Investment Mythbuster July 2104Mark Weetman & Michele Santangelo

Vunani Private Clients

Why do we watch out for myths? Seasonality of markets Bit of fun, but tested with actual data! Is there an actual trading strategy? Past performance is no guarantee of future

returns but it still makes sense to look athistorical data to guide your trading andinvesting.

It’s to create debate/encourage furtheranalysis

As Goes January, So Goes The Year!

Will the Santa Clause rally bring you the financial present you deserve

Turbo Tuesdays on the S&P.

What has happened to Doctor Copper?

Sell in May strategy

As Goes January so goes the Year

The January Effect – The Myth

If the market rises in January, the rest of the year will be positive as well. Someoptimists also predict that if the first week of the year is positive, then January itselfwill show an increase.

The experiment is taking January returns and comparing them the average/totalreturns return of the following 11 months.

The January effect has only been able to correctly predict the rest of the yearsperformance 55.6% of the time.

The correlation between the two is only 0.19.

Not the kind of accurate predictor we would have expected.

The January Effect – The Myth

The Santa Claus Rally

The Santa Claus Rally – The Myth

Also known as the “December Effect” A Santa Claus rally is a rise in share prices in the month of December, generally seen

over the final week of trading prior to the new year. Black Friday 18 December 2013 – 3 January 2014

Reasons for The Santa Claus Rally

Upbeat forecasts from retailers around the holiday season

Positive holiday cheer turns even the most bearish and pessimistic investors positive.

U.S. investors tend to fund retirement accounts at the start of the year. – Traders

buying in anticipation of the market inflows.

Window dressing – Large investors propping up their positions in order to make their

performance look better and possibly increase their performance fees (illegal!).

Average return for all non-Decembermonths since 1896 is 0.5%.For Decembers average return is 1.2%.

Since 1950, 18th Dec – Jan 3rd avg. 1.5%

Last 20 years, the S&P 500 on average gained 1.79% during the month ofDecember.

The S&P 500 has posted negative performance only 4 times

December ranks as the 3rd BEST performing month for the US stock market.

Here are the numbers – TOP40 18 Year

December is the best performing monthon the JSE, averaging 2.6%

The Santa Claus Rally

So here’s what you need to do

By the 1st December, If we believe that the Santa Clause rally is on the cards

we promise to supply you at least four trading ideas.

Last years stock picks …

Turbo Tuesdays on the S&P500

Always be long the S&P500 on a Tuesday – The Myth

Investing in the S&P without Tuesday makes a huge difference

Over the last 10 years S&P rallied the most on Tuesdays.Tuesday is 3 times more profitable than any other day.

10 Year HistoryMonday Tuesday WednesdayThursday Friday

SPX -0.010% 0.105% 0.018% 0.026% 0.008%TOP40 0.093% 0.046% 0.075% 0.130% 0.004%

Turbo Tuesdays is plausible on the S&P but what about the JSE

10 Year HistoryMonday Tuesday WednesdayThursday Friday

SPX -0.010% 0.105% 0.018% 0.026% 0.008%TOP40 0.093% 0.046% 0.075% 0.130% 0.004%

32 times more profitable than Friday the worstperforming day.1.4 times more profitable than Monday thesecond best trading day.

Dr Copper Myth

Doctor Copper – The MythMarket lingo for the base metal that is “reputed to have a Ph.D. in economics” because ofits ability to predict turning points in the global economy.

Because of copper's widespread applications in most sectors of the economy - fromhomes and factories, to electronics and power generation and transmission - demand forcopper is often viewed as a reliable leading indicator of economic health. This demand isreflected in the market price of copper.

Generally, rising copper prices suggest strong copper demand and hence a growing globaleconomy, while declining copper prices may indicate sluggish demand and an imminenteconomic slowdown.

Rising copper price → Rising copper demand → Growing global economy

Investors are cautioned that Doctor Copper is not infallible:

Temporary shortage of copper may lead to rising prices even as the global economy isslowing down.

A copper glut may cause lower prices despite robust economic growth.

Doctor Copper – The Myth

Turns out when Copper makes a new2-year low, the S&P 500 doesn’t do toobad.

Three months later it is about flat, but ayear out it jumps 17%.

We found no real statistical relationship between copper and the returns on the JSE.

Analysis shows only a 0.45 correlation and virtually no short term predictive properties.

Note the significant disconnect overt the last 3 years.

Doctor Copper – Effect on the JSE

Short Term

Long Term

Myth - Sell in May

Sell in May – The Myth

Much is made each year of the old City adage that it pays to avoid the markets oversummer: "Sell in May and go away, don’t come back till St. Leger Day".

The idea was that with so many sports-related social events in the summer months -Royal Ascot, Wimbledon, Henley Royal Regatta, Cowes Week, and ending with St.Leger flat race, on September 13 this year - that trading volumes plummet and stockmarket fortunes wane.

Summer holidays – no one at the office

Of course in today's globalised markets, this seems at best far-fetched. The actualfigures also cast considerable doubt on the theory.

Sell in May – The Facts on the JSEJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Rank ( 1 is best performing month) 3 9 6 4 5 12 10 8 11 2 7 1Return (18 Year average) 2.19 0.62 1.30 1.85 1.36 -0.99 0.54 0.65 0.14 2.39 1.00 2.60

May in fact the 5th best performing month up on average 1.36%.May is negative 42.1% of the time. Including 2014.June is negative 63.15% of the time.

Had an investor sold every May and bought back during Sep, would have missed out on1.7% annualized return.

Even selling at the end of May and reinvesting in September would have resulted in aninvestor being 0.09% worse off and even more if you take costs into account.

Sell in May

June to September is the softest period onthe JSE. Averaging 0.09% return.

The Myth should be sell at the beginning ofJune and buy back at the end of June.

Blowing things up – Mythbuster style

Blowing things up – Market Crash every 5-7 years

Blowing things up – Mythbuster style

Much talk about market bubbles & potentialcrashes.

The financial system experiences a crisis“every five to seven years,”

Chief Executive Officer Jamie Dimon,JPMorgan Chase & Co.

Despite concerns about high prices (frompeople like me), stocks have meandered higherover the past 6 months. And they are now,once again, setting new all-time highs.

The Fed is now tightening

Stocks are expensive

While researching the views of analysts and market gurus over the last few weeks inpreparation for this myth we noticed numerous reports spanning over the last 3 yearsall saying a crash is immanent. Many of those analysts just re published their researchjust changing the dates.

The potential for a crash or a market correction is certainly possible.Exactly when we don’t know.

Hedge your equity portfolio using:

• Futures• Options

Profit from the collapse by shorting shares or Single Stock Futures or eCFDs

Buy the dips! The market is the best generator of wealth over the long term

Blowing things up – Market Crash every 5-7 years

As Goes January, So Goes The Year!

Will the Santa Clause rally

Turbo Tuesdays on the S&P.

What has happened to Doctor Copper?

Sell in May strategy

Mark Weetman and Michele SantangeloVunani Private Clients

Mark@vunaniprivateclients.co.zaMichele@vunaniprivateclients.co.za

011 384 2914

Questions?