With another year soon upon us, the Stock Market Almanac, just like Lady Gaga, returns with an updated annual look. Part diary, part strategy bible, the almanac is also a detailed reference guide, packed with predictions and advice on how investors can take advantage of the markets in 2015.
The book's editor, Stephen Eckett, began his career on the Japanese equities and warrants desk at Baring Securities, and after gaining significant experience in the Asian markets founded Numa Financial Systems, a training and systems consultancy company specialising in derivatives.
As ever, the Stock Market Almanac attempts to provide investors with a detailed preview of the upcoming year in the financial markets. The weekly goings on in the investment world, such as important economic events, expected company announcements and detailed month-by-month statistics are all covered in a well laid out diary style format.
While the diary part of the book looks to the future, the majority of the rest looks to the past, analysing how the financial markets, certain stocks and indices show trends and potential anomalies at different times of the year and when a range of events occur. Alongside each weekly diary page is an accompanying piece of stock market analysis, providing strategies on how to take advantage of a range of seasonal patterns which have cropped up through history.
For example, investors reading this review during December 2014 should note that the month continues be the strongest performing of the year, with the FTSE 100 having risen 87% of the time in December since the index was created in 1984. The FTSE has only lost value in December once in the past 19 years (2002) and a repeat of the average 2.5% monthly gain in 2014 would see the index close the year just short of its record highs. See Robbie Burns's article on page xx for some hot tips on how to play the "Santa Rally".
Complementing the more serious and data-heavy research, Eckett covers a few more light hearted and perhaps surprising stock market observations. For example, did you know that Friday the 13th is not necessarily an unlucky day for UK investors, with the average return on the FTSE All-Share having been 0.06% in the 74 such trading days since 1970 - double the average return for all trading days over that time.
Eckett suggests it might also be lucrative to invest in women. An analysis of the ten FTSE 100 companies with the highest proportion of women on their boards shows a 37% return from the start of 2011 to July 2014 - compared to just an 11% return from the index itself.
2015, election year and Chinese year of the goat...
Of particular interest to investors next year will be the author?s analysis of how the domestic markets perform around UK general elections. Historically, UK election days have been strong performers, with the FTSE All-Share having risen by an average 0.67% on the past 11 election days and rising on 9 out of the 11. There only seems to be a short-term effect however, with the month following an election generally having negative returns. In terms of the influence of different victorious parties, and perhaps unsurprisingly, Labour victories since 1970 have seen a 1.9% average market fall. Conversely, there has been a 1.9% average gain following a Conservative victory. But with no clear poll leader at present, Nigel Farage expected to snap up a handful of seats, and another coalition government looking likely, this analysis may not be of much use to investors for the 2015 poll.
Other events in 2015 suggest that we may be in for a good year however, with the Chinese year of the goat (starting on 19th February) having seen an average market return of 17.9% since 1950! It is also noteworthy that years ending in a 5 have seen an average rise in the FTSE All-Share of 9.2% going all the way back to 1805.
Previous winning tactics may not always work...
While many examples of so called stock market "anomalies" are given in the book, the reader should always remember the old adage that ?correlation does not imply causation?. In my review of the 2014 Stock Market Almanac, I took to the example of analysing stock market returns surrounding the performance of my football team, Bradford City, in order to demonstrate how data mining can find effects which aren't really there.
My analysis found that in the years 1985, 1996 and 1999 (those in which Bradford won promotion) the FTSE 100 gained an average 8.7% between the day of promotion and the year end. However, using this as a trading strategy did not prove to be quite so successful in the glorious 2013 promotion year, with the FTSE only gaining 0.4% from the day of promotion in May to the end of the year. The reason? Because, of course, the results of a minor football team have no effect on a global, trillion dollar stock market with billions of factors at play.
Nevertheless, results on the field can have an effect on individual football teams, as Eckett (perhaps having read my review) explains in an analysis of game results on the prices of quoted clubs. While there aren't many quoted football clubs left on the London markets, the author points to a number of studies which suggest that positive results can deliver significant abnormal share price returns. Vice versa, losses on the pitch can result in negative returns - which brings images of the more financial literate and victorious football supporter chanting to the opposition (to the tune of Three Lions), "your shares are going down..."
As ever, the latest Stock Market Almanac is an entertaining, informative and useful book. Often delving into the fantastical and then back to detailed academic studies, it is worthy of inclusion in the Christmas stocking of any investor.