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Given the continuously changing market, investing is greater than just securing capital and putting it into a project. Having a protected and flexible investment strategy can aid you make a more informed decision. A sound investment strategy will help an investor not only make decisions based on expected returns, but also based on goals and capital. Holding high-quality stocks is a must, but it is not the only thing an investor needs to concentrate to.
As an investor and entrepreneur, I have to look out for profitable sectors and anticipate how and when they may perform. Not all sectors at all times reflect good results and positive numbers. Some may even experience seasonal changes or trends in the short to medium term. Therefore, seasonal investing is something everyone should pay more attention to.
What is seasonal investing?
When I develop my seasonal investing strategy, I first look at which seasonal corporations and sectors are trending positively. A seasonal business is one in which there is a large increase in sales and demand for a brand or product at certain times of the 12 months. Since these are not annual services or corporations, finding one that has good popularity and happens at the right time was difficult at first, but became easier with practice.
Once an investor finds a seasonal business or enterprise to invest in, it is time to determine the investment period. Seasonal investing at all times has a start and end date and the strength or weakness of the price of the commodity, stock or index between those dates. They ought to be planned according to the trend. Moreover, by definition, it has been found that a seasonal investment is generally profitable in greater than 50% of cases.
Seasonality and investing
To understand seasonal investing and achieve success, it is essential to know about seasonality. Seasonality is the predictable occurrence of annual events that affect entire industries, stocks or corporations. These repeating patterns help seasonal traders understand the market in real time and see where trends start and end. Understanding seasonality patterns may also aid you shape your seasonal investing strategy and indicate the best time to invest and for how long.
The goal of seasonal investing is to understand these trends and benefit from them at the right time. Understanding the patterns and measuring their impact on each industry is the best way to start formulating a strategy that may adapt to the seasons of the market.
How to measure seasonality
Seasonality may be measured by answering three questions:
- What is the average return (%) over the interest period?
- How reliable is this number compared to the profits of the ten previous periods?
- How well the potential investment performed against a significant equity index (e.g. S&P 500, Index TSX)
Use these questions to determine the seasonality of something you wish to invest in. Once you measure seasonality, you’ll have the option to start identifying seasonal trades.
How to recognize seasonal trades
Seasonal trades will help indicate a period of strength and further ensure a solid seasonal investment. Here are some key methods to help discover seasonal trades:
- See what fundamental analysts say about seasonality. Then base their comments and data on a ten-year study. If the trends are still present, it means they are accurate.
- You may also use decadal studies to see repeated seasonal spikes and determine the strength and length of the trend.
- By using trends and seasonality identification, you possibly can track corporations and sectors and see when their most profitable quarters are.
- At least ten years of information will help discover stocks and sectors that are showing periods of above-average gains relative to their index.
How does the stock market fluctuate seasonally?
Since the stock market is in constant motion, it is also affected by seasonality and seasonal changes. There are 4 different moments to remember, especially when investing seasonally:
- December effect: To limit taxable capital gains, stocks that have performed well for almost the entire 12 months are not sold in the last month.
- January effect: With latest budgets being implemented and early changes going down in the market, many investors tend to withdraw and wait to hedge their portfolios before an uncertain start to the 12 months.
- New months and monthly change: Various trends that emerge over many months can create patterns. This in turn affects the stock price and performance based on consumer or market activity.
- Monday blues: After the weekend, the market traditionally does not grow or perform well. It is often not beneficial to shop on Mondays, especially during unstable times of the 12 months.
What are the disadvantages of seasonal investing?
As with all positive investments, you need to know the potential downsides of seasonal investing. While it’s inconceivable to avoid all the hiccups along the way, every smart investor is at least aware of some of the larger ones that may arise when investing seasonally.
Remember that just because historical trends have remained strong and repeatable does not mean they may definitely stay that way. The market will at all times remain unpredictable. Just because you have tracked the seasons accurately doesn’t suggest you possibly can remember them exactly down to the day. You need to be vigilant and at all times have time in the market. If you do not do this, you run the risk of getting a terrible day again in your search for profits, which could find yourself hurting your portfolio.
Strategy and understanding trends are helpful, but for now they’ll only mitigate potential risks. Many markets are known to be highly volatile, and even if the forecast seems certain, it is probably not the best route for those looking to make huge gains on their retirement portfolio. More long-term investments are often the standard for those that have this goal in mind.
Is seasonal investing the right solution?
Doing proper research and choosing corporations or projects that you simply imagine can survive market changes is solid investment advice. This alone can aid you achieve some growth in the long term. However, once you begin to recognize patterns and understand the seasonal periods in which some corporations perform higher than others, your attention may simply shift towards seasonal investing.
These patterns and seasonal changes in the markets, especially over a certain variety of years, can provide some investors with an interesting map that will help their portfolio perform well throughout the 12 months and even be the key to long-term wealth. The only way to discover is to study and then start investing. This way you’ll have the option to enjoy your returns later.