The term Halloween strategy refers to the selling of stock before May and not investing in equities again until the end of October. The Halloween strategy is based on a theory that the months of November through April provide investors with stronger capital gains than the remainder of the year.
Explanation
Also referred to as the Halloween indicator, and Sell in May and Go Away, the Halloween Strategy is based on the premise the stock market provides investors with the greatest opportunity for capital appreciation in the months of November through April.
The theory is based on historical studies indicating these months provide individuals with the highest return on their investment. During the months of May through October, the Halloween strategy suggests investors should avoid holding stocks. The table below contains the 50-year performance (1966 - 2015) of the S&P 500 Index by month:
Month
S&P 500 Return
January
0.86%
February
0.04%
March
1.09%
April
1.40%
May
0.14%
June
-0.01%
July
0.25%
August
-0.23%
September
-0.69%
October
0.84%
November
1.07%
December
1.40%
While the theory generally holds true when looking at the returns of the S&P 500, it's interesting to note October provides investors with the sixth highest monthly returns, and significantly outpaces the month of February. The month of October is mistakenly viewed by investors as providing lower returns, since it's also associated with the stock market crash of 1929 and 1987.
The term harvest strategy refers to the planned discontinuation of new investments in a line of business or product so the maximum profits can be extracted from it. Harvest strategies are oftentimes used when a product is nearing the end of its lifecycle, or the usefulness of a service is nearly over.
The term fixed income strategy refers to several options an investor has when purchasing securities such as bonds. The three primary fixed income strategies include ladders, barbells, and bullets.
The term exit strategy refers to a process by which an owner plans to withdraw their investment in a business. Exit strategies are important to venture capitalists, since extracting their money from a business allows them to reinvest those funds elsewhere.
The term event-driven strategy refers to an investment approach that attempts to exploit pricing inefficiencies that occur after significant corporate announcements. Event-driven strategies are used by large institutional investors when a company notifies the public of plans that will impact their future earnings potential.
The term bullet strategy refers to an investment approach involving the purchase of fixed income securities that mature in the same timeframe. The bullet strategy is oftentimes used by investors that need funds on a certain date.
The term bond ladder refers to an investment strategy involving the purchase of fixed income securities with staggered maturity dates. The bond ladder strategy helps investors to manage interest rate risk and provides them with the opportunity to make a series of reinvestment decisions over time.
The term barbell strategy refers to an investment approach involving the purchase of fixed income securities with both long and short term maturities. The barbell strategy typically applies to bonds, and is thought to provide the investor with a portfolio that balances risk and reward.