Holiday Profits for Your Stocking
Tom Jandt
December 10, 2005
Holiday bargains aren't found exclusively in malls and retail stores the day after Christmas, stocks are usually cheap as well. If you're looking to invest a year end bonus or if you plan to make a final IRA contribution this year, be ready to put that money to work during the days right after Christmas Day.
The stock market has been moving higher and a lot of stocks are hitting their recent highs as we trade into the second week of December. The market usually (but not always) pulls back through December and into the first of January. Then, from January to March, the broad market indices tend to move back up. This doesn't happen every year, but this happens quite frequently. So, in order to take advantage of it, here are some things to look for:
Drop in stock prices
Low trading volume
Depreciated stock price, but increasing revenues & profits
Leaders of their industries, Look for stocks that are Best of Breed
December is a month when a lot of selling may occur, depending on how profitable stocks were throughout the year. Stock prices are driven up by demand and go down by increased supply. Therefore, by year end, mutual fund companies and individual investors alike need to re-allocate their portfolio and sell certain stocks to either capture a profit, or even possibly create a loss to offset a good year in capital gains. Recently, stocks have gone up quite a bit. A simpler way to put it is that there are more reasons to sell stock than to buy stock at the end of the year.
Another reason that stocks can be weak into the holiday season is that the senior traders that manage the trading desks usually take extended vacations during the holidays. Many of them take an extended vacation with their families, thereby leaving their junior traders to manage the trading desks. These junior traders don't have nearly enough authority to buy large blocks of inventory, which means that if a lot of selling in a stock comes in, then they can only buy small blocks and must allow the price to go lower before buying more. The senior traders give specific orders as to how much stock they can buy if selling comes in, if more is sold into the market, then these junior traders must not buy more stock than allowed.
NOTE: For the layperson, traders are the market makers of a stock. They are the ones who either find a buyer for your stock for you and match the buy and sell up, or they may like the stock and take in inventory, which means they actually buy it from you and hold it, hoping another investor will want to buy it by the end of the day at a higher price.
So keep your eyes on the market. Turn on CNBC during the day to see if the market is up or down. Keep a mental note, red means down and green means up on the bug in the corner of the screen. Or watch the ticker scroll across the bottom of the screen for your favorite stocks. If you hear them talk about the market being down recently and notice multiple days of red on the bug, start looking at your favorite mutual funds or stocks to see if the price has declined. If so, get ready to buy right after Christmas when everyone is still either on vacation or thinking about being home.
Now, in January, all of the senior traders come back and you have a lot of investors liquid and ready to invest. The majority of investors finally get back to their financial planning once the new year begins as they begin selecting investments and allocating their investment capital. This influx of new capital is usually great for the market and the indices tend to move higher into the beginning of each new year because of this. This is referred to as The January Effect and is also referred to as the Santa Claus Rally. An important mental note to make is that IF the markets DON'T pull back into the end of the year through to Christmas, don't invest yet. Sometimes the market does the opposite of what it's supposed to do, so if that's the case and stocks aren't cheap, wait until the market does take a dip.
It's always strange to me when I see the average investor only planning for his/her future during certain times of the year, such as Tax Time, Year End and the beginning of the New Year. Personally, I recommend planning and positioning yourself for the future each and every day. I also believe in constantly looking for opportunity. The majority of investors put everything on hold during the holiday season, leaving all of the undervalued opportunities to those select few whom are willing to take a few minutes create a plan and a few moments each week to look for the right moment to execute the plan. It's really simple, but I guess that's why 10% of us own 90% of the nation's wealth, right? How much wealth do you have right now? It might be time to get started, don't you think?
Shopping for investments is much more rewarding than shopping at the mall, so don't forget to make your shopping list early this year of investments to watch. When you invest in quality stocks at a discount, you are that much closer to an early and wealthy retirement. Now isn't that the best gift you can buy for you and your family?
Should you have any questions or comments, please feel free to visit our website at www.privateclient.org. Our goal at The Private Client Group is to help you Achieve Your Goals Ahead of Plan! I hope this helps.
Warm Holiday Greetings!
The stock market has been moving higher and a lot of stocks are hitting their recent highs as we trade into the second week of December. The market usually (but not always) pulls back through December and into the first of January. Then, from January to March, the broad market indices tend to move back up. This doesn't happen every year, but this happens quite frequently. So, in order to take advantage of it, here are some things to look for:
December is a month when a lot of selling may occur, depending on how profitable stocks were throughout the year. Stock prices are driven up by demand and go down by increased supply. Therefore, by year end, mutual fund companies and individual investors alike need to re-allocate their portfolio and sell certain stocks to either capture a profit, or even possibly create a loss to offset a good year in capital gains. Recently, stocks have gone up quite a bit. A simpler way to put it is that there are more reasons to sell stock than to buy stock at the end of the year.
Another reason that stocks can be weak into the holiday season is that the senior traders that manage the trading desks usually take extended vacations during the holidays. Many of them take an extended vacation with their families, thereby leaving their junior traders to manage the trading desks. These junior traders don't have nearly enough authority to buy large blocks of inventory, which means that if a lot of selling in a stock comes in, then they can only buy small blocks and must allow the price to go lower before buying more. The senior traders give specific orders as to how much stock they can buy if selling comes in, if more is sold into the market, then these junior traders must not buy more stock than allowed.
NOTE: For the layperson, traders are the market makers of a stock. They are the ones who either find a buyer for your stock for you and match the buy and sell up, or they may like the stock and take in inventory, which means they actually buy it from you and hold it, hoping another investor will want to buy it by the end of the day at a higher price.
So keep your eyes on the market. Turn on CNBC during the day to see if the market is up or down. Keep a mental note, red means down and green means up on the bug in the corner of the screen. Or watch the ticker scroll across the bottom of the screen for your favorite stocks. If you hear them talk about the market being down recently and notice multiple days of red on the bug, start looking at your favorite mutual funds or stocks to see if the price has declined. If so, get ready to buy right after Christmas when everyone is still either on vacation or thinking about being home.
Now, in January, all of the senior traders come back and you have a lot of investors liquid and ready to invest. The majority of investors finally get back to their financial planning once the new year begins as they begin selecting investments and allocating their investment capital. This influx of new capital is usually great for the market and the indices tend to move higher into the beginning of each new year because of this. This is referred to as The January Effect and is also referred to as the Santa Claus Rally. An important mental note to make is that IF the markets DON'T pull back into the end of the year through to Christmas, don't invest yet. Sometimes the market does the opposite of what it's supposed to do, so if that's the case and stocks aren't cheap, wait until the market does take a dip.
It's always strange to me when I see the average investor only planning for his/her future during certain times of the year, such as Tax Time, Year End and the beginning of the New Year. Personally, I recommend planning and positioning yourself for the future each and every day. I also believe in constantly looking for opportunity. The majority of investors put everything on hold during the holiday season, leaving all of the undervalued opportunities to those select few whom are willing to take a few minutes create a plan and a few moments each week to look for the right moment to execute the plan. It's really simple, but I guess that's why 10% of us own 90% of the nation's wealth, right? How much wealth do you have right now? It might be time to get started, don't you think?
Shopping for investments is much more rewarding than shopping at the mall, so don't forget to make your shopping list early this year of investments to watch. When you invest in quality stocks at a discount, you are that much closer to an early and wealthy retirement. Now isn't that the best gift you can buy for you and your family?
Should you have any questions or comments, please feel free to visit our website at www.privateclient.org. Our goal at The Private Client Group is to help you Achieve Your Goals Ahead of Plan! I hope this helps.
Warm Holiday Greetings!
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