MENU

Are You Ready For The Santa Rally?

The Motley FoolDid you know that more people use blue toothbrushes than red ones? Did you also know that people who marry in January, February and March tend to have the highest divorce rates?

Welcome to my biggest bugbear – the murky world of statistics, which business professor Aaron Levenstein once said are like bikinis – what they reveal is suggestive, but what they conceal is vital.

Here is another statistic that tends to get people, especially those of us involved in the investing world, very excited indeed.

The best month to buy shares

In Singapore, the month of December is statistically a good one to buy shares. Since 1988, investors have, on average, enjoyed a return of 2.7% simply by being in the market in last month of the calendar year. However, July is statistically an awful month to own shares. On average, stocks tend to fall 1.9% in the dreadful summer month.

But before you pile into the market with blissful abandon, just bear this in mind: A person who has six meals one day and none the next will on average have three meals a day. But that is not a good way to live.

That said, December, it would appear, steals the limelight. Over the last 25 years, shares have risen 62% of the time in December. On that same measure July is once again confined to the stock market doghouse. Statistically, shares have only risen on seven out of 26 occasions. So there is only a one-in-four chance that Singapore stocks, as represented by the Straits Times Index (SGX: ^STI), have made headway in July.

Horrible July lived up to its billing again this year when it registered a 6% decline – the worst monthly fall of the stock market benchmark index this year.

As interesting – though some might say compelling – that the statistics might be, I doubt if any of us have any idea how shares are likely to perform next month. However, headline writers are already beside themselves with excitement as they herald the possible arrival of the Santa Rally.

Here comes Santa Claus

Various explanations have been suggested for the somewhat bizarre stock market occurrence in December, otherwise known as the Santa Rally. Some have suggested that it might be because stock market bears, who are generally characterised as pessimists, are away on holiday.

Another explanation might be that fund managers are loading up with shares in readiness for the New Year, ridding their portfolios of recent losers at the same time.

Amusingly, there are apparently dozens of such market-timing effects of which the Santa Rally is just one. For instance, there is the intra-day effect when shares are statistically supposed to be higher in the morning than the afternoon. There is also the weekend effect where shares are reckoned to close lower on Fridays.

Then there are the intra-month, month-of-the-year, turn-of-the-year and daylight-saving effects, too.

It just goes to show that statistics can prove almost anything you want. Or as the person with his head in a bucket of ice and his feet in an oven once said: “On average I feel quite comfortable.

Unfortunately, it is almost impossible to profit from calendar effects after you have stumped up for charges and taken accounted of those unavoidable buy and sell spreads.

In my view, it is much better to look for good shares that you can hold for the long term. And, once you have found them, any time can be a good time to buy shares. And every day could feel like Christmas.

The Motley Fool's purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock -- Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better. 

 

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.