Santa Rally, compound losses, Nick Train and the value factor - the best investing blogs and podcasts from the past week
I’m a sucker for a seasonal stock market anomaly* so I’m pleased to report that you’d be doing well if you’d stuck to one or two of the big beasts of the best known calendar effects this year.
And let’s face it, after a year like this one, even mythical stock market truisms are worth a second look.
One of the best known of these systematic patterns is the old adage to “Sell in May and go away, come back on St Leger's Day”. Or to put that another way… stay out of the market between May and the end of October, when stock market returns are supposedly at their lowest.
So how did that work out?
Well over the past 12 months, the high/low range of the FTSE All Share has been between 4,296.96 (which it hit in February) and 3,712.50 (which it fell to in October). That’s a fall of about 13.6%.
So while the Sell in May anomaly wouldn’t quite have saved you completely, you would have avoided a 7.4% loss if you’d followed this particular seasonal rule**.
As an index the FTSE All Share is naturally heavily weighted to the FTSE 100, which has had an exceptional couple of months. And here we come to the second big anomaly winner this year: the Halloween Effect.
The Halloween Effect is the flipside of the Sell in May anomaly: it follows the trend that markets pick up between November and the end of April.
Since early October, things have brightened up for the All Share, as they have for blue chip indices on both sides of the Atlantic. In November the index registered a gain of 6.8% (or 11.5% from the low in October). So that’s another calendar effect that has come up trumps so far in 2022.
What’s next?
No whirlwind tour of seasonal trends would be complete without a mention of the Santa Rally. Traditionally an end-of-year boost for stocks, the Santa Rally is historically believed to have been driven by seasonal cheer and tax-driven portfolio adjustments (a heart-warming mix!).
In the modern day, any pop in prices in December tends to make ‘Santa Rally’ headlines.
In reality of course, the gift that investors really want this year is an improving economic outlook. Signs of tempering inflation might just be easing the pressure in parts of the market. More momentum in the weeks to come will likely have less to do with festive goodwill and more on hopes that economic grief next year won’t be as bad as feared.
Santa has got his work cut out.
If you want to dive into some of the research into the veracity of calendar effects, this paper from Robeco is a good place to start: An Anatomy of Calendar Effects
* Many seasonal stock market anomalies are myths (although some are surprisingly reliable)
** These are categorically not rules!
Top posts from the past week
Joachim Klement - An ARKK-typical problem*
Several years of increasingly bubble-like conditions in parts of the market popped in 2022. Among them, big tech (especially US tech) fell out of favour big time, and speculative punts - notably crypto - hit the buffers. One of the sad consequences of these moves is that some investors are deeply out of pocket - and what they do next could make a huge difference. Quality compounding (the antithesis of speculative gambles) has been another big theme this year, but compounding is a two-way street. Big losses can pile up and leave investors underwater for much longer than you’d think. This article does a great job of showing how that happens - and how to avoid it.
AJ Bell Money & Markets podcast - Nick Train on another challenging year for Finsbury Growth & Income, thoughts on Unilever’s CEO departure and why he remains optimistic
Nick Train, the co-founder of UK fund firm Lindsell Train has had a difficult couple of years. With a few weeks left in 2022, he looks set to slightly undershoot his FTSE All Share benchmark. It’s not exactly clear what the problem (if any) has really been, except that his flavour of high quality growth has struggled in the current environment.
Obviously every fund manager is a sales person, and Nick Train is naturally the biggest fan of his own stock picks, but it’s still very motivating listening to him talk about the intrinsic qualities of shares like Unilever, Burberry, Relx and Diageo. Short term pressures and changes of personnel might capture headlines for some of these firms, but ultimately it’s powerful brands and businesses that produce the durability, predictability and growth that guides them (and attracts him).
The Long View - Wesley Gray: Perspectives on Market Efficiency, Investor Behavior, and ETFs
Wes Gray sits somewhere between being a quant geek and stock market ninja. There are very few people so good at clearly being at home in academic research and then regaling it in ways that makes total sense to anybody. This interview is tame compared to some I’ve heard with him, but he’s really interesting on the subjects of trend following and investor psychology. From about 23.30 they get him onto factor investing, kicking off with value. And this is where he hits his stride. Value has been back in the headlines this year and Wes’s interpretations of what we’re seeing, especially on sentiment, are interesting. He’s also got some spiky views on how the huge liberation of data and information has unleashed the opportunity for investors to indulge in their worst behaviour - overconfidence, over-trading, taking action and opening up to all sorts of behavioural errors.
Franklin Templeton - Value resurgent: why the style can keep outperforming
JP Morgan - Factor Views Q4 2022
When it comes to stock market factors, value and momentum are often uncorrelated (which means that when one is working the other tends not to). But on those occasions when you do find value and momentum working simultaneously (because value shares have got momentum behind them) it’s potentially a signal that sentiment has changed. After a year when markets have sold off heavily - and value looks cheaper than it has done for quite some time - value and momentum as a dual-factor strategy is one to watch. These two notes, both from investment houses, suggest that value in particular will likely play a big role next year.
Have a great weekend!
Ben
PS. Check out more articles, research and podcasts below…
Thinking & Strategy
The Felder Report
Who Says ‘You Can’t Time The Market’?
Of Dollars And Data
How Much Growth Can You Expect?
Morgan Housel
Getting Wealthy vs. Staying Wealthy
Athenarium
Great Books on Chance, Randomness, and Uncertainty for General Readers
Brian Langis
Quality at the Right Price
The Investor Way
[Podcast] E111 James at Quality Compound (Twitter - @Quality Compound)
Institutional Research
Janus Henderson
Equities Investment Outlook: Follow the data, not the drama
Alliance Bernstein
Global Stocks: Look Beyond Home Base to Find Growth
Schroders
China’s latest Covid crisis, war in Ukraine: observations for investors
GMO
Q3 Letter: The value opportunity updated / Time to deep dive into value
Securities & Markets
The Investor Way
[Podcast] E112 - Pets at Home, Cranswick, Assura, Britvic, Halfords & Zoom
TWIN PETES INVESTING
Podcast no.89 with LIVE in person video & special guest
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Business Breakdowns
[Podcast] Netflix: The Original - [Business Breakdowns, EP. 86]
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A Long Time In Finance
[Podcast] Bulb Failure