Investment question - Seasonal effects

[Playboy]

Does anyone know whether season effects hav an impact on the determination of share value in a short time period.

Reason i'm asking is that I'm entering this JSE university challenge, which runs from march untill september. I'm aware of the short term implications which do make this a tad more difficult and I'm unsure as to whether season effects do reli hav any significant impact on the change in share price over the winter period

 

[DJ...]

In the investment world, seasonality doesn't necessarily refer to the timing of the seasons as such, but rather the predictable changes over a predetermined period, which could be a week, month, quarter or year. And then you have results seasons as well where groups of large companies produce results to the market, and seasons even in venture capital where the season refers to the current stage of a business proposal.

However regarding your question about the changing of the seasons, there is little to no impact afaik on the market unless you're invested in a company whose income is derived or at least impacted by seasons themselves, such as a farming group or biofuel manufacturers. So a major drought might result in a minute crop yield and therefore adversely affect the ability of a company to deliver on forecasted earnings. This would result in an earnings warning from the company and the shares will drop, however if you're on the ball as an investor you would have tracked the drought and already moved out of position in that particular stock before earnings warnings are issued. At best, the company could buy in corn to produce biofuel but this dilutes the profit margins and will still reduce the stock's value.

That's about as much actual seasonal impact there is afaik. I can't quite see how anything apart from a psychological state of mind might impact overall market sentiment due to the changing of the seasons...

 

[Playboy]

thanks so much for the answer DJK. clears most my concerns, had a similar reason behind that but i wanted to make sure of the possible impact if any.

Over the short term till september, what should I be looking @ before making my decisions.. It's rather a difficult period.. Elections would have an impact, but im guessing more of a downward impact considering zuma steps into power, then again which shares would this NOT impact on

 

[DJ...]

Whoa, that's a really broad couple of questions. OK:

First off the best advice I can give you is to invest in what you know and don't get greedy. Stay in your comfort zone - you should be investing in to companies, industries and sectors that you are familiar with. So if AngloGold Ashanti issue a trading statement, you should understand exactly what they are talking about, whether they refer to something from their past or whether it's just technical jargon relating to mining rights or the quality of deposits being poorer than expected etc. And set yourself a pricing goal and stick with it. Always leave something for someone else - this sounds contrary to what trading is about, however greed will get you burnt. You should be looking at the fundamentals of the company, broker consensus estimates and related research, annual reports, SENS announcements, general company news, industry news, looking out for corporate action in the industry (M&A, takeovers, reverse takeovers etc), registering on the company's investor relations website and most certainly determine your own criteria for investment and stick with it, taking all of the above into account.

Regarding the political question. All shares will be affected equally by political issues such as the elections, however those more susceptible will be those already in dire straits and heading south. When politics will affect specific companies is when it is specific politics, such as legislation, competition commissions, policy changes, economic announcements etc. Only then are some industries and companies more affected than others.

And btw, Zuma stepping in to power won't necessarily result in the market plummeting. The market already knows this will happen and prices these factors in long before they actually happen - although if elections go off without a hitch then we may in fact see positive sentiment in the market, not necessarily negative...

 

[PhreakBoy]

... And set yourself a pricing goal and stick with it....

Good sound advice.

And to elaborate. Decide how much of your portfolio you're willing to risk. The general consensus some acquaintances and I follow is that if a share price drops by 15% it is best to cut your losses and sell.

I'm not sure whether the university challenge takes account of the trading charges, but if it does another worthwhile point to consider is the charges to shares ratio (If I can call it this), especially if you trade lower values. Example: If you buy R10k worth of R250 shares you get 40 shares. Assuming charges of R150 when buying and R150 when selling (Total R300). It would result in charges of R7.50 per share (R300 div 40 shares). Meaning the share needs to move by R7.50 to R257.50 before you make a profit. Buying lower valued shares would result in a smaller charges to shares ratio and a lower share movement to be profitable.

Hope this helps a bit.

 

[Playboy]

thanks again for the advice. I'm not 100% certain whether it takes into account brokerage charges but I will follow up on that. Irrespective of that, they give u R1 million virtual money to invest with a minimum of 10 different shares, so i doubt with that sort of money i'm going to be investing in small values.

DJK what you say about the elections etc makes some good sense. I looked around at some of the listed companies and got a feel more or less what i should be looking @

In terms of my research it looks like basic necessaty retail food stores as well as restaurants are those entities looking @ an increase. Within this relatively short period as well as being in the recession we are experiencing at present, I doubt that any other industry will necessarily flourish owing to their luxury characteristics. I'm willing to take some risks as to win the challenge i'll need to make a break somewhere, i'll continue looking @ the financial news as well as company fs, hopefully find 1 or 2 worthwhile investments