Making Money with the ETF “SPY”

December 1, 2017

Unless you are convinced you know what you are doing, and are willing to put in the time, the most successful market gurus will tell you to invest in an index fund such as SPY and just hold it through thick and thin.

My approach differs only in that I am interested in capturing the upside movement and eliminating as much as I can of the downside. That makes me a market timer.  I have searched for and found a backtested model of the ETF ” SPY” ( January 2000 ) which has served me well, so far, in terms of winning versus losing trades.  I subscribe to a timing service which has backtested the model I like ( 6 trades since 2000 and 5 of the 6 were winners).

The model dictates that whenever the price of SPY is below its 200 day moving average, at any month end, exit the market by selling your entire position in SPY.  Conversely, return to the market or gradually enter the market, when the price of SPY is above its 200 day moving average at month end…as it is now. For me, the best entry point is the month end when SPY turns positive. Not advice.

You originally entered the market with $1 million two years ago.  As of December 31, 2016 you held 4905 shares of SPY valued at $ 1,096, 413.  At today’s price of SPY  $264.87 x 4905 shares, your SPY position is worth $1,299,187,  a profit of $202,743  for 2017….18.49 percent excluding dividends.

Pretty good return for watching grass grow.  The sum total of your work is to make certain the price of SPY is above its 200 day moving average on the last day of the month….as I do and report here. And that is as close to the definition of Capitalism as I can get.

But, for me, retired as I am, that is not quite good enough.  I know SPY is the benchmark by which the performance of all market and portfolio analysts are measured.  And, I know that very few analysts can beat SPY and that Warren Buffett acknowledges this to be true.

So, to prove to myself, that I know a thing or two, I go beyond SPY and invest in situations which conform to my beliefs about how to make money in the market. Thus far in 2017, I am beating the performance of SPY  ( 18.49% ) by 5.57% on the money I have invested in the market.  This money includes stocks, ETFs and Selling Put options.

For my purposes, SPY is the canary in the mine.  I own zero SPY, but I’ll sell everything when the SPY model turns bearish.  My perception is that SPY won’t turn bearish until the yield return on the 10 year US Treasury begins to challenge the earnings yield of SPY with inflation lurking in the background.

Richard Maurice Gore


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