Holiday Seasonal Investments

Seasonal investing is a strategy of buying and selling stocks and other investments at different times of the year.  Based on natural factors like climate and agricultural planting and harvesting, or on cultural factors like the school year or popular months for weddings, seasonal investing uses common sense observations of what will likely be more and less successful times of the year for certain types of businesses.

In other words, if you want to invest in a company that makes bunny costumes, the period just before the time people are preparing their Easter celebrations might be a good time to buy, and the period when the company is reporting its big Easter sales might be a good high point at which to sell.

Seasonal strategies are thus a subset of timing strategies, which contrasts with “buy and hold” strategy.  Many people are highly suspicious of timing strategies and contend that research shows that on the whole investors do not do better when they try to time when to jump in and out of the market, and where individuals do succeed it’s just random luck.  That is, if enough people flipped coins in deciding what days to buy and what days to sell, some of them would outperform “buy and hold,” but not in a way that provides a predictable strategy that one can use moving forward.

One problem with seasonal investing is if there is a strategy that works, pretty soon the market corrects for it and its advantage lessens or goes away.  For instance, let’s say that certain types of stocks tend to rise in January, and that therefore a good time to buy is late December.  Once enough people pick up on this, the stock rise will not start in January, but in late December, since so many people are jumping in then.  Which means the savvy investor will need to buy in mid-December to beat the crowd.  Except soon enough a lot of people will figure out that they have to buy earlier like that, and so the price rise will come in mid-December.  Which necessitates buying in early December to beat the rush, and so on.  In this way, the timing keeps getting pushed back, as the advantage gradually fades away.

Still, there are plenty of investors and researchers who believe that not all timing strategies are equally useless, and that seasonal strategies specifically hold at least modest promise, as long as one stays on top of them to see if and when the market has efficiently eliminated them.

Take the Christmas season, for example.  Big box retailers always have increased success during this time.  If, say, in November, you see the stocks for several such companies inching up, but one or more haven’t budged yet, you may want to grab the stragglers.  There’s a small chance that they’re not moving because there’s some justifiable reason for concern about their prospects compared to other stores, but more likely it’s just a matter of the market not being perfectly efficient.  Probably all those companies will do fine and it’s random which happen to be temporarily straggling and giving you a bargain opportunity.

You also can look at which company has the really “hot” toy or doll or gadget or whatever this year that everyone is talking about, that everyone is desperate to get.

But again, timing is everything.  If there have already been numerous news stories about how retailers can’t keep this item in stock because it’s flying off the shelves, that success is surely already factored into the stock price and it’s too late.  So you would have to be the kind of person with a really good intuition for spotting these things early (or just have excellent contacts – a popular twelve year daughter could be key here).

Put it this way: Are you the kind of person who usually misses out on buying the hot item because it’s already sold out by the time you’re scrambling to get one?  Or are you the kind of person who finds that the item that caught your attention that you bought early often turns out to be the trendy item that shoots through the roof shortly thereafter?  If you’re the latter type, you might be able to use that insight to make certain profitable investment decisions.

Also consider the weather forecast for the upcoming winter holidays.  Are conditions projected to be unusually severe?  Perhaps companies that profit from heavier than usual usage of coal and natural gas and such would be worth an investment.

As mentioned, probably for any such common sense trend you can think of, countless other investors have already thought of it, so it’s already factored into the prices of stocks.  But it may not be factored in completely.  That is, granted it’s unlikely you’ll get rich like you could if you were the only person on Earth pursuing a given timing strategy, as long as you can anticipate these things a little better than most investors, you stand to outperform chance.

Just don’t count on outperforming it more than modestly.