Tuesday, August 30, 2016

Investing by calendar

The following predictions are based on historical data. You may have slightly different findings depending on when you start and when you end the test.

You can load the historical data of SPY via Yahoo!Finance and check out how close or different from my predictions. They are my predictions based on historical data. Use it as a reference only.
·         Presidential cycle.
Usually the market performs worse in the first two years after the election than the next two. During the 3rd year the president has to make the economy look rosy in order to buy votes. Statistically it is the best year for the market and is followed by a good year (the election year). The government may stimulate the economy, the stock market and employment by printing more money, lowering interest rate and lowering taxes.

Democratic presidents have better market performance statistically than Republican presidents. It is not too logical as Republicans are more pro-business traditionally.

·         Olympics.
It has been proven that the host country has a better chance that its stock market appreciates the year after. It could be due to the exposure from the Olympics and / or the huge expenses in preparing the Olympics.

The last two Olympics follow this pattern as of 12/23/2013:

Olympics Country / Year
United Kingdom / 2012
Jan.  3,  2013 - Dec. 23,2013
China / 2008
Jan. 3, 2009 - Dec. 31,  2009

Greece could be an exception. It is too small a country to host this world-class event and it has wasted too many resources by building too many white elephants that the country can never justify. Brazil depends on its export of natural resources to China, so I do not count on its Olympics effect.

Winning a lot of Olympic medals has no indication for the stock markets. Both the Russian Empire and E. German were winners but disappeared in their original forms afterwards.

·         Seasonal.
Best profitable period is: Nov. 1 to April 30 next year. It is similar to the saying 'Sell in May and Go away'. It did not work since 2009 as it was Early Recovery in the market cycle.

The market does not always happen as predicted. However, when more folks follow, it becomes a self-fulfilling prophecy. I prefer “Sell on April 15 and come back on Oct. 15” to act before the herd. The more practical strategy is to start selling in April 1 and become more aggressive (selling at closer to the market prices) when it is close to May 1. For the last five years, I do not find this prediction reliable.

The explanation of the ‘summer doldrums’ could be the investors cash their stocks for vacations and college tuitions in the fall. Buying quality companies at the dips could be profitable.   

·         The worst month: September.
The next worst month is October. However, if there is no serious market crash during October (and this month has more than its shares of crashes), it could be the best month to buy stocks.

·         The best month for the bull: November.
However, several market bottoms occurred in October and November. The next strong month is December.

·         Best 30 days: Dec. 15 to Jan. 15, next year.
It was correct for the period of 2012-2013.

·         Window dressing.
Institution investors sell their losers and buy winners around Nov. 1. From my rough estimate and on the average, the winners have a 2% percentage point better than the market and the losers have 1% worse than the market.

Recommend to evaluate the top 10 winners from last 10 months or YTD in Oct. 15 and sell them at 3% gain or two months later.

Recommend to buy in Dec. and sell them 3 months later. Include the stocks with more than 30% loss for the last 11 months or YTD, sort them by Earning Yield in descending order and evaluate the top 10 stocks.

In both cases, do not buy foreign stocks and stocks with return of capital. Ignore stocks not in the three major exchanges, with low volumes and stock prices less than $2. Do not buy in losing years such as 2007 and 2008. I have my tests with my own assumptions and I use tools not available to all.

It is a guideline only. Do not buy any stocks during market plunges. Current events should be considered first such as a potential war and the hiking of interest rate.

This is one chapter of my book "Complete the Art of Investing". If it helps you, envision how 835 pages (Kindle version) would help you. It could be the best $10 you ever spend.

The above is an abstract from my book "Complete the Art of Investing" which is available from Amazon.

I challenged to have the best-performed article in Seeking Alpha history, an investing site, for recommending 5 or more stocks in one year after the publish date. The concepts for that article are discussed in this book.

No comments:

Post a Comment