Why I’m not buying into this Santa rally

I believe in the Santa rally, in fact I predicted it several weeks ago, and have been gratified to see the FTSE 100 hop over the 7,000 barrier as a result. However, I don’t think that this is a particularly good week to buy shares, any more than I expect Father Christmas to pop down my chimney on Christmas Eve.

Yule be sorry

I’m all in favour of festive stock market fun at Christmas. I just don’t like buying shares when the punch bowl is full, the Prosecco is flowing, and investors are giddy on seasonal fizz. The danger is that you end up nursing a rotten New Year hangover. 

I don’t like buying shares while markets are near their all-time highs (or above them in the US), because it’s too easy to end up overpaying. That could be particularly dangerous this year, with 2017 likely to be choppy. Overdo it now and you could quickly get stuffed.

Cold turkey

Just think what lies ahead over the next few months. Prime Minister Theresa May triggering article 50. President Donald Trump triggering who-know-what. Tense elections in the Netherlands, France and Germany, which may continue the populist surge. Further tensions between the West and Moscow, or even Beijing. Growing concerns about the Chinese credit and property bubbles.

Remember last January, which started with an instant stock market rout? Some may look on that with a shudder, but experienced investors will only be shuddering if they wasted what was a fantastic buying opportunity, with the FTSE 100 slumping as low as 5,557 in February.

Santa and Scrooge

It’s a strange fact of investment life that it pays to play Scrooge when everybody else is dressing up as Santa, and Santa when they’re channelling Scrooge. The best time to buy shares is when investors are huddling over a single tallow candle and muttering “bah humbug” as they watch the rich meat of their portfolio turn into thin gruel.

You certainly don’t want to be parting with your investment pennies when everybody is rolling around with twinkling eyes and ruddy cheeks, full of questionable good cheer before the inevitable hangover kicks in. So I’ll be sitting this party out.

Happy New Year

I reckon markets could do surprisingly well next year but there will be plenty of dips – or what I call buying opportunities – along the way, and I’m keeping my powder dry for those.

Shares have been a great place to put your money in 2016. The benchmark FTSE 100 index started at 6,311 and currently stands at 7,041, a rise of 11.6%. Throw in its current yield of 3.83% and you have a total return of 15.43%. By comparison, the average easy access cash pays just 0.39%, according to Stock markets have returned 40 times that sum.

I’m keen to buy more shares, only not today. This isn’t the time to be saying “Ho Ho Ho”, but “No No No”. The real fun starts in January. 

In uncertain times like these, you can't afford to make life harder for yourself by committing simple investment mistakes. Thankfully, you can learn from the errors made by others.

This BRAND NEW Motley Fool report, Worst Mistakes Investors Make, asks investors from all over the world for advice on how to avoid some of the biggest disasters investors bring on themselves.

It's absolutely free and explains why, say, you shouldn't sell winners too early and should avoid going all in on one stock.

Click here to read this no-obligation report. It will be yours in seconds and won't cost you a penny.