Model Shadow Stock Portfolio: A Step Ahead of the Market

    by James B. Cloonan

    For the three months ending February 28, AAII’s model Shadow Stock Portfolio didn’t 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&P’s 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 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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    → James B. Cloonan