How to use other people's stock portfolio spring cleaning by the turn of the year

How to use other people's stock portfolio spring cleaning by the turn of the year

15 January 2019 from Mikael Syding

The year is over, long live the year!

Ok, actually, the year-end should perhaps be uninteresting for you as an investor or trader. One day turns into another, just like any other day the rest of the year. Neither course trends, technical formations nor the companies' underlying value creation changes more around New Year than other days. So why do so many people get up around the turn of the year - and should you do that too?

High activity creates opportunities

Only the fact that so many people care that it is a new year makes it possible to create interesting opportunities for making profitable business. As you know, the stock exchange is not a wave or a measuring tape that rationally measures and values companies. It is a beauty contest where you should guess who you think others think will win.

When many get involved. and at the same time presenting large amounts of new information, the likelihood of unjustified movements increases. They can be used to create extra returns. Most should make repetitions in their portfolios at least once a year. Even if in theory you can choose what time you want, it is easy to let New Year's Eve become your trigger to actually grab it.

Mechanical relocation gives rise to room for smart business

Since a lot of capital is repositioned mechanically at the quarterly shifts - in particular the year's last quarterly change - effects arise that you can utilize on the margin. The latter holds true that you still wanted to make some sales and purchases to correct your portfolio weights after a year of organic slippage.

Before the turn of the year, some managers are engaged in "window dressing." The managers sell losing shares and print these further in order for them to avoid reporting them as holdings. Still others sell the same shares to produce loss carryforwards. The latter was more pronounced for small companies before ISK removed the tax effect. If you had shares in the portfolio you still wanted to sell, you should either sell before the window effect started, perhaps already in late October, or wait until now after the turn of the year when excessively depressed shares bounced back.

Are you going to sell last year's losers now when they bounced in January?

Maybe it's the time to sell your Atlas Copco now, or SSAB, Boliden, Volvo, SKF, Getinge, which all belonged to the big losers in 2018. Also H&M, Nordea, Kinnevik and ABB fell sharply last year.


Now Fingerprint is no longer included in the major companies, but as one of last year's big losers and at the same time one of the current year's winners after 20 per cent rush in the first half of January, it is a perfect candidate to sell according to the above-mentioned annual change reason.

How Do You Best Use The Dogs Of Dow Effect?

All the aforementioned losers from 2018 have, however, risen unjustifiably much so far in January, so if you were still planning to sell one of them, it may be good timing now. On the other hand, there is a strategy - Dogs Of Dow - to buy last year's losers who historically worked well. In the end, you have to make your own considerations, but stable companies that have gone really bad on the stock market for a while tend to deliver excess returns in the subsequent period.

The window dressing effect - good or bad?

Another tendency is that some funds are happy to sign with overweight in this year's winner at the end of the year, and thus buy them towards the end of the year. This means that the best shares between January and November sometimes get an extra boost upwards in November to December.

Furthermore, some of the tax reasons want to wait until after the turn of the year to sell their winners, so last year's winners sometimes go weak in January. Ericsson, Astra and Tele2 are good examples of such shares among the OMX companies.

Now you may have missed the chance to sell these at the top, because the theoretically best situation was before New Year. But, if your plan was actually to buy one of them, but did not like the autumn course breaks, then the shares cost less now, according to historical season patterns.

At year-end, many more measures were taken than cosmetic portfolio adjustments and tax optimization deals. For example, index adjustments occur which entail forced revaluations and thus price-affecting buying and selling flows in certain shares. Furthermore, new pension money will be distributed over the stock exchange, so put your planned purchases earlier than these dates, and the sales a while later.

Soon, the Q4 reports start pouring in - are you ready?

It is noisy in the stock markets this winter. We saw quite big declines in December followed by a strong bounce. The VIX index has fallen back, but actual measured volatility remains high, so the market sends mixed signals if the nozzle gets higher than this or if we are already turning down. On top of all that, the trade war, the Mexican wall, Brexit and the United States closed state apparatus, and the question of whether the central banks should, should, or dare to return to printing money with both hands.

A weak reporting period, especially if the CEO's words are cautious, could become the nail in the coffin of the stock exchange this spring. In addition, the normally strongest trading period in the presidential cycle is nearing its end (October to April after the mid-year election), while some signs claim that even the 2010s may experience a recession, just like any other decade. On the other hand, there is clearly a good potential on the upside if the political cloud of clouds soon dissipates.

How do you plan to manage the year-end information?

In short, lots of quarterly reports and annual reports are presented. Business executives will hold conferences and write prepared CEO words with explanations for the year that went and guidance to the coming year. Analysts and managers will update and refine their forecasts, partly with new information, but mostly because 2018 has changed to 2019 as "current" years, while "next year" from one day to another suddenly became 2020.

Analysts' earnings expectations are usually 5-10 per cent too high in the beginning of the year and then gradually adjusted downwards during the year. Profits are rarely adjusted upwards, but during the upswing in 2004-2006 they did so in return. Instead, during economic downturns, they miss the forecasts the more, and downward adjustments of 20 percent or more are not uncommon.

Are you ready for all this new information, new forecasts, changes in recommendation and sudden one-year shift of which year you focus on profit forecasts and P / E figures? What should you read? which phone conferences should you listen to? Which shares are you thinking about buying or selling and given what factors?

The turn of the year is a good opportunity for large-scale cleaning and adaptation of your investment strategy and tactical measures. However, it is getting in a hurry and remember that you should never be stressed when making investment decisions. There is always something to invest in, but maybe not always big company shares in your particular home market, so look around for other options (TINA: There Is aN Alternative).

Read more here about how you can prepare yourself and your portfolio for reporting seasons. There they answered the important questions before a report period: What can you know? What is valuable to know? What is waste of time?

@Mikael Syding

Important legal information

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

16/10/2019 04:46:56


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