Where NOT to Invest, Er, Soon (Part 1)

  • SumoMe

Housing/Construction stocks have displayed a tendency to perform poorly starting in early June (OK, clearly I am a little early with this one – but since writing this is on my list of things to do I figured I’d just go ahead).

(See also Where NOT to Invest Right Now (Part 1))

An Unfavorable Seasonal Trend

Figure 1 below displays the net result that a trader would have “achieved” since 1989 by holding Fidelity Select Housing and Construction sector fund (ticker FSHOX) every year between:

*The end of June Trading Day #2 and;

*The end of October Trading Day #7

1Figure 1 – Growth of $1,000 invested in ticker FSHOX between June Trading Day #2 and October Trading Day #7 (Jan-1989-present)

Things haven’t been too bad since 2008, still, buying and holding ticker FSHOX only during this time period each and every year since 1989 would have generated a net loss of -71%.  Not exactly the kind of return most investors are looking for.

Now let’s flip it on its head.  What if you bought and held FSHOX during ALL OTHER DAYS of the year as follows:

*Buy ticker FSHOX at the close of October Trading Day #7

*Sell ticker FSHOX at the close of June (next year) Trading Day #2

*We will assume an annual rate of interest of 1% while out of FSHOX

The results of this approach – versus buy-and-hold – appear in Figure 2.2Figure 2 – $1,000 invested in FSHOX using buy-and-hold (red line) versus holding EXCEPT for sitting out “bearish” seasonal period (blue line) (Jan-89-present)

For the record, since 1/3/1989:

*$1,000 invested in ticker FSHOX using buy-and-hold grew to $21,266

*$1,000 invested in ticker FSHOX as described above grew to $72,343

Summary

So should you absolutely, positively sell housing and construction stocks by the 2nd day of June.  Well, as always with seasonal trends, there is no guarantee that the trend highlighted above will occur in 2016.  In fact, the reality is that FSHOX has actually advanced during the “bearish” period highlighted 11 out of 27 years (41% of the time).  So a decline in housing stocks is clearly “no sure thing.”

Still, as a wise old investor once said – well, I am actually paraphrasing here:

“Minus 71% is minus 71%”

Which is worth remembering I think.

Jay Kaeppel

 

2 thoughts on “Where NOT to Invest, Er, Soon (Part 1)

    1. Juan,not sure there is a definitive answer, but according to my numbers the daily and weekly numbers reveal that XHB has higher correlation to FSHOX than does ITB. Jay

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