According to the tall foreheads who track stock market history, it’s time to back up the truck and load up on stocks.
Why?
Because it’s November.
Yup, it’s that simple. History and the market timers tell us we’ve entered the sweet spot for equities.
According to U.S.-based Ned Davis Research, it’s a slam dunk if you buy in November and then remember to abide by that age-old stock market adage – sell in May and go away.
Ned says that if you invested $10,000 in the Dow Jones Industrial Average on Nov. 1 and sold on April 30 every year from 1950 to 2001, you’d have a return of $415,890. He didn’t say why he didn’t tell us this in 1950.
If you’d bought on May 1 and sold on Oct. 31 during those same 51 years, you’d have returned $1,743.
Those are stunning numbers all right, and the trend of stronger returns in the six months from November through April has continued since 2001.
In the past year, the Dow returned three per cent from November through April, then lost five per cent from May through October.
So now you’re rubbing your hands together with glee and thinking you’ve got it made in the shade.
You’re saying, “Great, so I can learn how to read a calendar, work a two-day year, make two trades a year by buying the indices, make more money than Warren Buffett and I get ample opportunity to work on my tan and my golf game.”
Well, maybe not.
There’s something awful troubling these days about this marketing timing theory based on a calendar.
It’s too popular.
Too many analysts and money managers have become too bullish on the stock market at this time of year.
Too many traders have become sold on the December-to-April effect so, if you plan on trading the calendar over the next half century, watch out because eventually traders will try to scoop you by buying well in advance of November and selling well in advance of May.
And, when a trend becomes too popular in the stock market and investors become too comfortable with it, that may be a sign that trend could be setting itself up for a major reversal.
And the next six months may well be the time when this trend breaks down, considering the uncertainty centred around oil prices, rising interest rates and a vulnerable U.S. dollar.
Just as in baseball, if you’re sitting on the fastball and waiting to hit one out of the park, the stock market could toss you a nasty curveball.
Just to keep you honest.
* TECH MANIA II: Headline in the National Post: Google Leads New Tech Boom.
Tech boom? Excuse me?
Google is booming with its stock having doubled from its initial public offer of $85 US three months ago. But Google (Nasdaq:GOOG) has been essentially a lone ranger in the tech stratosphere.
During Google’s three-month rampage, eBay (Nasdaq:EBAY) is up 25 per cent, Yahoo (Nasdaq:YHOO) is up 20 per cent, Intel (Nasdaq:INTC) is down 25 per cent, Microsoft (Nasdaq:MSFT) is down one per cent, Amazon (Nasdaq:AMZN) is down 10 per cent, Cisco Systems (Nasdaq:CSCO) is down 15 per cent, Nortel Networks (TSX:NT) is down 20 per cent and Sierra Wireless (TSX:SW) is down 50 per cent.
If that’s a tech boom, I’m Henry Blodgett! (If you’ve been dead or investing in Nortel, Blodgett was king of Wall Street Internet analysts in the late 1990s until the techs crashed – along with Blodgett’s career).
Incidentally, Calgarian Kirby Thibeault of Kapital Investments Corp., publisher of an online markets newsletter, nailed Google recently in the Edge, making it his top pick at $137.40, a week before stock in the sexy Internet search engine blasted to $172.43 on knockout third-quarter results.
Thibeault continues to pound the table on Google, whose market cap has skyrocketed to $47.3 billion US, putting it in third place among Internet companies, behind eBay and Yahoo.
* STREET TALK: “These oil prices are really going to bite the consumer at some point,” Russ Koesterich, U.S. equity strategist with State Street Corp., tells Associated Press. “Heating oil is up, it’s supposed to be a very cold winter in the Northeast and lower- and middle-income people are going to pay. Combine that with a total lack of fundamentals in the big-name stocks and there are very few places left to hide for investors.”
* FOUR YEARS AGO IN THE EDGE: Fred Pynn, vice-president and director of research for Bissett & Associates Investment Management, cautioned investors about Nortel Networks (NT-TSX) even after the stock’s rapid descent from $125 to $66. He said Bissett had sold its Nortel position in the $100 to $120 range.
“The valuation correction in technology is well under way and there’s still potential damage,” remarked Pynn at the time.
Two years after Pynn’s comment, Nortel plunged under $1. It recently traded in the $4 range.
Pynn’s current outlook is bullish on Canadian stocks in particular and he forecasts a return of five to 10 per cent for the S&P/TSX exchange in 2005.
For Pynn’s top picks, see Pro’s 3 Stars on Page 24.
* SAGE WORDS: Berkshire Hathaway partners Warren Buffett and Charlie Munger responded thusly when asked about the issue of executive compensation during the company’s annual meeting; “The typical large company has a compensation committee and they don’t look for dobermans on that committee, they look for chihuahuas.”
– Buffett
“Chihuahuas that have been sedated.”
– Munger
HOT STOCK: Randsburg International Gold
TSXV:RGZ $1.99
Up 90 cents (+82.4%) on 890,600 shares (for week ending Oct. 29).
Randsburg announced it was unaware of any material change to explain the explosive move of its stock on rumours, but the market seldom lies. Ironically, even a press release from the Vancouver company retracting some earlier statements about its Sudbury-area mine, including a statement about the property being a “world-class development project,” failed to dampen the enthusiasm of speculators who seem to be betting on a huge deposit of iron-titanium ore.
COLD STOCK: Antrim Energy
TSX:AEN $1.05
Down 50 cents (-32.3%) on 9.9 million shares
(for week ending Oct. 29)
Antrim announced exactly what the market was expecting. Its South Galapagos No. 1 joint-venture well in Australia was unsuccessful and was being plugged. Although the market had already resigned itself to that
reality after a previous report on drilling results, that didn’t stop shareholders from continuing to bail with shares in the Calgary company trading as low as 91 cents. The stock had hit $2.39 recently on speculation as drilling began. CEO Stephen Greer did note there was “sufficient encouragement” to continue drilling in the area.
(Gyle Konotopetz can be reached at gyle@businessedge.ca)
