Written by: George Papazov, founder and CEO of TRADEPRO Academy
The holidays are a time for joy, of sharing the joy of the season with loved ones, and of giving and receiving the perfect gift. It can also be a joyful time for investors, as companies see an increase in profits during the holiday shopping season and stock prices rise in response. The holiday investment season begins November 1, as we finish up the last of the Halloween candy and begin to focus on shoppers’ holiday wish lists.
Before Thanksgiving is a good time to invest in retail stocks. Companies usually announce seasonal sales volumes and holiday revenue results right after Christmas, so waiting until the end of the year is too late for this seasonal investment opportunity. As soon as the figures are announced, the hype of retail projects are already past their peak and many investors will take their profits and run – pushing stock prices lower.
There is a saying in our business to “buy the rumor and sell the news.” If you wait on holiday investing until the shopping season ends, disappointing results compared to seasonal projections can impact the opportunity.
How do you take advantage of the seasonal investment period?
1) Purchase stock in companies you are spending the most money on during the holidays. If they are top on your wish list, they are for others too.
2) Use an ETF, which follows a basket of stocks in the entire retail sector. One example is an XRT, which is a basket of the biggest retailers in the U.S. Instead of betting on one single stock you can invest in the entire industry.
What to expect for 2020
This year we’ve seen enormous gains in retail, following the COVID-19 pandemic related stock market crash in March. Since March 23, XRT has increased over 104%, surpassing previous highs by more than 15%. While there are big expectations for reduced spending over the holiday season, there will still be an increase in revenue for retailers during the holidays and more profit potential for retail businesses that we’ve seen all year.
Stock markets move on the difference between reality versus expectation. This means weak expectations could be setting the bar really low this year. As a result, big surprises in demand could push the retail index even higher than usual.
This investment doesn’t pay off perfectly every year, but in investing nothing is certain. For example:
- In 2019 this approach yielded a 6% return
- In 2018 it yielded a negative result of -12%
- In 2017 it performed better with a 14% return
- In 2016 it returned 10%
As you can see, the seasonal trade brings the prospect of an investment gift most years. But, nothing is certain in the investment world and you may still be in store for a lump of coal. That’s why it’s so important to have a plan and to focus on managing risk and not letting losses get ahead of you.
George Papazov founded TRADEPRO Academy in 2012 Papazov to inspire, educate and empower at-home traders and investors. A self-made millionaire and entrepreneur, Papazov’s self-published book Path to Profit: A Trader’s Journal reached Amazon bestseller lists. With seven years of work for a major international bank he is now an industry-leader in trading currencies, stocks, options and futures. Papazov provides a daily Morning Market Video Update to 39,000 YouTube subscribers, on topics from OPEC to stock updates, breaking market news, and Brexit to interest rates. His popular video training tutorials include TradingView Tutorial and How to Use Fibonacci Retracements. Papazov lives in Toronto, Canada.
DISCLAIMER: Futures, stocks and options trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures, stocks and options may fluctuate, and, as a result, clients may lose more than their original investment. Prior performance is not indicative of future resuls.None of the content published on TRADEPRO Academy constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter.