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In an ever-changing market, investing is more than just securing capital and putting it into a project. Developing a safe and adaptable investment strategy will help you make more informed decisions. A sound investment strategy helps investors make decisions not only based on expected returns, but also on goals and capital. While holding onto blue-chip stocks is essential, it’s not the only thing investors need to be careful about.
As an investor and entrepreneur, I always have to keep an eye on profitable sectors and predict when and how they will perform. Not all sectors always reflect good performance and positive numbers. Some may experience seasonal changes and trends in the short and medium term. That’s why everyone should be extremely careful when making seasonal investments.
Related: 7 Easy Ways to Invest $1,000 and Make Money
What is seasonal investment?
When I develop a seasonal investment strategy, I first consider which seasonal businesses or sectors have positive trends. A seasonal business is one that experiences a large influx of sales and demand for a brand or product during certain times of the year. Finding services that are trending at the right time was difficult at first, as these are not services or businesses that happen every year, but with practice it became easier.
Once an investor has found a seasonal business or venture to invest in, they define the investment period. Seasonal investing always has a start date and an end date, and the strength or weakness of the price of a commodity, stock, or index between those dates. These must be timed to match the trends. Also, by definition, seasonal investments are generally known to yield profits more than 50% of the time.
Seasonality and investment
Knowing about seasonality is essential to understanding seasonal investing and how to succeed with it. Seasonality is the predictable occurrence of annual events that affect an industry, stock, or company as a whole. These repeating patterns help seasonal investors understand the market in real time and see where trends begin and end. Understanding seasonality patterns can also help you develop a seasonal investment strategy and indicate when and how long it is best to invest.
The purpose of seasonal investing is to understand these trends and take advantage of them at the right time. Understanding patterns and measuring how they impact each industry is the best way to start developing strategies that can adapt to market seasons.
How to measure seasonality
Seasonality can be measured by answering three questions:
- What is the average return (%) during the period?
- How reliable is this number compared to the past 10 periods’ profits?
- How well the potential investment performed compared to important stock indexes (S&P 500, index TSX, etc.)
These questions will help you determine the seasonality of your investment interest. Once you have measured seasonality, you can start identifying seasonal trades.
How to spot seasonal deals
Seasonal trading can help indicate good times and further ensure a solid seasonal investment. Here are some key ways to help identify seasonal deals:
- Pay attention to what fundamental analysts are saying about seasonality. He then analyzes their comments and data based on his 10 years of research. If the trend still exists, it is accurate.
- A 10-year study can also be used to identify recurring seasonal spikes and determine the strength and length of trends.
- Track companies and sectors and see when their most profitable quarters are with trend and seasonality identification.
- At least 10 years of data can help identify stocks and sectors that have had above-average gains compared to the index.
How does the stock market experience seasonal fluctuations?
Because the stock market is constantly moving, it is also affected by seasonality and seasonal changes. If you are investing primarily seasonally, you should be aware of the following four periods.
- December effect: To limit taxable capital gains, stocks that perform well for most of the year are not sold in the final month.
- January effect: When new budgets are implemented and early changes occur in the market, many investors tend to stand back and wait to protect their portfolios from an uncertain start to the year.
- New month and monthly changes: Various new trends can emerge and patterns can form over multiple months. These influence stock prices and operating results based on consumer and market activity.
- Monday blues: Markets traditionally do not rise or perform well after the weekend. Generally, it is not recommended to buy on Monday. This is especially true during volatile seasons.
Related: 3 actionable strategies to navigate market uncertainty
What are the disadvantages of seasonal investing?
As with the positive sides of any investment, you should also be aware of the potential downsides of seasonal investing. While you can’t avoid all the problems along the way, any smart investor is at least aware of some of the bigger problems that can arise when investing seasonally.
Please remember that just because a historical trend remains strong and repeats, it does not guarantee that it will continue in the future. Markets are always unpredictable. Just because you’ve tracked the seasons correctly doesn’t mean you’ll know exactly what the season is until that day. You need to stay alert and always respect market times. Otherwise, you risk re-entering on bad days to take profits, which can ultimately harm your portfolio.
Understanding strategies and trends can help, but at this point they can only help you mitigate potential risks. Many markets are known to be volatile, and even if the predictions appear to be somewhat certain, it may be a great place to explore for those looking to make big gains in their retirement portfolio. It may not be the means. For those with this goal in mind, longer-term investments are often the norm.
Is seasonal investing the right way?
Doing proper research and choosing companies and projects that you think can survive market changes is solid investment advice. That alone can drive some growth in the long run. However, once you begin to recognize patterns and understand the seasonal periods in which certain companies perform better than others, your interest may shift to seasonal investing.
These market patterns and seasonal changes can provide some investors with an interesting map, especially over a period of years, and can help their portfolios perform well throughout the year, and even help them build long-term wealth. Could be the key. The only way to know is to study it and then start investing. That way you can enjoy the returns later.