returns

Buy Low, Buy High

Given the stock market is at all time highs, lots of questions about whether it’s too late to buy. Historically, except for after a big crash, all time highs are the time to buy.

Below I graph cumulative returns for the next 12-months based on how far the market was from its all time high at the start of the month.

As you can see, the return pattern is a U-shape. If the market is down a lot, it’s a good time to buy. If the market is at an all-time high, it’s a good time to buy.

While this may seem counterintuitive, research has shown the market has a lot of momentum. Thus, when the market has done well, it tends to continue to do well.

By Christopher Schwarz, ago

Small Caps Getting Coal From Santa?

As I mentioned previously, end of the year – aka the “Santa Claus Rally” – is the best time of year to be invested in the market. The question is… has the market figured that out already?

Here are the returns for the IWM ETF (Russell 2000) from 3 trading days before Christmas to the end of the year. I have the Maximum return as well as the holding period return from 2000 to 2019.

You can see massive returns during this period. The annualized holding period return is ****31%****!

You can see this has almost disappeared over the last few years. The average return the last 5 years is negative. The average return over the last 10 years is 0.4% or 13% annualized – worse than the 14% the market has averaged over this period.

The bottom line is it appears the market has become more efficient about the Santa Claus Rally. i.e. people anticipated it so they buy stocks beforehand, pushing up the prices and therefore lowering returns.

By Christopher Schwarz, ago