Every year, we hear people talking about a Santa Rally, and claiming that December is the best month to buy FTSE 100 stocks.
But here’s the strange thing. It could be true.
Well, let me qualify that. Since the FTSE 100 was invented in 1984, December has been the month with the highest average share price gains.
That’s what research by investing services firm AJ Bell found, using data from Refinitiv.
The best month
The average December rise comes in at 2.2%, and that’s a pretty good performance for a single month. If we could get that every month, we might all get to enjoy a happy retirement a good few years earlier.
A good December isn’t always a a good thing, though. December 2019 saw a 2.7% rise in the FTSE 100, at the end of a year when sentiment was on the up.
But it was followed by Covid, a stock market crash, and big share price falls.
Still, the charts couldn’t have seen that coming, could they? Hmm, actually, the charts can’t see anything coming, and I’ll get back to that.
Strange things
Since 1984, the Footsie has only lost ground in December a total of eight times. Isn’t that weird? And you know what else is weird? Nobody has any real idea why it happens.
It does surprise me a bit. I’d have thought December was a time people would be withdrawing cash, to spend on Greggs‘ Festive Bakes and things like that. Other Yuletide comestibles are available, of course.
Still, my speculation will get us nowhere.
Is this any help?
But I think there is one good question. Can we use this statistical strangeness to boost our long-term stock market returns?
And my answer is a big fat no.
How could we possibly use the knowledge? Got some money in October or November? How could it help to put off buying until December?
All that would do is lose us any possible gains in those previous two months.
Timing our buys
If we have some cash to spare and haven’t committed it to shares yet, maybe December could inspire us to go for it a bit earlier?
That might help. But only because getting our money into shares a month earlier can help us in the long run, no matter what month it is.
“Time in the market beats timing the market” is one of the most insightful things I’ve ever said. It’s just a shame billionaire investor Ken Fisher said it first, or I might have been famous.
The charts
What can stock market charts tell us? They can show how UK shares have done well for more than a century. And how all the big crashes of history fade to tiny blips when we look back at the long term.
But trying to use them to time our entry and exit points?
That’s making the mistake of thinking we’re buying share prices or chart levels. We’re really taking part ownership of a business.
And that has to be for life, not just for Christmas. So to answer my question in the title, I’d say yes, it’s a good idea to buy in December. But I also think it’s a good idea to buy every other month of the year!
