SPY buy and hold return controversy

jimbojim · Feb 7, 2011

This blog reported a cumulative return of 194% for buying and holding SPY since January 1993:

http://www.bespokeinvest.com/thinkbig/2011/1/26/who-needs-the-trading-day.html

The same blog also reported that the return of a long-only strategy, buy the close - sell the open was 385%.

But this blog claims their numbers are wrong and that buy and hold return is actually 307% (!) and the long-only buy the close-sell the open return is 193% if commissions are factored in:

http://www.priceactionlab.com/Blog/2011/02/who-needs-the-trading-day/

Can anyone check the numbers? If the b&h return was that high (307%), I have been a total moron trading all these years. That is about 17% a year.

loufah · Feb 7, 2011

You could have gotten a 300%+ return by buying SPY in 1993 and selling it in 2000, as well. The 1990's were a great bull market.

failed_trad3r · Feb 7, 2011

its true. but returns would have been higher if you bought in 1993 and just sold in 2000,

nLepwa · Feb 7, 2011

Quote from jimbojim:

Can anyone check the numbers? If the b&h return was that high (307%), I have been a total moron trading all these years. That is about 17% a year.

Huh?
Spy was at about $40, it is now at about 130$ so that's about 6.5% a year.
Beside you'd had terrible performance since 2001 and huge drawdowns (50%+).

And yes you've probably been a total moron statistically speaking since most professionals didn't beat b&h.

Ninna

intradaybill · Feb 7, 2011

Quote from nLepwa:

Huh?
Spy was at about $40, it is now at about 130$ so that's about 6.5% a year.

That doesn't include dividends. You can do a few things with them: (1) spend them (my way) (2) buy more stock (3) buy other stocks or put in a savings account

In cases 2 and 3 the return could be a high as 15% according to my rough estimates.

nLepwa · Feb 7, 2011

Quote from intradaybill:

That doesn't include dividends. You can do a few things with them: (1) spend them (my way) (2) buy more stock (3) buy other stocks or put in a savings account

In cases 2 and 3 the return could be a high as 15% according to my rough estimates.

8.5% dividend per year?

OP gave the reference number of 307% (dividend-adjusted). And I was pointing out that it doesn't result in 17% yearly.

Ninna

intradaybill · Feb 7, 2011

Quote from nLepwa:

8.5% dividend per year?

OP gave the reference number of 307% (dividend-adjusted). And I was pointing out that it doesn't result in 17% yearly.

Ninna

According to Bespoke, the SPY return since 1993 is 194% for buy and hold without dividends. S&P 500 dividends historically represent about 44% of the returns. Thus, total return is roughly 279% in 18 years or 15.5% per year NOT counting for dividend reinvestments.

What do you find wrong with this simple math?

nLepwa · Feb 8, 2011

Quote from intradaybill:

According to Bespoke, the SPY return since 1993 is 194% for buy and hold without dividends. S&P 500 dividends historically represent about 44% of the returns. Thus, total return is roughly 279% in 18 years or 15.5% per year NOT counting for dividend reinvestments.

What do you find wrong with this simple math?

It seems to me that you can't do simple math.
You've missed the point for the second time.
279% doesn't add to 15.5% year.

I'll let you figure it out...
hint: b&h, reinvesting, compounding.

Ninna

jimbojim · Feb 8, 2011

Quote from nLepwa:

It seems to me that you can't do simple math.
You've missed the point for the second time.
279% doesn't add to 15.5% year.

I'll let you figure it out...
hint: b&h, reinvesting, compounding.

Ninna

You are talking about CAGR and he is talking about average annual trader return without reinvestment of winnings.

The CAGR for a 279% return in 18 years is 5.85%

As a trader you will need to generate a return of 15.5% a year on fixed capital to match a CAGR of 5.85%.

nLepwa · Feb 8, 2011

Quote from jimbojim:

You are talking about CAGR and he is talking about average annual trader return without reinvestment of winnings.

The CAGR for a 279% return in 18 years is 5.85%

As a trader you will need to generate a return of 15.5% a year on fixed capital to match a CAGR of 5.85%.

You are right.

And as we're talking about b&h we need to consider CAGR as return on fixed capital is irrelevant.
That's what I was trying to make him understand.

Ninna