But the Reality Is: Patterns Last Until They Don't (II)
Using data available at www.globalfindata.com, I went further back in time to see if the years ending in a "5" continue to show stellar returns. Here's what I found for the 124-year period from 1801 through 1924 (to complement Dr. Yardeni's study for the 80-year period from 1925 through 2004):
Period: 1801 to 1924
Years Ending in: Average Return (Number of Yrs. with Neg. Returns)
0: 3.0% (4 out of 12)
1: 3.3% (4 out of 13)
2: 7.7% (3 out of 13)
3: -1.1% (9 out of 13)
4: 0.5% (6 out of 13)
5: 4.8% (4 out of 12)
6: -1.9% (5 out of 12)
7: -7.8% (7 out of 12)
8: 8.0% (3 out of 12)
9: 4.4% (4 out of 12)
Year: % Change in S&P 500
1805: -4.4%
1815: 2.7%
1825: -5.8%
1835: 3.1%
1845: 8.1%
1855: 1.5%
1865: -8.5%
1875: -4.1%
1885: 19.8%
1895: 0.5%
1905: 15.6%
1915: 29.0%
For the 1801-1924 period, the years ending in a "2" or an "8" did better than the years ending in a "5." The magical performance of years ending in a "5" has, well, become a lot less spectacular.
However, for anyone wishing to continue to believe in miracles, please note that we must go all the way back to 1875 before finding a year ending in a "5" that actually shows a negative return. You might say that you've got close to 130 years of history on your side if you're counting on this year (2005) showing a positive return as well.
Yet, something tells me that this "fives" pattern is little other than a fluke, a coincidence, and maybe even a little data mining.
Moral: In the financial markets, patterns tend to last until they don't . . . and superstititious investors only believe until they lose.
Period: 1801 to 1924
Years Ending in: Average Return (Number of Yrs. with Neg. Returns)
0: 3.0% (4 out of 12)
1: 3.3% (4 out of 13)
2: 7.7% (3 out of 13)
3: -1.1% (9 out of 13)
4: 0.5% (6 out of 13)
5: 4.8% (4 out of 12)
6: -1.9% (5 out of 12)
7: -7.8% (7 out of 12)
8: 8.0% (3 out of 12)
9: 4.4% (4 out of 12)
Year: % Change in S&P 500
1805: -4.4%
1815: 2.7%
1825: -5.8%
1835: 3.1%
1845: 8.1%
1855: 1.5%
1865: -8.5%
1875: -4.1%
1885: 19.8%
1895: 0.5%
1905: 15.6%
1915: 29.0%
For the 1801-1924 period, the years ending in a "2" or an "8" did better than the years ending in a "5." The magical performance of years ending in a "5" has, well, become a lot less spectacular.
However, for anyone wishing to continue to believe in miracles, please note that we must go all the way back to 1875 before finding a year ending in a "5" that actually shows a negative return. You might say that you've got close to 130 years of history on your side if you're counting on this year (2005) showing a positive return as well.
Yet, something tells me that this "fives" pattern is little other than a fluke, a coincidence, and maybe even a little data mining.
Moral: In the financial markets, patterns tend to last until they don't . . . and superstititious investors only believe until they lose.
posted by Lloyd Sakazaki at 9:54 AM
2 Comments:
I would like to comment about patterns last until. How can technical analysis account for the unexpected sudden death or illness of a guy like steve jobs. A sudden unexpected major lawsuit against a company. Even a unexpected earnings suprise on the downside..What about a takover offer for a company that nobody was expecting. I have nothing against technical analysis Although I remain skeptical about it but I do find it interesting to listen or read about it. I am at heart a fundalmentist when it comes to investing because I believe that invariably and in the end a companies stock price must at some point reflect the performance of the company. Their many stocks that have increased tremendously in value apple computer traded at just 5 dollars in 1998 today its around 400 dollars also petsmart stock traded at just 2 dollars in the year 2000 now its trading around 50 dollars a share theirs many other stocks but to many to list here. So you can still make lots of money buying and holding if you choose the right stocks
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