Used in the correct way, past performance - historical trend analysis - can give an indicator of where our investments should be focused for the best results.
There’s an old market adage, “Past performance is no guarantee of future results…”
But, used in the correct way, past performance — historical trend analysis — can give an indicator of where our investments should be focused for the best results.
The world may seem random. But it’s not…
The markets may seem random. But they’re really not…
Calling the markets “random” or “rigged” is just an excuse. What’s ultimately behind the curtain of the markets — what’s behind the scrolling numbers and dollars exchanging hands — is flesh and blood. People.
And we’re not that unpredictable. We’re creatures of habit — sunup to sundown, week in and week out, month after month, year after year.
Keep on truckin’
Every season has at least one sector it’s a boom time for.
Let’s use one of my favorite areas to trade as an example: Transports.
Transports have a very classic trend for profitable trades and we’re closing in on the end of the sector’s prime cycle…
This is one of the textbook October-to-May trades. And on average, you double the performance of the broader markets.
Take a look…
It’s not random. It’s year after year after year after year after year … just like clockwork.
So, should you buy transport stocks in March or April or May? You can… But not if you want to get the most from your money.
Now, let’s take a look at some examples.
One of my favorites in the Dow Transport Index is JB Hunt Transport Services (Nasdaq: JBHT). Since 1994, this trade of JBHT has only resulted in losses twice — a 15.58% loss from October 2008 to May 2009, and an 11.83% loss from October 1996 to May 1997.
Since 1992, the average gain on this trade is 30.31%, and the current gain on the trade from Oct. 1, 2012 to today is 43.26%… And that’s not including dividends.
But, if we take a look at the move from May to October since 1993, shares only returned a positive result five times.
Just five positive gains outside its prime period in 20 years.
Think about that… I’m not making it up — it’s fact. Pull up the historical data.
I can use this information for various reasons… I can either just trade the stock seasonally, or I know that if I want to open a long-term position, then October is my best entry point — I get the most bang for my investment buck.
If we stay with the same sector, we see an almost identical result from Landstar System Inc. (Nasdaq: LSTR).
Since 1994, just three losses on this trade.
Meanwhile the rest of the time we’re looking at an average gain of 24.63%.
From May to October, shares of Landstar have fallen an average of nearly 2% since 1994, with double-digit losses occurring in eight years. And they’ve only returned a positive gain seven times.
What about boring old railroads? Well, since 1992, CSX Corp. (NYSE: CSX) has had only four losses doing this trade, and is averaging a 15.50% return. On the other side of the spectrum, the stock has only returned gains seven times from May to October.
Now, let that sink in for a second… Those are three trades — you perform them at the same time every single year, buying in at the beginning of October, selling at the beginning of May — with an average success rate of 82.3%.
It also means, if you’re thinking of buying into these transport stocks in March or April, you’re almost guaranteed to lose money in the near term. You’re buying them at or near their annual peaks, then getting out before they start to hit their lows.
And the examples above are just one sector.
There are plays — prime periods to jump in and out — all throughout the year. And the results are fantastic. Your losses end up minimized and your gains come from just those sweet, prime months trading the stocks.
Matthew Carr is the commodities specialist for Investment U. You can read more by Matthew here.