It is just a week away that I will be implementing my annual
holiday trade. I began my holiday trade
on the Wednesday before Thanksgiving in 1999.
It is a simple philosophy based on common sense, the almighty dollar and
taking advantage of the good old-fashioned corporate approach to celebrating
Christmas. I have been able to execute
my strategy using the Consumer Discretionary Select SPDR ETF (XLY). I would have started my strategy sooner but
XLY was not created until 12/16/1998.
The strategy is simple.
I buy XLY every year at the close on the Wednesday before Thanksgiving
and hold the shares until the close on the last trading day of the year. Does it always work? No, but common sense
should tell you that it should work more often than not. My returns and the numbers I will be sharing
with you will illustrate the strategy.
The returns are as follows:
Year
|
XLY
|
S&P 500 TR
|
1999
|
9.52%
|
3.81%
|
2000
|
10.84%
|
-0.03%
|
2001
|
6.22%
|
1.12%
|
2002
|
-9.12%
|
-6.13%
|
2003
|
4.06%
|
5.22%
|
2004
|
3.03%
|
2.74%
|
2005
|
-2.47%
|
-1.18%
|
2006
|
1.01%
|
1.09%
|
2007
|
0.33%
|
3.87%
|
2008
|
6.57%
|
2.04%
|
2009
|
2.66%
|
0.59%
|
2010
|
2.91%
|
5.16%
|
2011
|
7.58%
|
8.51%
|
Investment
|
||
Compounded
|
XLY
|
Total Return
|
$10,000
|
$15,040.79
|
50.41%
|
S&P 500 TR
|
Total Return
|
|
$10,000
|
$12,941.93
|
29.42%
|
466 Days
|
||
Compounded
|
||
Avg. Annual
|
||
XLY
|
37.67%
|
|
S&P 500 TR
|
22.38%
|
As you can see my simple strategy has paid off nicely. Being that I set aside a specific dollar
amount back in 1999 and never touch these dollars except to implement this
trade each year, I thought it would be useful to look at a compounded
return. If you implemented my strategy
to buy XLY on the close of business on the Wednesday before Thanksgiving and
held the shares until the close on the last trading day of the year, every year
since 1999, then your total return would have been a gain of 50.41% (minus any
commissions). The total return for
owning the S&P 500 for the exact same period of time would have been
29.42%. Averaged annually, both returns
are very impressive. The total number of
days I have spent in the market with this strategy between 1999 and 2011 has
been 466 days. That averages out to a
37.67% return annually. This return easily
outperforms the average annual return of the S&P 500 for the same period of
time.
Interestingly, or perhaps saddening for those that have
bought and held the S&P 500 index are the following returns.
S&P 500 TR
|
||
11/26/99 -12/30/11
|
||
$10,000
|
$11,087.33
|
10.87%
|
Avg. Annual (4418 Days)
|
||
0.86%
|
These returns show that if you had purchased the S&P 500
on the close before Thanksgiving in 1999 and held the index until the close of
business in 2011, then your total return would have only been 10.87% or an
average annual return of .86% over the 4418 days. Compare that to the 22.38% average annual
return the index would have provided if you had just bought and sold the index
between the dates that I execute my annual holiday trade.
Like I said it does not always work, but it has provided a
large enough return for me to share the returns with you. The fact is the long lines do create excitement
and often that excitement spills over to retail equities. This year may present some challenges with the looming
Fiscal Cliff. Consumer stocks have been very strong over
the last two years and money managers and investors may decide to lock in those
gains at today’s more favorable tax rate.
On the other hand, fund managers may be window dressing their portfolios with
winners and many of those names may be the retail stocks that have had a good
year.
I can only control what I have the ability to control, and as
long as Black Friday continues to be treated like a national holiday, then I
will continue to implement my XLY trade.
I do not participate in the frenzy (preferring to leave that up to my
mother and sisters) but I can sure profit off of the sensationalism.
Thank you and good luck everyone.
F.Y.I., I often show returns for the S&P 500 index. The returns I use are always with dividends
or a total return view of the S&P 500’s performance. I know many sites do not. I know it is done to make their returns look
better versus the index, but the fact is dividends are a part of the return and
should be factored in when citing the S&P 500’s performance.
Jon R. Orcutt is the founder of Allocation For Life, Author of The Allocation For Life Investment Newsletter, Author of "Master The Markets With Mutual Funds: A Common Sense Guide To Investing Success" and manager/creator of the AFL Models available to Allocation For Life subscribers at Folio Investing.
www.allocationforlife.com
