DCA Experiment September 5 – Gold Stocks Breakout

GDX had a great month returning 6.34% versus 2.65% for the S&P 500; while CEF was flat. Gold stocks represented by GDX clearly outperformed the underlying commodity this month. Just for kicks take a look at Jack Chan’s blog specifically the chart labeled my breakoout model on gold stocks. The last time there was a breakout on this chart – GDX ran 75% from November to May. Dollar cost averaging in gold stocks would have returned over 45% over that time period.

Remember knowledge without action is fruitless.

The objective of this experiment is to demonstrate the power of dollar cost averaging. I believe that it is the best investment strategy for the average investor. If you are willing to learn technical analysis, you may outperform dollar cost averaging. However, technical analysis can take a significant amount of time to master.

 

Table 1. CEF vs. S&P 500

  CEF S&P 500 CEF S&P 500
  Closing Price Closing Price Mon. Return Mon. Return
1/4/07        
12/4/06        
11/6/06        
10/4/06        
9/5/06 9.17 1313.25 0.00% 2.65%
8/4/06 9.17 1279.36 2.80% 0.66%
7/5/06 8.92 1270.91 -2.09% 0.44%
6/5/06 9.11 1265.29 -9.80% -3.58%
5/4/06 10.10 1312.25 24.23% 0.25%
4/4/06 8.13 1309.04 3.57% 2.41%
3/6/06 7.85 1278.26 2.08% 1.05%
2/6/06 7.69 1265.02 8.31% -0.66%
1/4/06 7.10 1273.46    

Note: $1000 invested each month in CEF (total $8000) is worth $8722.62 (9.03%).
Note: $1000 invested each month in S&P 500 (total $8000) is worth $8198.43 (2.48%).

Table 2. GDX vs. S&P 500

  GDX S&P 500 GDX S&P 500
  Closing Price Closing Price Mon. Return Mon. Return
1/4/07        
12/4/06        
11/6/06        
10/4/06        
9/5/06 42.10 1313.25 6.34% 2.65%
8/4/06 39.59 1279.36 0.56% 0.66%
7/5/06 39.37 1270.91 3.25% 0.44%
6/5/06 38.13 1265.29    

Note: $1000 invested each month in GDX (total $3000) is worth $3236.86 (7.90%).
Note: $1000 invested each month in S&P 500 (total $3000) is worth $3097.71 (3.26%).
Data starts on 6/5 since GDX was launched on 5/25/06

 

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