Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to tea42,yyuryyub,Howyoudoin,Anonymous,EverybodyKnows, for Donating to support the site

Cycles Series #2 - Seasonal pattern

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
vand
Lemon Slice
Posts: 320
Joined: January 5th, 2022, 9:00 am
Has thanked: 89 times
Been thanked: 123 times

Cycles Series #2 - Seasonal pattern

#506819

Postby vand » June 13th, 2022, 10:28 am

I realize that I may be doing this in a slightly haphazard way, but nevermind.

Post #2 in the cycles series looks at the annual pattern of stock market returns - with 140 years of truly independent datasets available to us, its very clear that stocks tend to do best in the period between Nov-May and less well over the summer months.

"Sell in May, come back on St Ledgers' Day" they say - this is why

https://www.ampcapital.com/africa/en/in ... nd-go-away
Image

https://seekingalpha.com/article/118346 ... f-evidence

DJIA 1950-2011	Maximum depth	Maximum duration
Buy & Hold -35.50% 6 years
Winters only -19.41% 3 years
Summers only -54.29% 47 years


Generally I think we should all invest based on the the long term and take these seasonal patterns in our stride, but knowing these patterns exist can also help to calibrate our expectations.... and yes granted that it doesn't hold every year, but equally, are you sure that over a century of data is going to unwind itself on your watch?

As we head into the summer in 2022, the expectation is that markets should lag...

JohnW
Lemon Slice
Posts: 300
Joined: June 1st, 2019, 7:00 am
Has thanked: 2 times
Been thanked: 83 times

Re: Cycles Series #2 - Seasonal pattern

#506859

Postby JohnW » June 13th, 2022, 12:58 pm

Do they say what the standard deviation is of the monthly returns?

vand
Lemon Slice
Posts: 320
Joined: January 5th, 2022, 9:00 am
Has thanked: 89 times
Been thanked: 123 times

Re: Cycles Series #2 - Seasonal pattern

#507046

Postby vand » June 14th, 2022, 8:37 am

Data from 1968 which is what I have:

Mean monthly return is 0.68% (not far off their 0.76% figure - I am not including dividends)
StdDev is 4.4%

Itsallaguess
Lemon Half
Posts: 7783
Joined: November 4th, 2016, 1:16 pm
Has thanked: 3525 times
Been thanked: 7344 times

Re: Cycles Series #2 - Seasonal pattern

#507052

Postby Itsallaguess » June 14th, 2022, 8:47 am

vand wrote:
As we head into the summer in 2022, the expectation is that markets should lag...


Whilst these types of studies might be academically interesting, the question remains as to what impact or benefit they might actually offer out here in the real world...

Two questions always come to mind around this type of study -

  • Is there actually a realistic expectation that there might be any long-term and regular benefit from being able to completely 'sell-up' before those doldrum-months might occur?
  • Even if an investor were to do that, are they simply going to avoid those potential 'doldrum-drops', or is there ever an additional recommendation as to where that potentially huge chunk of un-invested capital might then actually go during those potential doldrum periods, to find other non-market gains?

Simply put - even if this is true - are any potential benefits involved actually worth the candle over the very long term?

Cheers,

Itsallaguess

kempiejon
Lemon Quarter
Posts: 2351
Joined: November 5th, 2016, 10:30 am
Been thanked: 730 times

Re: Cycles Series #2 - Seasonal pattern

#507088

Postby kempiejon » June 14th, 2022, 9:59 am

Itsallaguess wrote:Simply put - even if this is true - are any potential benefits involved actually worth the candle over the very long term?


A quick eyeball suggest to me that if I were investing monthly perhaps 10 drips per year avoiding August and September could catch some of that trend and not leave one really missing the market trends. Whether that makes a hill of beans I don't know.

kempiejon
Lemon Quarter
Posts: 2351
Joined: November 5th, 2016, 10:30 am
Been thanked: 730 times

Re: Cycles Series #2 - Seasonal pattern

#507310

Postby kempiejon » June 15th, 2022, 8:59 am

kempiejon wrote:
Itsallaguess wrote:Simply put - even if this is true - are any potential benefits involved actually worth the candle over the very long term?


A quick eyeball suggest to me that if I were investing monthly perhaps 10 drips per year avoiding August and September could catch some of that trend and not leave one really missing the market trends. Whether that makes a hill of beans I don't know.


Actually isn't that rubbish you want to be investing more in down periods not less. I'm back to monthly additions and sod the trend.

vand
Lemon Slice
Posts: 320
Joined: January 5th, 2022, 9:00 am
Has thanked: 89 times
Been thanked: 123 times

Re: Cycles Series #2 - Seasonal pattern

#507562

Postby vand » June 16th, 2022, 10:06 am

kempiejon wrote:
kempiejon wrote:
Itsallaguess wrote:Simply put - even if this is true - are any potential benefits involved actually worth the candle over the very long term?


A quick eyeball suggest to me that if I were investing monthly perhaps 10 drips per year avoiding August and September could catch some of that trend and not leave one really missing the market trends. Whether that makes a hill of beans I don't know.


Actually isn't that rubbish you want to be investing more in down periods not less. I'm back to monthly additions and sod the trend.


I think the takeaways are more significant for sellers than they are for long term accumulators.

My best takeaway is that you should never sell over the summer; historically the largest falls have happened over this period. If you're going to be a seller, do it in the Spring. If you're still an accumulator then just keep steadily buying, and take any summer downside volatility as a chance to gain a higher future return.

Itsallaguess
Lemon Half
Posts: 7783
Joined: November 4th, 2016, 1:16 pm
Has thanked: 3525 times
Been thanked: 7344 times

Re: Cycles Series #2 - Seasonal pattern

#507568

Postby Itsallaguess » June 16th, 2022, 10:23 am

vand wrote:
My best takeaway is that you should never sell over the summer; historically the largest falls have happened over this period.

If you're going to be a seller, do it in the Spring.


I'm not convinced, sorry, and I also think that's too simplistic a take-away even if I were to be convinced...

I can only speak for myself here, but over many recent years, any selling decisions I've made have generally been as part of a broader process that's almost always included an associated purchase decision with any released capital.

So given that any purchase price would, in your scenario, be similarly affected by a 'low summer market', I think any proposed beneficial influence on taking a 'never sell in the summer' approach is likely to be minimal in the round, given that under your scenario the investment I'd be moving into would be 'cheaper' as well during that summer period, and as such, I would always very much prefer to be master of my own destiny in these types of situations, than perhaps asking to rely on this type of study to gain any theoretical price advantage...

Cheers,

Itsallaguess

vand
Lemon Slice
Posts: 320
Joined: January 5th, 2022, 9:00 am
Has thanked: 89 times
Been thanked: 123 times

Re: Cycles Series #2 - Seasonal pattern

#508958

Postby vand » June 23rd, 2022, 8:46 am

Itsallaguess wrote:
vand wrote:
As we head into the summer in 2022, the expectation is that markets should lag...


Whilst these types of studies might be academically interesting, the question remains as to what impact or benefit they might actually offer out here in the real world...

Two questions always come to mind around this type of study -

  • Is there actually a realistic expectation that there might be any long-term and regular benefit from being able to completely 'sell-up' before those doldrum-months might occur?
  • Even if an investor were to do that, are they simply going to avoid those potential 'doldrum-drops', or is there ever an additional recommendation as to where that potentially huge chunk of un-invested capital might then actually go during those potential doldrum periods, to find other non-market gains?

Simply put - even if this is true - are any potential benefits involved actually worth the candle over the very long term?

Cheers,

Itsallaguess


I admit it may well not be actionable for the garden variety retail investor or even the average institutional investor... and perhaps that is a reason why it had persisted for so long.

If you are looking for a "here's how to play this" discussion then I don't really have one to offer, but nonetheless I do think there's value in being able to identify such patterns that persist. They remind us that our best theories about the market are only partially correct; nothing is completely random, bit nothing is completely predictable either - nobody has it all figured out.

hiriskpaul
Lemon Quarter
Posts: 3235
Joined: November 4th, 2016, 1:04 pm
Has thanked: 371 times
Been thanked: 959 times

Re: Cycles Series #2 - Seasonal pattern

#509037

Postby hiriskpaul » June 23rd, 2022, 12:40 pm

vand wrote:I admit it may well not be actionable for the garden variety retail investor or even the average institutional investor... and perhaps that is a reason why it had persisted for so long.

If you are looking for a "here's how to play this" discussion then I don't really have one to offer, but nonetheless I do think there's value in being able to identify such patterns that persist. They remind us that our best theories about the market are only partially correct; nothing is completely random, bit nothing is completely predictable either - nobody has it all figured out.

This may be random. Given a limited historical dataset, what are the chances of there being a 2 month period showing up which has negative average return? Where are the T-stats!

The article doesn't address this, but maybe the underlying papers do. It is very easy to be fooled by randomness, which someone wrote an entertaining book about a few years ago.


Return to “Investment Strategies”

Who is online

Users browsing this forum: No registered users and 3 guests