August 20, 2019

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Opinion

Know when to hold 'em, know when to fold 'em, says apostle of seasonal investing

Hey there, time traveller!
This article was published 18/5/2012 (2649 days ago), so information in it may no longer be current.

Like many things in life, successful investing involves recognizing patterns and acting accordingly to turn a profit. Value investors look for overlooked and underpriced companies that have sound financial numbers. Dividend investors look for firms with a track record of paying an increasing dividend.

Momentum investors want to capitalize on upward or downward swings in markets. And then there are the technical investors. They pore over charts of stock movements and other data to forecast where prices are headed.

But there's an even smaller group of investment experts who study the broader performance of markets and sectors over weeks, months, years and decades. Their investment style -- called seasonal investing -- involves uncovering historical patterns that point to predictable market movements at certain times of the year, year after year.

It just so happens two of its foremost proponents are Canadians: Brooke Thackray and Don Vialoux.

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Hey there, time traveller!
This article was published 18/5/2012 (2649 days ago), so information in it may no longer be current.

Like many things in life, successful investing involves recognizing patterns and acting accordingly to turn a profit. Value investors look for overlooked and underpriced companies that have sound financial numbers. Dividend investors look for firms with a track record of paying an increasing dividend.

Momentum investors want to capitalize on upward or downward swings in markets. And then there are the technical investors. They pore over charts of stock movements and other data to forecast where prices are headed.

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MCT

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But there's an even smaller group of investment experts who study the broader performance of markets and sectors over weeks, months, years and decades. Their investment style — called seasonal investing — involves uncovering historical patterns that point to predictable market movements at certain times of the year, year after year.

It just so happens two of its foremost proponents are Canadians: Brooke Thackray and Don Vialoux.

Although the father-and-son duo of Yale and Jeffrey Hirsch are considered the forerunners in seasonal analysis, annually publishing the Stock Trader's Almanac since the 1960s, Thackray and Vialoux have gained a large following since the 1990s, expanding the seasonal focus to Canada's S&P/TSX composite index and sectors such as oil, natural gas, gold, bonds and consumer staples, to name a few.

"As far as I know, we're the only ones in the world who actually do this," says Thackray, in Winnipeg recently to discuss the ins and outs of this investment style.

The Union Securities-sponsored event took place at the Free Press News Café and was entitled Sell in May and Go Away — a familiar phrase for those acquainted with this investment style.

Seasonal investing proponents contend over the last 60-plus years, the S&P index in New York has traditionally underperformed from May 6 to Oct. 27 and has often rewarded investors the other half of the year, which also bears a seasonal investment credo: "Buy when it snows, sell when it goes."

Thackray recently spoke with the Free Press to give the skinny on seasonal investing in broad markets such as the TSX and in specific sectors such as gold and silver.

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Though seasonal investing has its detractors, who argue markets are too unpredictable to find any reliable patterns, Thackray says over the last 60 years, an investor using this strategy to invest in the S&P 500 would have done exceedingly well.

An investment of $10,000 in the S&P over the last 62 years that was invested only from Oct. 28 to May 5 each year would be worth more than $1 million.

"The exact number is $1,057,851, and if you had invested for the other six months, from May 6 to Oct. 27, you would have actually lost $3,000," says the author of Thackray's 2012 Investment Guide.

Broad markets, such as the TSX composite index tend to perform well during the late fall, winter and early spring for a number of reasons. For one, analysts are forward-looking, and they start building expectations for the coming year in October.

"The money starts flowing at that time, which helps to prop up the stock markets," says Thackray, president of AlphaMountain Investments in Toronto.

These great expectations often persist into the new year, and as long as the optimism continues, the money continues to flow into the stock market. But hope begins to wane once spring has sprung.

"The expectations and the money tend to get ahead of themselves," Thackray says. "Then analysts start to cut back a little bit, and the money starts to dry up a little bit, and investors start to lose interest, carrying through into the summertime."

The broader markets also tend to follow the manufacturing cycle, which becomes more active in winter.

"(Markets) mirror the manufacturing rhythm that takes place in society," he says, pointing to a United States index that follows manufacturing on the U.S. East Coast. "It (the S&P 500) has a very similar pattern to the Philadelphia Federal Index, which tends to drop off in May and picks up again in the fall."

Over the summer months, the risk money frequently dries up and investors look for the safety of fixed income instead.

"You just generally want to be more conservative in the summertime," he says. "That doesn't mean the stock market can't go up during that time, but you don't often find the big returns happening in the summer."

Seasonal investing is more than selling equities on May 5 and buying them back on Oct. 28. The exact dates of when to sell and buy vary by the year. This year, the sell date for the TSX composite was early April. Last year, it was April 28.

Considering most retail investors use a buy-and-hold strategy, a seasonal investing strategy likely isn't very feasible. Still, it can be a useful guide in some cases.

"If you like a company, and you're not sure when the best time to buy it is, it may be not so bad to buy in October," Thackray says.

Also, investors can use seasonal-cycle strategies for a fraction of their overall portfolio. This can be difficult for amateur investors, however, because it involves more than just buying and selling on specific days of the year. Seasonal investing involves a combination of technical, fundamental (sifting through balance, income and cash-flow sheets) and macroeconomic analysis to determine when to get in and when to get out of a trade. Professional expertise in this regard often proves helpful, he says.

Investors can also buy an ETF (exchange-traded fund) based on Thackray's and Vialoux's analysis. Called the Horizons Seasonal Rotation ETF (TSE: HAC), it's been around since November 2009 and is up about 20 per cent since inception.

In general, ETFs have made seasonal investment strategies ever more viable because they can offer investors a quick and relatively easy way to buy markets such as the S&P 500 or specific sectors such as oil, gas and gold, all of which have relatively predictable pricing ebbs and flows throughout the year.

But a word of caution, Thackray says: History may reveal seasonal patterns in pricing for stocks, bonds and indices, yet this doesn't mean they will behave that way year in and year out. Other factors can overwhelm normal seasonal cycles.

Geopolitical and economic events, natural disasters and market-shifting technological innovations can cause a sector, stock and even a broad market such as the S&P 500 to go in a completely different direction than anticipated by a seasonal strategy, he says.

But this strategy does offer a somewhat predictable pattern of where prices might be headed over a period of time.

"It tells you: 'Look, this is the sandbox you can play in. These different sectors tend to do well at this time and not so well at others,'" he says. "You may not invest in all of them, but it gives you a basic idea of when to invest and when not to."

giganticsmile@gmail.com

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