Bit Market history & Upcoming
[excerpt from Taipan Tidings newsletter today]
A Bull in Winter: There is an old Wall Street adage that says, “Sell in May and go away.”
According to Barron’s, which in turn credits ADVFN, a London-based financial data provider, if you had gone long in the winter months and avoided the market from May to September from 1984 to 2004, you could have netted 51% more than buy-and-holders.
Taken from another angle, over the past 22 years the UK stock market has risen 20 times from November to April and fallen just twice. Compare that with the May to October period, when it rose just ten times and fell twelve.
The “Sell in May” theory also works for the Dow Jones Industrial Average. From 1984 to 2004, winter stock holders would have beat the year-round guys by 26%.
Buy-and-hold only works half the time.
Add to this the fact that the average length of a boom or stagnation has historically been 16 to 20 years. The last bull market was the longest in history, lasting 18 years and ending in January of 2000.
But from 1905 to 1921 buy-and-hold investors lost money. From 1929 to 1950 they lost money again. From 1966 - 1982, they lost money. Fifty-two years of bear markets all together.
As you can see, unless you are in a bull market, the buy-and-hold philosophy is nonsense. For the past six years Warren Buffet’s Berkshire Hathaway has gained less than 2% a year.
But that doesn’t mean you can’t make money. You can, quite a bit. Even in a bear market. Let’s look at the two biggest bear markets this century, 1929 through 1950 on the Dow and 1990 to the present on the Nikkei. The Dow staged a huge 300% rally from 1932 to 1937.
The perma-bears will always point to the 1929-1932 era as their poster boy for bad markets. But their charts always seem to end before this 300% five-year rally. Still, the bear market wasn’t over. It took until after World War II for the Dow to make a new high.
Look at the case of Japan. Two and a half years after the crash, the Nikkei staged a 33% one-year rally. Then in 1995 there was a 53% rally. And in 1999 the market jumped again, handing over another 45% rally.
***Pick your bottoms: Now think of the NASDAQ. Three years into the bear market, in 2003, the NASDAQ staged a 73% rally. And again last year, starting in August, the NASDAQ showed a 25% rally.
My point is that you can make money in bear markets, lots of it, even in the summer - though you have to pick your bottoms.
You might consider finding a bull market in the winter. That’s just what we have going on in Australia - the days are growing shorter in the southern hemisphere, and the general market is up 83% this year.
[And next up....]
Consumer spending and income data, durable goods orders, and house sales will all contribute to the market’s mood, with the highlight on Thursday when the Commence Department releases its initial figure on first-quarter US GDP growth.
According to a MarketWatch poll, that figure could roll in around 3.6%, just a tad lower than the 3.8% pace posted for the fourth quarter. Not too shabby, considering inflationary pressures, an inconsistent job market, ballooning oil prices and the upward march of interest rates.
However, consumer spending could see a sharp decline from the annualized fourth-quarter rate of 4.2% to 3.1% this time around. Meanwhile, business investment growth has dropped from 15% to 8%.
Pennies not a zero sum game as much as some zero game.
