There is a common reference to the monthly calendar cycle for stocks. An example of such is the Chart of the Day from Chart of the Day:
Click on graphic for larger image.
It is commonly observed that five of the six months with above average returns occur from November through April. July is the sixth month, ruining what would otherwise be a great strategy:
Sell in May and go away,
Return a month after Labor Day.
So over the past 62+ years a successful investor could have worked 6-7 months of the year and outperformed the 12-month workaholic. Here is the calendar:
- February: skiing in the Rockies, assets in money market;
- March and April: invested;
- May and June: on the beach before the summer heat sets in, assets in money market;
- July: invested;
- August and September: August and September in the northern mountains waiting for the fall color arrival, assets in money market;
- October: investors choice, in or out;
- November through January: invested.
How would the investor have done over the past 63 years following that calendar? If we take the option to include October, the return would have averaged 10.4%, assuming an average 2% per annum return on money market.
The average annual return for fully invested all 12 months would have been 8.1%.
If $10,000 had been fully invested in the Dow 30 index 1950 and remained fully invested to through the end of 2012, the account today would have been $1,250,815 (before taxes and transaction costs). If the “lazy” investor had spent the selected five months on vacation with assets in money market, the account would have been $4,614,050.
Talk about paid vacations!
Quarterly Stock Cycle
There is a cycle in the data that would have the investor “working” only four months rather than seven. The first month of each quarter produces about 60% of the annual return for the 62+ years. So, if we have an investor who only wants to work the first month of each quarter and take the other 8 months off, an average annual return of 4.9% from stock plus 1.3% from money market would produce 6.2% of the average full year return (more than 75% of the full year stock return).
While the quarterly stock cycle is interesting, the part-time investor would have been much better of working for 7 months ayear than for just the first month of each quarter.
