You may have heard of the term “seasonal investing.” Myself, I was just introduced to this investment strategy over the past year through Brooke Thackray, MBA, CFP and president of alphaMountain Investments. His firm publishes reports that “use seasonal analysis to give investors and money managers an edge in the markets.”
So what is seasonal investing?
The basic premise of seasonal investing is that there are semi-macro trends in the market that determine when certain types of stocks tend to perform better than others based on what time of the year it is. If you didn’t know anymore about it than this, then I’d agree that it might sound a bit like some sort of “Farmer’s Almanac” astrology or other hocus pocus. But actually seasonal investing is based on some pretty basic observations about necessary rules in the market, such as when real farmers really do need to buy more seed or fertilizer and when more oil production really is needed in advance of the winter heating season.
The way Thackray seems to use these seasonal trends is to determine when to buy a certain stock or group of stocks or sector before its traditional run-up. Sometimes he also specifies when it’s good to sell them. Yep, this is classic market timing. But it’s market timing according to a surprisingly stable and self-validating logic, according to what I understand from Thackray. So I’m certainly not recommending it for the average investor. But I find it quite interesting. He even pinpoints specific DATES in certain cases. So here are some of the basic seasonal trends that I’ve picked up from Thackray:
“Sell in May, then Go Away”
This is some really broad-market market-timing. According to Thackray, markets tend to run up from November to May, then trail off for at least the rest of the summer (excepting certain specific stocks which we’ll get into). We’ve certainly seen confirmation of this (in general) in 2009 with the 8-week rally in March and April. January and February saw violent ups and downs, but on sum, the period up to May has definitely been bullish in retrospect. So if the summer sucks overall, when to get back into the market? Thackray actually pinpoints it to a specific day: October 27 each year.
Best Summer Stocks and Sectors
“Summer” might have slightly different timing depending on where you are in North America (and this Seasonal Investing schedule would definitely need to be tweaked in relation to Australian and New Zealand markets), but in general the sectors that show themselves to traditionally perform best between May and September are utilities, oil, healthcare, and biotech. Metals do not do as well during the July to September period. Build-up to the summer driving season occurs between February and May (we’ve seen this so far with oil going up to $57 or so so far by May in 2009). Despite metals overall not doing well during the summer, Thackray does recommend the best time to get into gold – which we know is a seasonal commodity at least insofar as the bulk of its production goes to jewelry in India and China. So Thackray recommends a buy date on gold of July 27. It works for him, apparently.
What do you think? These ideas certainly seem to be consistent with the traditional observations that October is generally a bad month for stocks, and January a good month for small-cap investing especially. I’m not sure I’d bet my whole portfolio on this strategy, but there does seem to be valid substance to it. It’s good to know, for example, that the run-up to the winter heating season for oil occurs already starting in July. That said, though, this is not going to turn me into a market timer. But I am fascinated to see this seasonal investing work for others.
Thackray has published a few successful books on the topic, too, if you’re curious to read more about it:
Thackray’s 2009 Investor’s Guide ***In Stock on Amazon
Thackray’s 2007 Investor’s Calendar (out of print, can buy it used)
Time In, Time Out (classic from 1999, can buy it used)
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