How to Outperform Hedge Funds with Just a Few Trades

A Simple Way

In their efforts to beat the market, many investors are spending a lot of time searching for rare undiscovered gems or sophisticated trading rules.

There is actually a simpler way.

I will show below how one could have beaten the market by a sizable margin over approximately the past 90 years – with only two trades per month, while being invested only one third of the time and without employing any leverage.

Gains are Only Generated Around the Turn of the Month

Take a look at the following chart. It shows the capital gains delivered by the S&P 500 Index since 1928, depending on the days of the month in which a position in it was held.

The blue curve shows the cumulative return generated by the index between the 26^th of every month and the 5^th of the subsequent month. The red “curve” – which actually looks suspiciously like the x-axis – shows the return generated by the index during the rest of the time, i.e., between the 6^th and the 25^th of every month.

Cumulative return of the S&P 500 Index around the turn of the month (blue line) and the rest of the time (red), indexed (100), 1928 to 2017
Gains are actually only generated around the turn of the month.  Source: Seasonax

As can be seen, the time period around the turn of the month outperformed the rest of the time rather handily. The average gain achieved during the profitable time period was 7.60 percent, while an average loss of -1.86 percent was recorded in the rest of the time.

Turn of the month, Rest of the month compared

- Click to enlarge