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Halloween Strategy Definition
Halloween strategy refers to a strategy in an investment where the stocks are assumed to do well during the Halloween period. The approach encourages investors to sell securities in the month of May, and keep off, until the month of November. The approach is of the assumption that stocks do well and provide good returns on capital between the months of November and April. So, this makes it an appropriate time for investing.
A Little More on What is a Halloween Strategy
The Halloween strategy can be traced back to the years between 1694 and 1776. The idea originated from England, where individuals from the privileged class went out of London to spend summer vacation, leaving their estates unattended. Note that most of these people were stock analysts and brokers. While they were away on vacation, they were less active in managing their investment portfolios, and for this reason, the stock market was seen to decline.
The strategy is of the idea that investors should sell in the month of May and then walk away. In other words, the months of May through October are not the best period for investing, and investors should, therefore, keep off. For investors, it means that there are only six months (November to April), which is appropriate for them to invest. That they can get good annual returns in that half a year than that investor who invests through the year.
Advantages of Halloween Strategy
There is a bit of merit when it comes to Halloween strategy. The historical studies show that the months between November and April, there are higher capital gains compared to other months. Those who subscribe to this strategy are able to restructure their portfolios every month of November. By doing this, they reduce risks related to investment.
Disadvantages of Halloween Strategy
The major disadvantage of this strategy is that there is a possibility of investors being exposed to unforeseen risks. Remember, given the likelihood of the stock market fluctuating, there is no guarantee that the gains will go high as the strategy implies.
Also, those investors who decide to apply this approach are likely to miss out on economic booms. Skipping investing in the summer period may lead them to miss out on economic booms.
The Bottom Line
Generally, whether you choose to believe in this approach is a matter of choice. Note that there are different opinions when it comes to this strategy. So, as far as Halloween’s strategy is concerned, it is both a mystery and an empirical anomaly. The reason why it commands investors is the fact that it has been able to provide impressive returns over time. However, on the other hand, stock market dealers have not been able to explain it away.