Kal1981 wrote:With the Fed buying debt and possibly more stimulus, is the line of thinking to ignore these events in seasonal trading? August has traditionally been a bad month for C and S, but this year is anything but normal.
The Market and market timing will always be a conundrum.
"Not everything that can be counted counts, and not everything that counts can be counted." Albert Einstein
"When dealing with people, remember you are not dealing with creatures of logic, but with creatures of emotion." Dale Carnegie
"History doesn't repeat itself, but it often rhymes."
Mark Twain
Thanks for the response! That was very insightful and I appreciate the logic. Seasonality makes more sense to me now.
Aitrus wrote:Hello, Kal. Good question. Short version: Yes, with the seasonal approach the rule of thumb is to largely ignore the short term ups and downs. Instead, focus on the long game. Win in the long run by not losing, and accept that you'll sometimes miss some gains in order to avoid the high-risk times of year.
Long version:
Take any 20 or 30-year period in market history, and it's usually +/- a few percentage points of being 7-8% after inflation is factored in. In looking at 20-30 years, you encapsulate not only the good times but the bad ones as well. Wars, bank bailouts, market crashes and market booms, fights in Congress, military action overseas - they are all factored in and accounted for. And in the end, the world keeps spinning and business keeps chugging along because people still need bread, beer, and entertainment. If there ever is a time when the market tanks and stays down for a long time Depression-style, then we'll have a whole other set of problems to worry about. Our retirement investment portfolio will be the last thing on our minds.
Seasonal is much like buy-and-hold in that sense: ignore the day-to-day and keep plugging away. Seasonal is just a bit of an improvement on buy-and-hold because it avoids the times of year that tend to be bad. Not that those times of year will always be bad - blind squirrels funding nuts and all that - but since we can't see what the next day will bring and the TSP is slow to respond to IFT inputs, we're better served by playing the odds.
Whether it's a monthly design - like the ones I post about here - or a daily design like what MJ has done with TSPcalc.com, both approaches utilize the same philosophy: pick a plan and stick to it because the numbers say that you'll win in the long run. You win by not losing because you avoid months when losing tends to happen most often, with the downside being that those bad months will also have good ones that you'll miss out on. Yes, you'll miss out on some good gains at times, but you'll miss out on big losses too. The system is designed to skip those times when big losses tend to happen, or when there's a history of lots of minor losses that add up over the long run because the bad outweighs the good. That's different from the "diversification" approach used by the buy-and-hold industry, which says that you don't have any option but to stay invested all the time in order to catch all the gains, and hope that they outpace all the losses in sufficient measure that you'll have enough money in your account come retirement time. Nothing wrong with buy-and-hold; it's certainly better than doing nothing. But it can be tweaked and improved upon, which is what seasonal does.
Example: If one does buy-and-hold all year long, but skips September entirely, their average return will go up by about 1.5% over the long run. Their buy-and-hold 7-8% (after inflation) goes up to 8.5-9.5%. And over a 30 or 40 year career, that 1.5% can really add up (it's also the reason why high-fee mutual funds are a bad idea, and low-cost index funds are better). If it works for September, why not apply the idea to the rest of the year too? Or in the case of TSPcalc, why not optimize it using daily returns instead of just monthly returns?
All that said, some people don't follow a seasonal method strictly. They pay attention to seasonality in order to factor in the seasonal headwinds or tailwinds that the market experiences as something to be mindful of. Not that seasonal will be right 100% of the time - in fact we expect it to be wrong 30% of the time in the monthly designs I talk about here. However, it still benefits an investor to stay aware of which way the wind tends to blow in a given month even if one decides not to follow a seasonal plan to a T. For a buy-and-holder, it helps them weather the emotional roller coaster that comes with staying in the market 100% of the time. For an active market timer or trend follower, it's just another thing to consider before making a move.
D'oh! I'm behind on my postings again this month. Time to play catch-up.
Seasonal Strategy Results for July 2020
Note: A "good" month for the F Fund is CAGR 0.5% or better, and PNR 70% or better. A "good" month for C, S and I Funds is CAGR 1% or better, and PNR 70% or better. See 2nd post in the thread for description of CAGR. PNR is the ratio of Positive Months to Negative Months.
General Funds
G Fund: 0.18%, 0.66% Year to Date (YTD), PNR remains 100%
Jul Total CAGR = 0.40%
Jul 20 year CAGR = 0.28%
Jul 10 year CAGR = 0.17%
Jul 5 year CAGR = 0.16%
12-month PIP: 1.42%
Since April, he G Fund has returned 0.07%, 0.06%, 0.06%, and 0.06% - the lowest series of returns for the G Fund in its history. At this rate, the G Fund may well not break the 1.0% line by the end of the year. 2019’s return was 0.18%.
F Fund: 1.49%, 7.66% YTD
Jul Total CAGR = 0.73%, PNR 79%
Jul 20 year CAGR = 0.61%, PNR 80%
Jul 10 year CAGR = 0.64%, PNR 90%
Jul 5 year CAGR = 0.56%, PNR 100%
12-month PIP: 10.03%
July is historically one of the strongest months of the year for the F Fund, and this year was no exception. The return of 1.49% is the 8th best on record, and the best return since 2009’s 1.59%. The month has seen only one negative return since 2009 (2014 at -0.19%). July continues to be a very strong bet for the F Fund. 2019’s return was 0.21%.
C Fund: 5.64%, 2.31% YTD
Jul Total CAGR = 1.36%, PNR 58%
Jul 20 year CAGR = 1.25%, PNR 65%
Jul 10 year CAGR = 2.15%, PNR 80%
Jul 5 year CAGR = 3.30%, PNR 100%
12-month PIP: 11.86%
The C Fund is historically hit and miss in July, and this year was a very nice return to the upside, and lands as the 5th best on record. The long term PNRs are still around the 60% range, but the CAGRs are pretty good. This means that the wins are about evenly split in terms of occurrence, but the wins outpace the losses by a good deal – especially in the last decade. 2019’s return was 1.44%.
S Fund: 5.71%, -0.47% YTD
Jul Total CAGR = 0.45%, PNR 52%
Jul 20 year CAGR = 0.47%, PNR 50%
Jul 10 year CAGR = 1.35%, PNR 60%
Jul 5 year CAGR = 3.08%, PNR 100%
12-month PIP: 4.88%
July is normally the worst month of the year in terms of PNR for the S Fund, and not too good in terms of CAGR either. However, this year saw a return that is good enough to be the 6th best on record. The recent few years have been kind to the S Fund in July, but the long-term prognosis isn’t promising if history is any indication. 2019’s return was 1.64%.
I Fund: 2.33%, -9.01% YTD
Jul Total CAGR = 1.34%, PNR 67%
Jul 20 year CAGR = 0.92%, PNR 60%
Jul 10 year CAGR = 1.47%, PNR 70%
Jul 5 year CAGR = 2.10%, PNR 80%
12-month PIP: -0.53%
The I Fund had a respectable return this year. It’s close to meeting the “good” criteria, but it’ll take two or three more solidly positive years to cross that threshold. 2019’s return was -2.09%
Currently Tracked Seasonal Strategies
Jahbulon's Basic Mix: C Fund in Jul (5.64%), 3.17% YTD, PIP 13.86%
gclapper’s M3 Mix: I Fund in Jul (2.33%), -5.72% YTD, PIP 4.04%
TSPCenter.com's Default Setting: F Fund in Jul (1.49%), 7.89% YTD, PIP 16.87%
tmj100’s Mix: C Fund in Jul (5.64%), -12.89% YTD, PIP -3.02%
Boltman's Mix: I Fund in Jul (2.33%), 5.81% YTD, PIP 19.05%
Chindsey’s Mix #1: C Fund in Jul (5.64%), -13.17% YTD, PIP -5.43%
Sell in May and Go Away: G Fund in Jul (0.06%), -9.19% YTD, PIP -0.65%
G all year, S in Dec Mix: G Fund in Jul (0.06%), 0.66% YTD
Most of the Mixes are in either the C or I Fund for July. Those that were in C had a very nice gain, while those in I still had something to show for the month. The field is pretty spread out now, in terms of both YTD and PIP. August and September look very similar for everybody, so the next time we see some decent action won’t be until the fall.
For September 2020
Last chance to move: Monday, 31 August before noon EST
For this coming September, the individual funds have performed on average as follows:
G Fund
Since 1988: 0.39%
Last 20 years: 0.27%
Last 10 years: 0.17%
Last 5 years: 0.17%
September is an average month for the G Fund, nothing stellar to write home about. However, recent months haven’t performed very well at all, and that doesn’t bode well. The 2018 return was 0.14%.
F Fund – A “good” month is a CAGR of 0.5% or better, and a PNR of 70% or better.
Since 1988: CAGR 0.62%, PNR 75%
Last 20 years: CAGR 0.36%, PNR 65%
Last 10 years: CAGR 0.05%, PNR 50%
Last 5 years: CAGR -0.19%, PNR 20%
Historically, September is a pretty good month for the F Fund. Prior to 2014 there were only three negative years, however, from 2014 – 2019 five of the six years were negative. This has had a pretty stiff dampening effect on the Last 10 and Last 5 stats for the F Fund’s recent history.
The best years were 2003 (2.68%), 1998 (2.36%) and 1988 (2.07%). The worst years were 1994 (-1.47%), 2008 (-1.31%) and 2005 (-1.03%).
C Fund – A “good” month is a CAGR of 1% or better, and a PNR of 70% or better.
Since 1988: CAGR -0.10%, PNR 56%
Last 20 years: CAGR -0.82%, PNR 60%
Last 10 years: CAGR 0.75%, PNR 70%
Last 5 years: CAGR 0.40%, PNR 80%
The C Fund has the worst time of the entire year in August and September, with the two months often fighting over who is worse. The last four years have been kind, and that’s pulled recent numbers up a bit, but the long term still isn’t pretty.
The best years were 2010 (8.92%), 1998 (6.33%) and 1996 (5.60%). The worst years were 2002 (-10.87%), 2008 (-8.94%) and 2001 (-8.05%).
S Fund – A “good” month is a CAGR of 1% or better, and a PNR of 70% or better.
Since 1988: CAGR -0.02%, PNR 63%
Last 20 years: CAGR -1.03%, PNR 60%
Last 10 years: CAGR 0.19%, PNR 60%
Last 5 years: CAGR -0.11%, PNR 60%
August and September are often in competition for the dubious distinction of being the worst month of the year for the S Fund.
The best years were 2010 (11.47%), 1998 (7.22%) and 1997 (6.93%). The worst years were 2001 (-12.50%), 2011 (-10.73%) and 2008 (-10.32%).
I Fund - A “good” month is a CAGR of 1% or better, and a PNR of 70% or better.
Since 1988: CAGR -0.55%, PNR 63%
Last 20 years: CAGR -0.78%, PNR 70%
Last 10 years: CAGR 0.67%, PNR 70%
Last 5 years: CAGR 0.46%, PNR 60%
September is a bad month for the I Fund, and is currently the fourth worst month of the year.
The best years were 2010 (9.81%), 2013 (7.41%), and 1991 (5.49%). The worst years were 1990 (-14.08%), 2008 (-12.31%), and 2002 (-10.75%).
Note: For CAGR explanation, see 2nd post in the thread. PNR is the ratio of Positive Months vs Negative Months. A Fund that was positive in March for 4 out of 10 years would have a PNR of 40%.
Individual Seasonal Mix Allocations
Here is where the various seasonal mix allocations are going to for September 2020.
Jahbulon’s Basic Seasonal Mix: Remain in the F Fund.
gclapper’s M3 Mix: Remain in the F Fund
TSPCenter.com’s Seasonal Mix: Remain in the F Fund.
tmj100’s Mix: Remain in the F Fund.
Boltman’s Mix: Remain in the F Fund.
Chindsey’s Mix #1: Move to the G Fund
Sell in May and Go Away: Remain in the G Fund.
G All Year, S in Dec: Remain in the G Fund.
All the Mixes run to the F or G Funds for September. No surprise, given the negative historical trends over the last 30+ years for this month.
Aitrus, Have you considered whether the US presidential election years change your seasonal calculations? That is, do the trends you've identified hold if you pull those years out?
Last election year I did that. I haven't looked at the data set since that time. I started discussing it in this post in the Seasonal Musings 2016 thread.
You can start from there and read through the rest of the year to see what happened. A lot of weird things happened in 2016:
- 2015's dismal finish carried over into 2016, so any Mix that was in stocks in Jan had a hard time
- The Brexit vote
- Election craziness
- Big drop and rise immediately around the election
In those posts you'll see a lot of me discussing what I'm doing and why. It was not long after that point that I deleted my Fantasy account and now keep my moves to myself. It had nothing to do with any particular results - including the election year. Rather, it had to do with folks PMing me and asking me to remind them what move I was making so that they could copy me. A few got upset if I didn't answer back quickly enough and they missed an up day because they were waiting, or got mad because a move didn't pan out like they were hoping.
I want folks to do their due dilligence and not blindly follow someone else. That's why I post this stuff: so people can be responsible for themselves make an informed decision instead of leaning on somebody else.
Thanks for those links, Aitrus. I've read from June 2016 to Sept. 2016. so far. Interesting to read a few people posting then that the market indexes couldn't possibly go any higher.
For anyone who wants to save an hour of historical forum reading, here is the presidential election years data (from a total of 8 previous election years) that Aitrus compiled for the September months:
G fund = CAGR .41
F fund = CAGR .58, PNR 75%
C fund = CAGR -.06, PNR 75%
S fund = CAGR .15, PNR 75%
I fund = CAGR -.94, PNR 63%
I am new to "seasonal" investing strategies. It seems one could take from this data that the best odds for a successful September would be to invest all new TSP contributions for September into the I fund, since the odds are it will be down, and reallocate the current TSP funds into F. Is anyone actually going to do just that?
soccermoth wrote:Thanks for those links, Aitrus. I've read from June 2016 to Sept. 2016. so far. Interesting to read a few people posting then that the market indexes couldn't possibly go any higher.
For anyone who wants to save an hour of historical forum reading, here is the presidential election years data (from a total of 8 previous election years) that Aitrus compiled for the September months:
G fund = CAGR .41
F fund = CAGR .58, PNR 75%
C fund = CAGR -.06, PNR 75%
S fund = CAGR .15, PNR 75%
I fund = CAGR -.94, PNR 63%
I am new to "seasonal" investing strategies. It seems one could take from this data that the best odds for a successful September would be to invest all new TSP contributions for September into the I fund, since the odds are it will be down, and reallocate the current TSP funds into F. Is anyone actually going to do just that?
Interesting article from Trading View about what’s happened in the last few recessions in a election year.
soccermoth wrote:Thanks for those links, Aitrus. I've read from June 2016 to Sept. 2016. so far. Interesting to read a few people posting then that the market indexes couldn't possibly go any higher.
For anyone who wants to save an hour of historical forum reading, here is the presidential election years data (from a total of 8 previous election years) that Aitrus compiled for the September months:
G fund = CAGR .41
F fund = CAGR .58, PNR 75%
C fund = CAGR -.06, PNR 75%
S fund = CAGR .15, PNR 75%
I fund = CAGR -.94, PNR 63%
I am new to "seasonal" investing strategies. It seems one could take from this data that the best odds for a successful September would be to invest all new TSP contributions for September into the I fund, since the odds are it will be down, and reallocate the current TSP funds into F. Is anyone actually going to do just that?
Interesting article from Trading View about what’s happened in the last few recessions in a election year.
I am looking at the link's chart that shows the divergence between the $SPX and RSI reading leading up to the dotcom and great recession downturns. Can someone explain what could have caused this and is it an actual cause of concern (since the pattern seems to be repeating in 2019-2020?
Does seasonal trading consider splitting funds? For example 50/50 in C and S which represents the entire stock market. Using the example above for election years, CAGR for C in Sep is -.06 and CAGR for S in Sep is .15. If we split the account to both funds, we’ll end up as a positive for the month.
Another question is Bogle’s constant reference of “reversion to the mean.” Over the course of 20-30 years of us holding the TSP, according to Bogle, whatever strategy we’re using, it’s go back to what the Total Stock Market is doing. If that’s the case, wouldn’t a 50/50 hold in C/S provide the best return? And if there’s such as advantage to seasonality, how come we don’t see any mutual funds or ETFs trading this way? I’m still learning so if this was covered in the past, I would greatly appreciate it if someone can direct me to the thread.
Kal1981 wrote:Does seasonal trading consider splitting funds? For example 50/50 in C and S which represents the entire stock market. Using the example above for election years, CAGR for C in Sep is -.06 and CAGR for S in Sep is .15. If we split the account to both funds, we’ll end up as a positive for the month.
Another question is Bogle’s constant reference of “reversion to the mean.” Over the course of 20-30 years of us holding the TSP, according to Bogle, whatever strategy we’re using, it’s go back to what the Total Stock Market is doing. If that’s the case, wouldn’t a 50/50 hold in C/S provide the best return? And if there’s such as advantage to seasonality, how come we don’t see any mutual funds or ETFs trading this way? I’m still learning so if this was covered in the past, I would greatly appreciate it if someone can direct me to the thread.
One of the funds is always going to do better than the others on different days of the year. The goal with seasonals is to **attempt** to be in the best fund no longer than you need to be, then back off into a safer fund. Splitting the difference is fine and is a valid strategy, but it will always trade bigger gains/losses for safety.
Reversion to the mean is the central theme to the seasonal strategy. It agrees with Bogle's take on investing: over the long run, the market will return to a mean, even if it deviates from that mean over the short term. A seasonal strategy merely seeks to increase that mean by being fully invested at times when the market tends to lose less, and avoid the times when it tends to lose more. It's not always right (some historically good times end up being bad for a year or two, and some historically bad times end up being good on occasion). The goal is to hedge the bets by betting on the most favorable odds.
Why don't we see market brokers using it? Some do - look at equityclock.com for one example. But I suspect the real answer is that many "experts" look at a single common seasonal method: Sell in May and Go Away. This method sells in early May, then buys back into the market in October. This method has similar long term returns as the overall market, so most "experts" dismiss the idea of seasonality after this cursory look. But looking deeper, it is indeed possible to beat the market when using other mixes of Funds to be in.
Also, there are a lot of market timers and trend followers who make a living beating the market. Jim Cramer, for example. But they look at seasonality as more of a headwind or tailwind for the market, and they are usually focused more on the short term.
Seasonality is taking Bogle's idea of set-it-and-forget-it and it's long term view, and aims to increase the mean average. Many who use a seasonal method will follow the same pattern year after year, regardless what's going on in the wider market. It's just like set-it-and-forget-it in that it's the same thing year after year.
Also, keep in mind that when Bogle wrote his book, mutual funds were all the rage and the only other option was market timing with individual stocks. He was seeking to topple the backward idea of mutual funds because it wasn't in the best interests of the investor, and most investors don't have the patience or skill for active market timing. Thus: index investing was better than mutual funds, and actually had a decent chance of getting a worker to retirement with a respectable amount in his portfolio. Index investing has been popular for only the last 30 years or so, and so there are many who still swear by mutual fund investing. Some people's minds are just hard to change.
I see, thanks Aitrus. In reading Bogle’s book, I understood reversion to the mean to indicate that most “investing strategies” will revert to what the overall market is doing. I took “seasonality” as the same as investing in “innovation ETFs”, “mega growth funds”, etc.
