Is there a seasonal pattern for investing in the stock market? Like the farmer who must plant his crops as the season turns toward spring and summer, we may benefit from the same type of seasonal thinking.
For example there is an old Wall Street saying “Sell in May and go away” and we also know that October (the onset of winter?) can be a troubling time. Does this suggest there is good reason to take a seasonal approach to investing?
From the farmer’s point of view, it is a simple fact, that there is a time to grow, a time to harvest and a time to sit idle and prepare for the next growing season. The farmer knows this and year in and year out, acts accordingly.
Perhaps as investors, we would all do well if we followed his example. The challenge for the investor is his ability to tell when a seasonal change has occurred. How can he know that the ill winds of a bear market are approaching? How can he tell if a sudden market rise is just the calm before another storm?
Unfortunately, he can’t know exactly, but he can make adjustments as the facts warrant. He most certainly should not make the mistake of investing heavily as the clouds of winter appear on his doorstep. Nor should he stay hunkered down inside his home unknowing that rough winds no longer shake the darling buds of May.
So, what is your guess about the season we find ourselves in today? The stock market has risen 80% since last April and continues to rise slowly and evenly. Is it Spring? Is it Summer? While there is no hard and true answer, we can say we are in the growing season for sure. We know for certain that the winter has past.
I think it is early summer. We have had the fast growing season behind us and now we are in for some steady growth. This does not mean we will have a lazy summer because we have lots of work to do. We have to protect our crops- water them, weed them and make sure nothing from the outside like pests and birds destroy what we have carefully tended. For our investment portfolios this means weeding stocks which are not thriving and adding to those which are showing the healthiest growth. It means staying attune to the news to make sure no “pests” from the outside or events unseen will harm our portfolios (think Greece).
We must also remember that Mother Nature can interrupt our summers with unpleasant surprises in the form of storms and tornadoes and worse. For the portfolio, we too will be subject to storms (surprising economic numbers) and tornadoes (a financial scandal?). In Florida we have to be acutely aware of the start of the hurricane season, so extra preparation is a must. Portfolio diversification and common sense can help us get through a “Category 3” as well.
Are you hunkered down in the house investing in 0% money markets as if winter were still upon us? Please, take a look out the window. For now at least, the flowers are in bloom and summer is here and it is not too late to make some investment returns on your money.