04/26/2002
Seasonal Trends
*I thought I’d beat everyone to the punch, as we approach a key
date, historically, April 30.
Back in 1986, Yale Hirsch discovered one of the most powerful
principles of investing, that being that if you invest only during
the November 1 – April 30 stretch, over time you will have far
more success than investing in the corresponding period, May 1
– October 31. And it’s not even close.
For example:
$10,000 invested in the Dow Jones on May 1, 1950 and taken out
October 31, repeating this exercise through 2000, would have
resulted in that portfolio’s growing only to $11,743.
But, if you took $10,000 and invested it only during the period
11/1-4/30, you’d have a portfolio worth $415,890.
[Figures do not include dividends.]
Incredible, isn’t it? For the S&P 500, the figures are $314,056
vs. $11,408. However, regarding the S&P, if you add in the
period 5/1/01-10/31/01, the return on your $10,000 is only
$9,673. Why? No one ever mentioned this fact last fall, but it is
negative because you’re compounding the $11,408 by a negative
return of 15.2% in the S&P for that 5/1-10/31 period.
[These numbers were not available for Hirsch’s 2002 almanac.]
The key, of course, is the power of compounding, and while
there has never been a 20% gain for the period 5/1-10/31 in the
Dow Jones since 1950 (I do not have the data in this regard for
the S&P, but I suspect it is the same), there have been 8 such
Dow gains for 11/1-4/30.
Additionally, it should now be no surprise to you that the four
best months for both the Dow and the S&P are Nov., Dec., Jan.,
and Apr., again, all within the 11/1-4/30 time frame.
Monthly returns for the Dow Jones, Jan. 1950 – Apr. 2001
November 1.4% average percentage change
December 1.8%
January 1.6%
February 0.2%
March 1.0%
April 2.0%
May -0.1%
June 0.1%
July 1.2%
August 0.03%
Sept .-0.6%
Oct .0.3%
Now the S&P 500
November 1.5%
December 1.8%
January 1.6%
February -0.01%
March 1.0%
April 1.4%
May 0.2%
June 0.3%
July 1.1%
August 0.1%
September...-0.4%
October 0.7%
[In Hirsch’s almanac, there are slight discrepancies in some of
the S&P monthly return figures, but by only one-tenth of one
percent. *Different #’s in separate parts of the book.]
*Nasdaq has been around only since 1971 and the returns are
skewed by two, minus 22% months, Nov. 2000 (-22.9%) and
Feb. 2001 (-22.4%), so I wouldn’t place too much weight on
these. Nonetheless, for January 1971 – April 2001:
November 1.2%
December 2.5%
January 4.3%
February 1.1%
March 0.2%
April 1.4%
May 0.9%
June 1.5%
July 0.04%
August 0.5%
September -0.2%
October -0.6%
What the Nasdaq figures do clearly point out is something you
have heard before, tech stocks do not historically perform well in
the period June – October.
Lastly, here are just a few other numbers that help establish just
what an awful 3-year stretch the markets have witnessed.
Dow Jones
April 30, 1999 10789
April 30, 2000 10733
April 30, 2001 10734
April 24, 2002 10030
S&P 500
April 30, 1999 1335
April 30, 2000 1452
April 30, 2001 1249
April 24, 2002 1093
Nasdaq
April 30, 1999 2542
April 30, 2000 3860
April 30, 2001 2116
April 24, 2002 1713
It can only get better from here, right?
Sources: Yale Hirsch’s “Stock Trader’s Almanac 2002,” as well
as proprietary data, which I deem to be accurate.
Brian Trumbore
*Wall Street History returns on May 10.
