Stocks Section

Interesting Stockmarket Questions - Good Money Making Potential - Part 1

November 2005

This is the first part (second part is here) in a series of quick and interesting questions relating to the UK stockmarket.

Q: What is the most profitable quarter of the year to trade the FTSE 100 index?

Since 1980 the FTSE 100 index has risen in the fourth quarter 20 years out of 25 with an average gain and 4.52%
The next best quarter is the first quarter which has risen in 19 years out of the past 26, the average gain has been 4.28%

LearnMoney.co.uk comment: it would be interesting to see what the returns of a portfolio would be if they only invested for six months of the year, i.e. by at the beginning of October and sell at the end of March the following year.

Q: Which quarter has been the worst performing quarter in the FTSE 100?

The third quarter without a doubt but it is actually only fallen 11 years out of 25 with the average fall being just 0.1%
But, the significant point to take from this statistic is that when the market falls in the third quarter it often sets the stage for superior returns in the fourth quarter
In nine of the 11 years where the third quarter falls there has been an average percentage gain of 9.9% in the fourth quarter, and that is a truly superior return for just a three-month period

Q: When the clocks go forward (or go back) does this actually have an effect on stockmarket performance?

Yes it does, looking at historical data the FTSE 100 has risen 17 years after 24 years on the day after the clocks went back by the at the end of October
The average game in those years has been 0.7%, which is a relatively significant move
Nobody knows the reason for this and it could just be random but remember October is generally a good month the stock market performance, although the stock market crash of 1987 happened on October the 19th
Traders could make money on this kind of event by buying the FTSE futures, using spread bets or if they wanted limited risk trading binary bets (See the LearnMoney website for information and help on how these products work)
Interestingly, the market has a habit of falling when the clocks go forward at the end of March
They have fallen 15 years out of 25 for an average loss of 0.77%
The main reason is likely to be due to both at the end of the quarter and the end of the financial year approaching, investors are likely selling stock for capital gains tax purposes

LearnMoney.co.uk Comment: Put a note in your diary to see how accurate this statistic is (next 2 UK clock moves are 26 Mar & 29 Oct 2006)

Q: Which stockmarket sectors have been the best performers over the last five and 15 years?

Research suggests that high yielding stocks will outperform growth stocks and/or low yielding stocks over the long run
Tobacco stocks have been the best performers on the London market since 2000
As the best performing sector over the last 15 years there can be no arguments - it is the banks
In fact, the banking sector performance has been an outstanding 18% per year which includes reinvested dividend income
Readers of the investorprofit.com website fully understand just how the banks are able to generate such profits with all the sneaky tricks that they love to play on the majority of their clients who never really bother to research or do their homework into the financial products that they buy......

LearnMoney.co.uk Comment: If you're new to this website we encourage you to surf around and use the search facility to find out how the it can save you money. Our philosophy is not radical, but states that those who understand about the products they buy always tend to get the better deals and/or prices

Q: Does the Christmas/holiday period have an effect on stock prices?

Yes, historically December is one of the strongest months in the stock market
And this is also true for all Wall St
December has been an up month for 19 of the last 25 years with an average monthly gain of 1.93%

Q: When FTSE 100 constituent companies are relegated from the index (the make up of the index is reviewed quarterly) does this affect their share prices?

Stock market participants are not stupid and it is well known which companies are about to be dropped
As tracker funds and other investment funds are not allowed to hold shares outside of the FT-SE 100 a favourite to be relegates will attract selling over a period of time
This will often lead to what is referred to as an oversold condition, but oversold condition is are usually opportunities
There is an old saying on the stock market 'buy the rumour and sell the fact', but in this case it would get reversed to sell the rumour and buy the fact
Analysis has therefore shown that it is often an opportune time to buy on the day that the share is actually dropped from the index
Basically if everyone has sold then who is left to sell?
Picking up these types of shares and holding them for between one and three months can produce some tidy profits
Read Part 2 of this article

Stocks Section

Interesting Stockmarket Questions - Good Money Making Potential - Part 1

Q: When FTSE 100 constituent companies are relegated from the index (the make up of the index is reviewed quarterly) does this affect their share prices?

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