|
Using the Sherman Calendar Effects Strategy
The Calendar Effects strategy is an extremely conservative method of gaining equity exposure, as it only enters the market
for a relative handful of days at a time, then exits back to the safety of cash until the next Calendar Effects period arrives. In a
typical year, there are twelve to fourteen trades, totaling just 72 to 77 market days (out of 252 market days in an average year).
In Bull Market years, when the market is steadily advancing, the Calendar Effects strategy typically produces positive returns but
can fall somewhat behind the market averages, particularly in strongly positive years.
In Bear Market years, Calendar Effects tends to produce positive returns and usually greatly outperforms the market averages.
For example, my Calendar Effects managed accounts were up more than 27% in 2008 while the S&P 500 was down over 38%
(an astounding outperformace of 6,500 basis points!), and they have continued to significantly outperform the S&P 500 through
the second quarter of 2009 (see the Historical Performance table below).
Because of the dichotomy of bull-market underperformance and eye-popping bear-market outperformance, I usually recommend
that advisors apply my Calendar Effects strategy during Bear Markets, and apply my other Sherman Sheet strategies during Bull
Markets. Fortunately, the Sherman Sheet conveniently points out when we are in a Bull Market or Bear Market, so making the
switch is very easy.
The Two Pieces of Information You Need to Know
The Sherman Sheet publishes the only two pieces of information that are required to implement the Sherman Calendar Effects
Strategy: the entry and exit dates of the next Calendar Effects period, and the recommendation of styleboxes that should be used
for investment selection during the next Calendar Effects period. The dates are published well in advance, whereas the stylebox
recommendations are published on the entry date, since they are based on current information and subject to change right up to
the day before the entry date.
The Upside of the Sherman Calendar Effects Strategy
The upside is simple: proven outperformance, particularly in difficult markets, with minimal exposure to market risk.
The Downside of the Sherman Calendar Effects Strategy
The biggest downside is that clients can become impatient should the Calendar Effects Strategy underperform in Bull Market
years unless they are very conservative and well-prepared by their advisors. My recommendation for overcoming this fact of life
is to apply the Sherman Calendar Effects Strategy during Bear Markets, and apply other Sherman Sheet strategies during Bull
Markets.
Another downside is that the Sherman Calendar Effects Strategy can only be implemented in accounts that allow for twelve to
fourteen round-trips per year, with holding times that can be as short as two or three days. Many 401k plans and mutual fund
families simply don't allow this kind of activity. The ProFunds and Rydex fund families are perfect, as are regular brokerage
accounts with ETF access (especially in wrap accounts where transaction fees are not an issue). You should check to be sure that
any accounts you are considering for the Sherman Calendar Effects Strategy are not prevented from engaging in this level of
activity!
Click here for your free 30-day Free Trial
Historical Performance
|
