Seasonal investing trends

In my book, Trading Secrets: 20 hard and fast ways to beat the stockmarket (FT Prentice Hall, December 2008), I reveal how certain trading patterns can influence share price performance at various stages of the year. We can exploit these trends to our advantage.

For instance, the outperformance of the housebuilding sector in the first quarter of the year is a standing dish and one we can capitalise on. In fact, the sector has risen in 28 of the past 33 years in this three-month period, generating an average quarterly return in excess of 10 per cent. This year was no exception and, if you followed my advice to buy a handful of companies in the sector at the start of January ('Solid foundations', 4 January 2012), within six weeks your holdings were showing an average gain of 15 per cent and, if you ran your profits to the end of March you will have made an eye-watering 26 per cent profit.

This is not an isolated example either because in the second quarter of the year, defensive stocks - tobacco, pharmaceuticals, utilities, personal care and beverages - have a habit of outperforming the market and cyclicals, or growth stocks, underperform. Similar trends occur over the summer months, too, before reversing over the winter months. So by focusing on companies in specific sectors at certain points of the year, I can generate a tail wind for my stock picks by buying a good company in a seasonally strong period and avoid facing a headwind by buying shares in a company that is in a seasonally weak period for its sector.

In the same way, certain segments of the market do better at certain times of the year. For instance, as I discuss at length in my book, the 10 worst share price performers in the FTSE All-Share (calculated over the three-year period to end-December) have a habit of performing very well between the middle of December and through into January. Also, in bull markets, companies that drop out of the FTSE 100 at the time of the quarterly FTSE International Committee Review, have a habit of outperforming the index as soon as they leave the blue chip index. Again, this offers us trading opportunities in specific company shares throughout the year to exploit the reversal of a negative momentum effect at the precise point when the share prices are expected to bounce.