myhtbusters july 2014 v2
TRANSCRIPT
Investment Mythbuster July 2104
Mark Weetman & Michele Santangelo Vunani Private Clients
Why do we watch out for myths? Seasonality of markets Bit of fun, but tested with actual data! Is there an actual trading strategy? Past performance is no guarantee of future
returns but it still makes sense to look at historical data to guide your trading and investing.
It’s to create debate/encourage further analysis
As Goes January, So Goes The Year!
Will the Santa Clause rally bring you the financial present you deserve
Turbo Tuesdays on the S&P.
What has happened to Doctor Copper?
Sell in May strategy
As Goes January so goes the Year
The January Effect – The Myth
If the market rises in January, the rest of the year will be positive as well. Some optimists also predict that if the first week of the year is positive, then January itself will show an increase.
The experiment is taking January returns and comparing them the average/total returns return of the following 11 months.
The January effect has only been able to correctly predict the rest of the years performance 55.6% of the time.
The correlation between the two is only 0.19.
Not the kind of accurate predictor we would have expected.
The January Effect – The Myth
The Santa Claus Rally
The Santa Claus Rally – The Myth
Also known as the “December Effect” A Santa Claus rally is a rise in share prices in the month of December, generally seen
over the final week of trading prior to the new year. Black Friday 18 December 2013 – 3 January 2014
Reasons for The Santa Claus Rally
Upbeat forecasts from retailers around the holiday season
Positive holiday cheer turns even the most bearish and pessimistic investors positive.
U.S. investors tend to fund retirement accounts at the start of the year. – Traders
buying in anticipation of the market inflows.
Window dressing – Large investors propping up their positions in order to make their
performance look better and possibly increase their performance fees (illegal!).
Average return for all non-December months since 1896 is 0.5%. For Decembers average return is 1.2%.
Since 1950, 18th Dec – Jan 3rd avg. 1.5%
Last 20 years, the S&P 500 on average gained 1.79% during the month of December.
The S&P 500 has posted negative performance only 4 times
December ranks as the 3rd BEST performing month for the US stock market.
Here are the numbers – TOP40 18 Year
December is the best performing month on the JSE, averaging 2.6%
The Santa Claus Rally
So here’s what you need to do
By the 1st December, If we believe that the Santa Clause rally is on the cards
we promise to supply you at least four trading ideas.
Last years stock picks …
Turbo Tuesdays on the S&P500
Always be long the S&P500 on a Tuesday – The Myth
Investing in the S&P without Tuesday makes a huge difference
Over the last 10 years S&P rallied the most on Tuesdays.Tuesday is 3 times more profitable than any other day.
10 Year HistoryMonday Tuesday WednesdayThursday Friday
SPX -0.010% 0.105% 0.018% 0.026% 0.008%TOP40 0.093% 0.046% 0.075% 0.130% 0.004%
Turbo Tuesdays is plausible on the S&P but what about the JSE
10 Year HistoryMonday Tuesday WednesdayThursday Friday
SPX -0.010% 0.105% 0.018% 0.026% 0.008%TOP40 0.093% 0.046% 0.075% 0.130% 0.004%
32 times more profitable than Friday the worst performing day.1.4 times more profitable than Monday the second best trading day.
Dr Copper Myth
Doctor Copper – The Myth
Market lingo for the base metal that is “reputed to have a Ph.D. in economics” because of its ability to predict turning points in the global economy.
Because of copper's widespread applications in most sectors of the economy - from homes and factories, to electronics and power generation and transmission - demand for copper is often viewed as a reliable leading indicator of economic health. This demand is reflected in the market price of copper.
Generally, rising copper prices suggest strong copper demand and hence a growing global economy, while declining copper prices may indicate sluggish demand and an imminent economic slowdown.
Rising copper price → Rising copper demand → Growing global economy
Investors are cautioned that Doctor Copper is not infallible:
Temporary shortage of copper may lead to rising prices even as the global economy is slowing down.
A copper glut may cause lower prices despite robust economic growth.
Doctor Copper – The Myth
Turns out when Copper makes a new 2-year low, the S&P 500 doesn’t do too bad.
Three months later it is about flat, but a year out it jumps 17%.
We found no real statistical relationship between copper and the returns on the JSE.
Analysis shows only a 0.45 correlation and virtually no short term predictive properties.
Note the significant disconnect overt the last 3 years.
Doctor Copper – Effect on the JSE
Short Term
Long Term
Myth - Sell in May
Sell in May – The Myth
Much is made each year of the old City adage that it pays to avoid the markets over summer: "Sell in May and go away, don’t come back till St. Leger Day".
The idea was that with so many sports-related social events in the summer months - Royal Ascot, Wimbledon, Henley Royal Regatta, Cowes Week, and ending with St. Leger flat race, on September 13 this year - that trading volumes plummet and stock market fortunes wane.
Summer holidays – no one at the office
Of course in today's globalised markets, this seems at best far-fetched. The actual figures also cast considerable doubt on the theory.
Sell in May – The Facts on the JSEJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Rank ( 1 is best performing month) 3 9 6 4 5 12 10 8 11 2 7 1Return (18 Year average) 2.19 0.62 1.30 1.85 1.36 -0.99 0.54 0.65 0.14 2.39 1.00 2.60
May in fact the 5th best performing month up on average 1.36%.May is negative 42.1% of the time. Including 2014. June is negative 63.15% of the time.
Had an investor sold every May and bought back during Sep, would have missed out on 1.7% annualized return.
Even selling at the end of May and reinvesting in September would have resulted in an investor being 0.09% worse off and even more if you take costs into account.
Sell in May
June to September is the softest period on the JSE. Averaging 0.09% return.
The Myth should be sell at the beginning of June and buy back at the end of June.
Blowing things up – Mythbuster style
Blowing things up – Market Crash every 5-7 years
Blowing things up – Mythbuster style
Much talk about market bubbles & potential crashes.
The financial system experiences a crisis “every five to seven years,”
Chief Executive Officer Jamie Dimon,JPMorgan Chase & Co.
Despite concerns about high prices (from people like me), stocks have meandered higher over the past 6 months. And they are now, once again, setting new all-time highs.
The Fed is now tightening
Stocks are expensive
While researching the views of analysts and market gurus over the last few weeks in preparation for this myth we noticed numerous reports spanning over the last 3 years all saying a crash is immanent. Many of those analysts just re published their research just changing the dates.
The potential for a crash or a market correction is certainly possible. Exactly when we don’t know.
Hedge your equity portfolio using:
• Futures • Options
Profit from the collapse by shorting shares or Single Stock Futures or eCFDs
Buy the dips! The market is the best generator of wealth over the long term
Blowing things up – Market Crash every 5-7 years
As Goes January, So Goes The Year!
Will the Santa Clause rally
Turbo Tuesdays on the S&P.
What has happened to Doctor Copper?
Sell in May strategy
Mark Weetman and Michele SantangeloVunani Private Clients
[email protected]@vunaniprivateclients.co.za
011 384 2914
Questions?