Human beings, generally speaking, are creatures of habit. We like, and gravitate towards, things that we know (or think we know), and feel comfortable with. No surprise then that we can observe this in all sorts of areas.
Yale Hirsch, an American stock market analyst, observed this in the share market. In 1968 he published the inaugural ‘Stock Trader’s Almanac & Record’ in which he noted many stock market patterns and cycles, including one that he observed which seemed to take place around Christmas time.
Specifically, he noted that in the days between Christmas and New Year the US share market seemed to rise more often than it fell. In last year’s publication, it was noted that the US share market rose 34 of the last 45 years by an average of 1.4%. Stretching back over 120 years, there was a rise in the market in 77% of years for an average rise of 1.7%. The popular press, always on the lookout for a ‘feel good’ story, has attributed what it dubbed the ‘Santa Claus Rally’, to pretty much any increase in the share market starting from late November.
Why is it so? Well, you could probably take your pick of reasons, including fund managers ‘window dressing’ their investment performance before the end of the year by bidding up shares or simply the reflection of a positive mood leading up to the festive season.
So, do we here at Capricorn Investment Partners and the Pentad Group consider the ‘Santa Claus Rally’ when we review your investment portfolio? No, we do not. We consider a wide range of factors, including the quality of a company’s revenue, the dividends it pays and the competency and transparency of its management. If anything the ‘Santa Claus’ rally, while it exists, only underscores the notion that the market is comprised of human beings, who generally speaking, are creatures of habit.