by the S&P 500 Index since 1928, depending on the days of the month in which a position in it was held.

The blue curve shows the cumulative return generated by the index between the 26th of every month and the 5th of the subsequent month. The red “curve” – which actually looks suspiciously like the x-axis – shows the return generated by the index during the rest of the time, i.e., between the 6th and the 25th of every month. Cumulative return of the S&P 500 Index around the turn of the month (blue line) and the rest of the time (red), indexed (100), 1928 to 2017
Gains are actually only generated around the turn of the month.  Source: Seasonax

As can be seen, the time period around the turn of the month outperformed the rest of the time rather handily. The average gain achieved during the profitable time period was 7.60 percent, while an average loss of -1.86 percent was recorded in the rest of the time.

Conclusion

The phenomenon is aptly named the “turn-of-the-month effect”. It is tied to payment streams around the end of the month, such as salary payments and pension plan contributions.

The calculation also shows that calendar-related effects can remain stable and profitable for a great many years. Take advantage of them!

Dimitri Speck is the founder of Seaonax and Head Analyst of Seasonal Insights. He is a well-known financial analyst and book author and the former manager of Stay-C, one of the most successful commodity funds ever listed in Germany.

Chart by: Seasonax

Dimitri Speck specializes in pattern recognition and trading systems development. He founded Seasonax and publishes the website www.SeasonalCharts.com, which features free-of-charge seasonal charts for interested investors. In his book The Gold Cartel (published by Palgrave Macmillan, see link on the right hand side), commodities expert Dimitri Speck discusses gold price manipulation and modern-day credit excess. His commodities trading strategy Stay-C has won awards all over Europe. He is the publisher of the web site Seasonal Charts as well as of the Bloomberg app Seasonax and Head Analyst of the 90 Tage Trader Letter.



Categories: Economy

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