A Trend Until It Ends

The holidays become a good reference point for many types of potential investment strategies.  When the holiday season comes upon us, we start to set up for Halloween.  We decorate and carve pumpkins. We purchase costumes and get candy.  Once Halloween is over with, the décor comes down, the carved pumpkins are removed, and it is on to Thanksgiving.  Décor changes, event changes, food changes.  Then we move next to the holiday shopping and so forth. 

These holidays become a good metaphor for how certain investments may behave during a year or another time frame.  The holidays are seasons of purchase behavior within seasons of the calendar.  During the peak of the season, in theory, as things are in the highest demand for a product, the prices would trend to their highest points.  When the season is over, the demand drops and again, “in theory” the prices would be at lower pricing.  One example you see of this is the after holiday sales where a grocery store may have extremely discounted holiday related products a few weeks after the previous holiday.  A Christmas tree sold one week after Christmas is not going to be anywhere near the price it was the previous week and will likely be at a loss for the tree farm. 

There are business models, investments, commodities, and other material goods that go through these same types of peak and non-peak demand.  An item like heating oil may be at its lowest pricing in the middle of summer and at higher pricing in winter when the demand is greater. A term commonly used for these movements would be referred to as “Cyclical”.  A retail business may have its low-performing quarters and higher performing ones based upon consumption by consumers but not the same as a utility.   Just as seasons create supply and demand for both consumer items and utilities, trends in consumer behavior can do the same.  Trends have to be the harder of the two to judge overall timing to find at the low point and sell at the high.  As consumers buying habits can change at lightning speed on what is the “latest thing”, investments in these areas need to be evaluated with great diligence.

Using these types of strategies involves more trading within an account as you may be moving in and out of individual investments during a year.  It is not the appropriate strategy for everyone.  This article was designed to provide education only, not any type of solicitation.