U.S. Financial seasonality, fact or Folklore?

I do not follow seasonality because from past experience I find in a bull market seasonality will have you buy - sell higher - and buy back even higher. In a bear market seasonality will have you sell - buy lower - and sell even lower.

I clipped this from DVTechtalk January 18, 2010 – Thoughts on Seasonality in the U.S. Financial Services Sector. According to a recent seasonality study on the U.S. Financial Services sector completed by Brooke Thackray, the best time to own the U.S. Financial Services sector is from January 19th to April 13th. Average return per period from 1990 to 2008 was 4.1% versus a gain of 1.3% for the S&P 500 Index. The annual recurring reasons for the trade include the reporting of encouraging fourth quarter earnings and favourable outlooks offered in annual reports and annual meetings about first quarter and 2010 results. The seasonal trade is not recommended this year:

Well, I can see why DVTechtalk does not recommend the trade this year – this seasonal trade has never worked! A simple buy-and hold from January 1995 has returned 72% (excluding dividends) and the seasonal trades actually lost money (-16%) over the same period. Note during the 1995-1998 and 2003-2007 advances the tendency to sell high and buy back higher. The only big call was the sell in April 2008 but once again one could also argue that in April - May 2008 you could have sold anything and been correct. Also as of now the seasonal model has missed the great May 2009 to January 2010 35% recovery having sold last April.

At the moment the fact-or-folklore question needs more study – so over the next few weeks let us audit a few more seasonal trades before May when we all go away.

Energy seasonality, fact or Folklore?

I do not follow seasonality because from past experience I find in a bull market seasonality will have you buy - sell higher - and buy back even higher. In a bear market seasonality will have you sell - buy lower - and sell even lower.

I clipped this from DVTechtalk January 18, 2010 - Thoughts on the Seasonality in the Energy Sector. According to Thackray’s 2010 Investor’s Guide, seasonal influence on the U.S. Energy sector is from February 25th to May 9th. Brooke also has completed other studies in the sector and has found that seasonality in the Canadian energy sector, U.S. Oil Services sector and the U.S. Oil Exploration and Production sub-sector are slightly different. Their period of seasonal strength is from January 30th to May 9th. In addition, returns offered by the Canadian energy sector, U.S. Oil Services sector and the U.S. Oil and Exploration and Production sub-sector are significantly higher than the U.S

I know from experience few investors will stick to any model when over time, it stops working and the problem here is the seasonal Energy calls simply never worked over the last 10-years. A simple buy-and hold from January 2000 to date returned 315%and the seasonal trades generated 179% over the same period. Note during the 2000-2006 advance the tendency to sell high and buy back higher. The only big call was the sell in April 2008 but once again one could also argue that in April - May 2008 you could have sold anything and been correct. Also as of now the seasonal model has missed the May 2009 to January 2010 recovery having sold last April.

At the moment the fact-or-folklore question needs more study – so over the next few weeks let us audit a few more seasonal trades before May when we all go away.

Is it OK to buy XEG now?

A question from Muntazir who has left a new comment on your post "The Perfect Trade?":Is it ok to buy XEG now.
Thanks
Monty

Answer:I would avoid the XEG (TSX Energy) because it is currrently under-performing the XIU (TSX60 Index) - The problem here is the XEG is a bad mix of energy trusts, O&G producers, integrated and oilfield services co's. I am now only interested in the oilfield service co's so some stock picking is needed

Bill Carrigan

Seasonality, fact or Folklore?

I do not follow seasonality because from past experience I find in a bull market seasonality will have you buy - sell higher - and buy back even higher. In a bear market seasonality will have you sell - buy lower - and sell even lower.

Investing in platinum: According to Brooke Thackray and his book entitled, “Thackray’s 2009 Investor’s Guide” he notes that platinum has a period of seasonal strength from the end of December to the end of May. The trade has been profitable in 17 of the past 22 periods. Average gain per period was 8.3%. Question; how could a simple rule work so well for so many? The answer depends on the window of time you select to study the results. I selected the great bull advance from December 2001 to May 2008.

There were 14 trades with a total return of 172% (excluding trading costs) and a buy-and-hold netted 180%.

The problem is that few investors will stick to any model when over time, it stops working and with the big platinum calls such as the May 2001 and May 2008 “sells” being few and far between. One could also argue that in May 2008 you could have sold anything and be correct. Also investor glee with the sell-May 2008 and buy Dec 2008 call would have turned sour with the latest sell-May 2009 and buy December 2009 call.

At the moment the fact-or-folklore question needs more study – so over the next few weeks let us audit a few more seasonal trades before May when we all go away.

My buddy Weizhen Tang

I met Weizhen Tang back in 1999 in the Toronto offices of a small investment dealer owned by Ken Norquay. This was long before Tang billed himself as "the Chinese Warren Buffett" and “The King of 1% Weekly Returns.” I was recently surprised to learn Wiezhen remembered me on page 51 of his book “The Chinese Warren Buffett.”

Now according to the business media the Ontario Securities Commission (OSC) first raised allegations last March that Tang may have been operating a Ponzi scheme worth as much as $60 million (U.S.). Tang reportedly told investors that money from new investors was being used to pay out existing investors. Additional charges include securities fraud, unregistered trading in securities, illegal distributions of securities and making prohibited undertakings with the intention of effecting trades in securities, which were alleged to have taken place between Jan. 1, 2006, and March 31, 2009. The province's Securities Act states that no person or company can give written or oral representations on the future value or price of a security.

Well, here are the facts surrounding my knowledge of Tang. Firstly Tang’s book is filled with fantasy. This is assuming the misinformation and lies contained in the chapter “The Collapse of the Stock Market” are replicated throughout the book.

The reality is Tang never worked for the firm – he was never licensed or approved by any regulative authority. Tang had no industry accreditation having never written and passed any industry exams.

The reality is Tang was a terrible day trader than and apparently - still a terrible day trader today. Unfortunately Tang is a legend in his own mind. He believes his own lies. Tang is probably a sociopath, also known as an Antisocial Personality Disorder, a member of a diagnostic group known as ‘Personality Disorders‘. Without question, an Antisocial Personality is well aware they are telling a lie and in fact, lie very purposefully in an attempt to manipulate others, deny personal responsibility, escape the consequences of their behavior, or place them at some advantage. In his book he rambles on about being persecuted by clients who lost money and by “restrictions and pressure” from “government authorities.” Telling a lie is always an option for an Antisocial Personality, especially when their behavior has caused them some social or personal difficulties. Their lies range from daily excuses and promises, to complex schemes and scams that are based on a series of lies and deceptions.

I don’t think Tang ran a Ponzi scheme - he simply lost all the money in trading.

Unfortunately there no rules in place that can stop Tang from doing it all again, he will just operate under another name (he used is wife’s license back in the late 1990’s). Your only defense as a private investor is to understand – if it’s too good to be true, it isn’t true. And that’s the truth

The Perfect Trade?

Recently in The Toronto Star I suggested that a perfect trade would have been to overweight the portfolio in the TSX financial sector in March 2009 and hold through midsummer and reduce as the financials lost price momentum. The proceeds would then be diverted into an overweight position in the TSX Utility sector and held through year-end. This would have been a perfect trade with returns at least 50 per cent above the broader TSX composite index. Of course, perfect sector trades are possible with 20/20 hindsight.

I then disclosed my less than perfect trade when last April I bought Bank of Nova Scotia and then switched to Barrick Gold Corp. in August. The trade was questioned by a reader who correctly observed that as of one week ago had the trade was a wash and so why not just retain the bank stock. The reader asked if a seasonal strategy was used.

Ok I still think the trade was prudent because I sold a risky asset and directed the capital to a lower risk asset based on relative performance as measured in our chart. In late March our Relative Average (RA) signalled a buy-bank and sell-gold stock condition and then in late August the RA signalled a buy-gold stock and sell-bank condition. I stayed with the trade because BNS was printing high MOM numbers – a sign of a risky asset.

I do not follow seasonality because from past experience I find in a bull market seasonality will have you buy - sell higher - and then buy back even higher. In a bear market seasonality will have you sell - buy lower - and then sell even lower.