Model Shadow Stock Portfolio: A Step Ahead of the Market
by James B. Cloonan
For the three months ending February 28, AAIIs model Shadow Stock Portfolio didnt match the 25.7% of the previous three months—but that would have been a bit much to expect. The portfolio is up 10.4% since November 30 and 5.8% for 2005 year-to-date, which compares quite favorably with the S&Ps 3.0% gain for the three months and 0.4% loss year-to-date. Results for various periods are shown in Figure 1.
This has been a tricky year for the general market so far. The year after presidential elections is the weakest year in the election cycle. However, for some unknown reason years ending in 5 have always been exceptionally strong. I pointed this out in my column in 1994 (A Modest Timing Possibility Based on the Business Cycle, November 1994 AAII Journal; available at AAII.com) when the market looked sick—and sure enough 1995 was a strong year, posting +37.4 % on the S&P 500.
While I can discern no rational reason for such a 10-year cycle, the S&P has averaged +33.6 % in years ending in five since 1935 and 27% when it was the year after an election.
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