Simone Bilton, Associate Investment Director at Investec, explains the idea of seasonal investing...
As retailers enter the peak season for profits, seasonal investors are shopping for stocks as well as stocking fillers. There are many activities we associate with the festive season – decorating, cooking, ice-skating, gift-wrapping – but perhaps the one we spend the most time on is shopping.
With Black Friday fast approaching and promotional deals pinging into our inboxes non-stop, it’s astounding to think about the volumes of money pouring into retailers during the Christmas rush. You may well be wondering how this affects their share prices and whether investors could capitalise on this. If so, you’ve stumbled upon the idea of seasonal investing.
What is seasonal investing?
Seasonal investing is a strategy that involves buying and selling shares based on the time of year. Experts look for recurring patterns in the annual calendar and use that information, as well as a range of other inputs, to choose their investments.
For example, travel and tourism have a clear peak period, so airlines, hotels, foreign exchange providers and the like can expect to see an uptick in business over the summer. During the Christmas period, customers flock to retailers such as Marks & Spencer, Next, and Amazon, driving a notable increase in orders and revenue.
This consumer behaviour determines the financial performance of these companies, and recognising it can pay off for investors who predict the outperformers correctly. However, buying and selling individual stocks for short periods is a very high-risk investment strategy. There are far more factors involved in their performance than the season alone, and past performance is not a reliable predictor of future performance.
Can anyone try it?
This approach may sound simple, but seasonal investing involves analysing years’ worth of data to spot patterns that others might miss. Then, investors will constantly monitor the performance of the markets to determine if they need to adjust their strategy based on current conditions.
The process of monitoring and making adjustments to an investment portfolio can be very time-consuming. And then, of course, there is the Covid factor – the chance that an external event like a pandemic or a change of government can disrupt the usual patterns of commerce and lay waste to the most carefully constructed investment theories.
What’s the alternative?
In the long term, it’s more likely to pay off to take a holistic view of the calendar year and ensure your investment portfolio is diversified to cover all seasons.
If you don’t have the time or the expertise to do this yourself, a wealth manager can do it for you. They’ll devise your investment strategy in line with all your requirements, and ensure your portfolio is constantly monitored and any necessary changes are made without delay.
A wealth manager’s job isn’t merely to invest your money and to attempt to provide a return on that capital. They’ll work to truly understand your situation to ensure that your finances are best positioned to allow you to pursue your goals and aspirations in life. This is usually achieved by taking a long-term view of investing, ensuring that any short-term volatility is smoothed out over the duration of your investing timeline. To paraphrase a well-known saying; a wealth manager is for life, not just for Christmas!
This information does not constitute financial advice or a personal recommendation. Investors should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future returns. You may not recover what you invest.
