In Part 1, Part 2 and Part 3, I highlighted the best times of year to hold a long position in ticker KO and a simple (albeit by no means, “low risk”) strategy for maximizing long term returns by investing during those periods using margin. In this piece I want to mention one “when not to invest in KO” period.
Unavorable Seasonal Period for KO
*This period starts at the close of December Trading Day #17
*This period extends through January Trading Day #20 (or the close of the last trading day of January if there are fewer than 20 trading days in January)
Let’s say that Investor C had started with $1,000 in December 1981 and had been just stubborn enough to buy and hold KO shares only during this time frame every year since (pause here and wait for the face of the relative of yours who fits this description to pop into your head. OK, now proceed).
Figure 1 displays the “return” Investor C would have “enjoyed” over the past 34 years.
Figure 1 – Growth of $1,000 invested in KO stock only during “unfavorable” seasonal periods (December 1981-June 2015)
As you can see, late December into late January is not a “happy time” for KO shareholders. For the record:
*This period was unchanged 1 time
*This period showed a gain 6 times (17.6% of the time)
*This period showed a loss 27 times (79.4% of the time)
*The average gain was +3.91%
*The average loss was -4.50%
So should KO shareholders consider selling their shares in late December and buying them back in late January? Well, it’s a thought.
In Figure 2 we see the results for:
*Investor A bought KO stock in December 1981 and held it into June of 2015 (red line)
*Investor B held KO stock also but sold his shares at the close of December Trading Day 17 every year and then bought them back at the close of January Trading Day #20. We will assume that an annual rate of 1% in interest is gained while out of KO stock (blue line).
Figure 2 – Growth of $1,000 using buy-and-hold (red) versus being out of KO stocks during “unfavorable” seasonal period each year (blue)
As you can see, the “flexible” trader – who simply sat out the same “late December to late January” period every year, came out far ahead of the “buy-and-hold” investor in this 34 year example.
For the record:
*$1,000 for the buy-and-hold investor gained +5,593% to $56,931
*$1,000 for the “flexible” investor gained +16,385% to $164,851
Summary
So should everyone be dumping their KO stock at the close on 12/23/2015? That’s not up to me to decide.
Still, as far as trading strategies go – as a “South Side of Chicago” guy I used to know might say, “I seen woise.”
Jay Kaeppel
Jay…here is another one for your next article, you probably are already working on it…Buy KO by the first two methods and sell short by the third.