“SPY ” ( S&P 500 Exchange Traded Fund ) Model Says… HOLD

September 1, 2017,

The 4,905 shares of SPY you held on December 31 ….$ 1, 096, 415, are now worth $1, 216, 244.

This is a paper profit of $ 119,829.  ( $14, 979 per month since January 1, 2017 ) excluding dividends.

It may be interesting to compare that return to the estimated appreciation and net rental income on a piece of real estate you own as of December 31.

Investing in SPY requires no work from you except to read the newspaper once each month or listen to the financial news as often as you like. No complaints or annoying calls from tenants, no interaction with handymen or worry about repairs and maintenance. No big commissions when you buy or sell SPY probably in the neighborhood of $5 for the trade.  However, if you were to buy or sell each of the 500 equities in the SPY basket, each trade would cost you $5 in commission ( 500 x $5 = $2500) So that is a $2,495 saving just to buy or sell SPY. Real Estate commissions are a whole different matter.

On the other hand, if at any month end, the price of SPY is less than its 200 day simple moving average, you would be required by the rules of the ” model ” to sell out and move these funds into a money market account at the same brokerage.  This could result in a small loss if you got on board late or a larger loss if the market goes off a cliff during the month. The commission to sell SPY would aapproximate $5  !!, so that is not an obstacle.

There have been only 6 trades in the model since 2000 and 5 have been winners.

When at a subsequent month end,  the price of SPY again is higher than its 200 day moving average, the model would dictate you switch out of the money market and go ” all in ” to SPY.

The object of following this model is to spare you a slow, grinding descent with a paper loss which could approach 50%.  Real estate price declines could make you feel even more locked in and upside down.

The whole point of the SPY Month End Model is to preserve capital by following a trend until it ends and moving to the sidelines.

Rental investments have their risks too.  With what happened in Houston this week, I can remember in the 80s a Houston real estate broker telling me that he wished he could borrow enough money to purchase every vacant apartment in Houston.  Nothing lasts forever.

For me, knowing that SPY is on a buy is the underpinning for my decision to make equity investments far more aggressive than SPY .  My canary in the mine is SPY.  And I never take my eyes off my canary.

For those curious, present investments include exposure to MCO, MCD,MA, ITA, QQQ, DIA, PPA, GLD,NVDA, AAPL, FB, MSFT, AABA( yahoo ), SNE, UNH,SPGI, RTN, HON, KBE, AMZN, BX, XLF, AVAV, SBIO,OA and V.

My SPY investment is up 10.93% since December 31 as indicated above

My investments in the above symbols are up 17.1% since December 31.

Leave a Reply