More Light than Shade I
The month of April 2020 was a particularly profitable month on the stock market. With an increase of 16.60%, it was the second-best month since 1928. In this light, it might be useful to reflect on the further development of the stock market and examine whether such a profitable month actually has an impact on the stock market’s ensuing course. For this purpose, we looked at those months that gave investors a return of 5.00% or above and examined how the S&P500 developed in the short and long run. As common, we thereby considered different time horizons and summarized our findings in the table below.
Had the market participant, following a profitable month with 5% growth, followed the lead of the others and invested his money in the following month, he would have made an average yield of 0.76%. Doing that, however, he would have also had to face the prospect of incurring a loss of a maximum of 14.37%. In retrospective, the chances of making a profit oneself following such a profitable month stood at 1.86. The longer the investment, the higher was thereby the chance to make a profit. It is remarkable that investing “blindly” was much less profitable than an investment which followed a selected timing. Apparently, this form of timing hence paid off for short engagements. The uncommonly huge profits of negative and positive yields took place during the last century’s Great Depression in the 1930s. However, how would that investment have fared under a shorter period under observation? Stay tuned!
Source of data: The calculations are based on data from www.yahoo.finance.com
