Santa Claus is com­ing to town

While in­vestors are al­ways looking for rea­sons why the mar­ket is go­ing up or down, the on­set of De­cem­ber usu­ally means prices will rise.

Finweek English Edition - - MARKET PLACE - Ed­i­to­rial@fin­week.co.za Schalk Louw is a port­fo­lio manager at PSG Wealth.

with­the fes­tive sea­son upon us, it doesn’t mat­ter where you go – you will be greeted by colour­ful flash­ing lights and Christ­mas dec­o­ra­tions. And of course, no fes­tive sea­son would be com­plete with­out the cheer­ful Christ­mas songs, espe­cially one of my favourites: Santa Claus is com­ing to town.

I par­tic­u­larly love the lyrics: “You bet­ter watch out, you bet­ter not cry, bet­ter not pout, I’m telling you why, Santa Claus is com­ing to town.” The rest of the lyrics serve as a fair warn­ing that if you have been naughty or un­pre­pared for Santa’s ar­rival, you will not be get­ting any gifts this Christ­mas. And, stand­ing in a shop­ping mall sur­rounded by fes­tive dec­o­ra­tions, it struck me – these lyrics suit the JSE just per­fectly. Peo­ple are al­ways looking for rea­sons why the mar­ket is mov­ing up or down, and they of­ten over­look the big­gest rea­son: the hol­i­day spirit.

When we take a look at the JSE All Share In­dex, only 16 (32%) out of the last 50 De­cem­bers were neg­a­tive months. The FTSE/JSE All Share In­dex has grown by 13% per year since 1965, and more than a quar­ter of this growth (26%) was achieved dur­ing De­cem­bers alone.

Just as with or­di­nary his­tor­i­cal fig­ures, fig­ures pro­duced dur­ing Christ­mas months by no means hold any guar­an­tees for future per­for­mance, and I’m fully aware of the fact that our cur­rent in­vest­ment en­vi­ron­ment, paired with great political un­rest in South Africa, Brexit and Trump to name but a few, will pose its fair share of dif­fi­cul­ties for our lo­cal stock mar­ket to end on a pos­i­tive note this year. I also know that Santa Claus’s sleigh is rapidly rush­ing to­wards us, and al­though the FTSE/JSE All Share In­dex was still neg­a­tive at the time of writ­ing this col­umn (16 Novem­ber), I def­i­nitely won’t risk stand­ing in its way by guess­ing that the mar­ket will close on a neg­a­tive note this De­cem­ber.

As pos­i­tive as his­tor­i­cal De­cem­ber data over the last 50 years may seem, things be­come quite in­ter­est­ing when you view these months in iso­la­tion over this pe­riod. De­spite the fact that De­cem­ber was pos­i­tive 68% of the time, it was the worst per­former in a rolling 12-month pe­riod (i.e. from one De­cem­ber to the next). If you had bought shares in June ev­ery year, your rolling 12-month re­turns would have been the best. And it just so hap­pens that May, the month dur­ing

Take the nec­es­sary pre­cau­tions to en­sure that Dr Seuss’s Grinch doesn’t steal all your prof­its in the event of an­other down­grade.

which most stock­bro­kers are in­structed to sell ac­cord­ing to the old say­ing, pro­duced the sec­ond-best rolling 12-month re­turns. From a sta­tis­ti­cal point of view, how­ever, De­cem­bers do ap­pear to be pos­i­tive months, and I wouldn’t de­clare the mar­ket’s re­cent de­cline a trend that is likely to flow into De­cem­ber. The fact re­mains that we still find our­selves in a very risky in­vest­ment en­vi­ron­ment and these risks can­not be ig­nored. The mar­ket’s cur­rent price-to-earn­ings ra­tio (P/E) of 21.4 times is still on the more ex­pen­sive side when com­pared to the 20-year av­er­age of 14.9, and it’s not looking great on an in­ter­na­tional level ei­ther. De­spite its neg­a­tive growth over the past 18 months, the FTSE/ JSE All Share In­dex was still up by 76% over the past five years. Take the nec­es­sary pre­cau­tions to en­sure that Dr Seuss’s Grinch doesn’t steal all your prof­its in the event of an­other down­grade. Play it safe and be pre­pared, be­cause Santa Claus is com­ing to town in a mere four weeks.

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