April 29, 2014 at 2:22 pm #11807
What are your thoughts on seasonal investing strategies within the TSP framework of limitations? Websites like tspcenter.com and tspmarketwatch.com (now offline, but the strategy is available via the Wayback Machine) suggest that seasonal patterns can be traded. TSP Center (a still active website) even has a cool little calculator that you can play around with to test different monthly allocation combinations.
Like your strategy, the seasonal strategies I’ve read for the TSP also ignore the media hype. They instead focus on allocating money to the various funds depending on their historical performance. For example, a buy-and-holder that took his funds out every September and bought back in for the rest of the year would increase his annual average by 1 percent.
I’d be interested to read your viewpoint on it.April 30, 2014 at 12:52 am #11820
Great question, and thanks very much for posting it. As soon as I saw the title I knew that you were someone who has been reading the tspcenter message board.
Within the TSP I don’t consider seasonality at all. I’ve looked at all the patterns which people have found and read all the books like The Little Book of Stock Market Cycles. I haven’t found any which I am willing to follow with my TSP, either because (1) I don’t think the statistical sample backs up the pattern (either too short so no conclusion can be drawn, skewed by one or two extreme years, or ridiculously long so it is drawing conclusions based on a stock market, financial system and economy which no longer exist), or (2) because generally as soon as a pattern can be discerned it becomes useless as the quants plug it into their algorithms and trade it way before I can. I think you can very legitimately predict trading volume, but not direction or money flows.
The only exception for me recently has been playing the Santa Claus Effect. Outside the TSP I have tended to load up a little around Thanksgiving and hold that until at least the first week in January. This one makes sense to me because there are pretty solid money flow and psychological reasons for it (in my opinion). This period sees end of year bonuses, people maxing out their 401Ks and IRAs before the end of the year, people funding new IRAs as soon as the clock strikes midnight on New Year’s Eve, and the rash of people getting a fresh start and making investments as part of the new year. All of that money has to go somewhere, and generally it results in the market going up. Because it is a well known effect, people and institutions try to front-run it, so it starts earlier every year and I believe it will eventually fade to nothing. (Last year it was awesome from the end of the shutdown until that ugly first week in January.)
I suspect that some of my skepticism also stems from my investing temperament – I am basically a buy-and-hold investor, not a trader. Occasionally it is entertaining to try to outsmart the market with something small, but on the whole I am content to let general trends and compounding do their thing until the occasional recession comes around and I move to a safe haven.
The TSP Allocation Guide www.TSPallocation.comApril 30, 2014 at 12:27 pm #11834
Thanks for your reply, Paul. Good food for thought.
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