BIG QUESTION

[Guest]

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I was looking at these Seasonality Charts and do not see the frequently referred to low return rates for the Summer Months. Can anyone speak to this issue for my education? I'm assuming the charts are correct, perhaps they are not.

 

[tsptalk]

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Wonder Woman wrote:

I was looking at these Seasonality Charts and do not see the frequently referred to low return rates for the Summer Months. Can anyone speak to this issue for my education? I'm assuming the charts are correct, perhaps they are not

Those charts tell the story. Both the S&P and Naz returns areflat to down from early June to the end of August. The Nasdaq has that tech rally in July but quickly gives it back by the end of August.

All the year's returns are coming from Jan to May, and Nov, Dec.

 

[Guest]

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But I see a rising level of return thru the months. Jan thru May being the lowest. What am I looking at wrongly?

 

[Guest]

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OK. Looking at the charts again, I can see the summer months as Flat but not down, which I thought the Seasonality philosophy went. If anything, I would want to stay out of the market betw Sept thru Oct. Any comments appreciated.

 

[tsptalk]

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This chart is different than others we've seen. Each month shown shows the average return for that month. For example, the Nasdaq chart shows it starting at 100 in January, and ending at about 103.5. That means the average return in January for the Nasdaq is 3.5%. Not bad.

Compare that to the Nasdaq in July where it starts at about107.5and ends at about 107, or an average loss of .5%.

Here is the S&P 500 broken down...

Hope that helps.

 

[tsptalk]

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Wonder Woman wrote:

If anything, I would want to stay out of the market betw Sept thru Oct. Any comments appreciated.

There is a "6 month system" that simply says be in stocks November to April, and in cash or bonds fromMay to September. Over the long term is has well outperformed the market. In the short term however there have been very good rallies in "the bad months" and very bad bear markets in "the good months". So it's not as easy as it sounds. It would be one of those where you reallocate every six months, then don't look.

 

[Guest]

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Thanks, Tom. Looks like we wrote our last posts at the same time.

 

[Guest]

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tsptalk wrote:

It would be one of those where you reallocate every six months, then don't look.

Thanks again. I think I might try that

 

[Greg]

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[Spaf]

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Wonder Woman wrote:

tsptalk wrote:

It would be one of those where you reallocate every six months, then don't look.

Thanks again. I think I might try that

Yea! it's also called listening to your stock broker!

Your charts shows the Summer Doldrums.

I don't think the doldrums are a thing to play. Hey Tom is that what we called it last year! I thought there were more four letter words to describe July last?

Happy 4th! Spaf

 

[Birchtree]

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I wouldn't try that strategy - look what happened in 2003, look what happened in 2004, and wait until you see what is going to happen in 2005. You could end up missing some very impressive gains. We are too close to the Fed being done.

Economic growth and inflation have already moved to levels the Fed wants and higher rates are no longer necessary. But yet they persist. In the past, stocks have tended to rally in advance of the Fed's final rate increase then sag once the central bank is done. The reason is that the succession of Fed rate increases is associated with some kind of negative event. Where will the blow-up come from - real estate perhaps. I think now the intentional game now is to squeez the speculators. Then they'll all come back to the equity markets - and pay higher prices to get on board.

 

[Guest]

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Birch, I was just joking for a change. Should have inserted a smiley there.

 

[tsptalk]

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Birchtree wrote:

I wouldn't try that strategy - look what happened in 2003, look what happened in 2004, and wait until you see what is going to happen in 2005. You could end up missing some very impressive gains. We are too close to the Fed being done.

That's what I was saying. Year to year, there are better things to do with your money. It's a "It's different this time" thing. But if you do it blind as we mentioned, your results could be impressive. Once you start second guessing and adding your emotions, I think all is lost. It's a "do it and forget it" strategy...

"According to the Stock Trader's Almanac, if you invested in the Dow from November through April, and switched to fixed-income investments from May to October, over a 54-year period (1950-2004), your returns would have been quite dramatic. Using this strategy, a $10,000 investment in the Dow compounded from 1950-2004 produced a $492,060 gain in the November - April period, versus a loss of $318 for the May-October period. - Source, Stock Trader's Almanac. Yale Hirsch & Jeffrey A. Hirsch, Editors. "

Notice that includes 2003 and 2004.

 

[Spaf]

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A strategy is like underware! You got to check it out on a regular basis. There are times when a change is in order! Rgds Spaf

 

[Mike]

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The strategy works. No, you don't catch everything obviously, but it's a pretty good "brainless" (hands-off) approach. Over the last three months, 50G / 50F has outperformed everything but the S fund.

Here are the prices and gains/losses for the 6-month rule... percentage gains given over previous price. Best fund for the period in bold text.

October 1, 2003 prices:
G fund: $10.13
F fund: $9.93
C fund: $10.62
S fund: $11.19
I fund: $11.26

March 31, 2004 prices:
G fund: $10.34 (+2.07%)
F fund: $10.25 (+3.22%)
C fund: $11.84 (+11.49%)
S fund: $13.20 (+17.96%)
I fund: $13.44 (+19.36%)

October 1, 2004 prices:
G fund: $10.57 (+2.22%)
F fund: $10.29 (+0.39%)
C fund: $12.00 (+1.35%)
S fund: $13.18 (-0.15%)
I fund: $13.62 (+1.34%)

March 31, 2005 prices:
G fund: $10.80 (+2.22%)
F fund: $10.37 (+0.78%)
C fund: $12.64 (+5.33%)
S fund: $14.25 (+8.12%)
I fund: $15.45 (+13.44%)

Current July 1 prices:
G fund: $10.91 (+1.02%)
F fund: $10.64 (+2.60%)
C fund: $12.84 (+1.58%)
S fund: $15.12 (+6.11%)
I fund: $15.25 (-1.29%)

 

[GALLO1]

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Ok, I understand the hands off mindless six-months approach.

If I may take this a step further with this question.

What's the advantage, I assume that there is one, if a person with about 6000 shares hangs in equities during the doldrums? Of course the objective is to have more shares for when the market rises. Would there be an advantage to playing TSP this way over the six-month buy and bale game? I would guess that either game it's best to be blind.

 

[Mike]

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If you remain invested through summer, the only advantage you could have is if the price ends up higher on October 1st than it was on March 31st when the six-month people sold. If the price is lower, you've lost ground to that group (who would've eked out modest gains sitting in the G and/or F fund and then bought in at lower prices on October 1st with more money than they had at the end of March).