June 30: Half Year Update

June 30, 2017  Close

If you are invested in SPY ( Spider S&P 500 Index ETF )…

Here is where you stand after 6 months of 2017.

On December 31, 2016 you held 4905 shares of SPY worth $1,096,415.

Today you still hold the same 4905 shares but they are valued at $1,186,029.

Your paper profit …$ 89,614 or an average of  $14,935 per month for the 6 months.

The longer picture, You would have started with $1 million on March 31, 2016, have been invested for 315 consecutive days and have an investment that has appreciated 20.45%.

You are invested in an ETF called SPY which is a basket of 500 stocks which trades as one stock.

You are a trend follower…following a model which tracks the simple 200 day moving average of SPY’s price.

You invest when the model says to invest and you get out when the model says to get out and go into money market funds at the same brokerage through which you hold SPY.

The model says to invest when the closing price of SPY at any month end is above the  200 day simple moving average of SPY’s price.  I follow this model, so if you see what I am doing you can decide whether to follow me or not.  When SPY ends a month below its 200 day moving average, I move to the sidelines by selling my entire SPY position and investing /depositing the proceeds in the Money Market at the same broker.

What would I do if I haven’t yet invested in SPY and today’s signal is BUY.  I wouldn’t commit all my funds at once.  I would invest a third now and another third if the market is still a buy at the end of July and another third if the market is still a buy at the end of August.  If a sell signal is generated at the end of July or August, I would move to the sidelines and wait to go ” all in ” when the next buy signal is generated.

An alternate strategy, ( non-model ), would be buy in the increments described above and hold and hold and hold and continue to add as you go along.  This is the advice of Warren Buffett and John Bogel of Vanguard. My stomach can’t stand watching my position melt away, so I follow the model which has been backtested to the year 2000. The maximum drawdown for the model has been negative 17.3% whereas the maximum drawdown for buy and hold has been 55.2%. I can’t hold my breath that long.  As a matter of fact, I can’t hold my breath for 17.3% and that is why I am out at the end of any month the model says to fold’em, with me gladly accepting the possibility of a small loss knowing that I have preserved my capital to play again.

Since the year 2000 the model has been involved in 4 winning trades and 1 losing trade.

Going forward, I don’t care what Trump does except to recognize that the market doesn’t like uncertainty and to recognize that if the earnings yield on stocks is greater than the yield on the 10year Treasury Bond the chances are very likely that stocks will go up.  By following the model, all I really need to do, if I am interested,  is listen to half hour news updates on the stock market, examine my  monthly brokerage statement to see how rich I am getting , and see how  the month end closing price of SPY relates to its 200 day moving average ( available by Googling ).

Richard Maurice Gore

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