Buy In November, Sell In February

Ali On Content / 24 Nov 2008

A DSIJ study has indicated that when stocks are bought on the last day of November and sold either on the last day of January or February, the chances of making a profit are much higher than during any other period 

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The stock market always looks for patterns. There is one pattern which has held true in the Indian market as well as the US market for a majority of the time which is that if you buy stocks on the last day of November and sell in the month of January or February, the probability is that you should be able to make money. We, at Dalal Street Investment Journal, have attempted to find out how this trend has worked in the past in the Indian market. We have compiled information of the past 18 years (since the beginning of the reforms) starting from 1990-91.

Our findings suggest that had an investor in the last 18 years bought in November end and made an exit on the last day of January, he would have booked profits on 13 occasions with the highest gain of 23.6 per cent in two months and the lowest gain of one per cent. However, during five occasions the returns have been negative with highest loss of 17.9 per cent and lowest loss of 2.1 per cent.

If we extend the argument towards the end of February with the buying having taken place on the last day of November, the scenario turns more positive. Our findings suggest that in the past 18 years it gave negative returns only three times with a highest loss of 17 per cent while on two occasions the lowest was 5 per cent. On the other hand, among the 15 times when it gained, the highest was at 58.6 per cent and the lowest at 1.7 per cent.

This study suggests that it makes sense to enter the market at November end and make an exit either on the last day of January or February to make some quick money. The average returns for the same period during the last 18 years works out to be 5.1 per cent for the month of January and 10.8 per cent for the month of February.

This year being the election year, we have also looked at the past trend of how the market behaved during the general election years for the same period. On five occasions - 2004, 1999, 1998, 1996 and 1991 - it gave positive returns for the period ended February.

The closing of Sensex on the last day of October is at 9,788 and at present quoting at above 8,000. It would be interesting to watch how the market behaves by January and February 2009. Going by past instances, the probability of advance is much higher as compared to decline. Hope history repeats itself.