Seasonal investing and recessions

[mrwawa]

Hi all,

I have been seasonal investing using TSPCalc for a few years. So far I am more than happy with it versus a hold it strategy. However, I have never followed it through a recession. Obviously my gut says, "bail out now!", but that never works. What are ppl doing that follow a seasonal strategy with a likely recession on the way?

[bloobs]

Hi all,

I have been seasonal investing using TSPCalc for a few years. So far I am more than happy with it versus a hold it strategy. However, I have never followed it through a recession. Obviously my gut says, "bail out now!", but that never works. What are ppl doing that follow a seasonal strategy with a likely recession on the way?

Think of it this way. First, take a step back.

The purpose of a adopting a seasonal strategy is to not worry about it during a recession. Same as in a buy and hold.
Neither a seasonal nor B&H is intended to be a short term trading strategy so emotional panic filled selling in an exptected downturn is not apropos.

Digging into the details...a good seasonal strategy should have taken recessionary years into consideration. Meaning, it's period of past performance analysis included a representative recession or two. The TSPCalc strategies include the mother of all recessions (2008-ish).

Am I trying to comfort you? No. And nothing is ever guaranteed.

[Bubba]

Hi all,

I have been seasonal investing using TSPCalc for a few years. So far I am more than happy with it versus a hold it strategy. However, I have never followed it through a recession. Obviously my gut says, "bail out now!", but that never works. What are ppl doing that follow a seasonal strategy with a likely recession on the way?

Think of it this way. First, take a step back.

The purpose of a adopting a seasonal strategy is to not worry about it during a recession. Same as in a buy and hold.
Neither a seasonal nor B&H is intended to be a short term trading strategy so emotional panic filled selling in an exptected downturn is not apropos.

Digging into the details...a good seasonal strategy should have taken recessionary years into consideration. Meaning, it's period of past performance analysis included a representative recession or two. The TSPCalc strategies include the mother of all recessions (2008-ish).

Am I trying to comfort you? No. And nothing is ever guaranteed.

After doing massive amounts of backtesting...I'm not sure about the seasonals during high inflationary environments. I'm missing their performance during the 70s and 80s crashes (with high inflation). Some results i did find for 2000 to 2003 were massive outperformance using seasonality in a regular account (using VFINX, VEXAX and others as proxies). The regular account does not correlate well with the TSP...but it's informative.

So for me, I'm sticking with TSPCalc...but with a watchful eye. I found now an excellent combo of different strats that i like. We'll see how that goes.

[mrwawa]

Thanks for the advice you two. I am really appreciative of everyone who takes the time to help beginning investors like me.

[jimcasada]

It looks like you have doing good for yourself this year, number 6 on the fantasy list (+26% YTD). I tapped out to G-fund way too early back during that big January bump up.

[mrwawa]

@jimcasada, I'm doing okay, but catching up from my 2022 showing! I still don't fully understand what happened in 2022, that is why I was asking about possible recessions. Looks like you did okay in 2022.

[Bubba]

@jimcasada, I'm doing okay, but catching up from my 2022 showing! I still don't fully understand what happened in 2022, that is why I was asking about possible recessions. Looks like you did okay in 2022.

My only free advice (that's also coming without any type of request) is to look for strats with low SDs. The reason I'm suggesting that is because we're going into a very precarious period with the eventual uninversion coming up. Usually afterwards, that's when the pain is felt in the stock market. With a low SD you can still get a CAGR that's very respectable (anywhere from 24 to 25% CAGR on average). For now we're not in that "period" just yet, but it's better to keep your chickens close to home. That's just my opinion.

Enjoy!

P.S. I define a low SD anywhere from 3.5 to 8 as a low SD (comparable to a bond fund). As an example, the C fund has an SD of 16. Clearly much higher.

[bloobs]

Seems like central bank interest rates are stabilizing and may drop (hopefully not precipitously) next year, so for my non-TSP IRA accounts, i'm considering reusing F fund proxies again next year. Specifically TLT as a proxy for AGG/BND. TLT's price has significantly declined to its lowest point historically and potentially could outperform AGG.

Thoughts?

[jimcasada]

I watch the seasonal folks, but I don't really follow them. I actually spend most of my time in G-fund. I mainly just watch the news and read various articles every day, and jump back whenever I feel like we're due a bounce up. I meant to switch back to G-fund last Friday, but I got distracted by "honey do's" and missed the noon deadline. That mistake probably cost me about $10k in my real TSP accounts. Since retiring last June, my real TSP accounts have been up over $60k, so I'm not complaining.

[twinkc]

I think I missed something newsworthy because I can't make sense of what the market has been doing these last couple of days. By all accounts---talking heads, seasonal trends, and directional movement, the C & S-funds shouldn't be ascending to the heights they're hitting right now. I expected they would dip before taking off closer to Thanksgiving, but they've jumped the gun and I'm stuck in G. What's happened; what am I missing?

Edit by Aitrus: Took care of deleting that last post for you as requested. Easy-peasy lemon-squeezy.

[bloobs]

I think I missed something newsworthy because I can't make sense of what the market has been doing these last couple of days. By all accounts---talking heads, seasonal trends, and directional movement, the C & S-funds shouldn't be ascending to the heights they're hitting right now. I expected they would dip before taking off closer to Thanksgiving, but they've jumped the gun and I'm stuck in G. What's happened; what am I missing?

IMO, some indices (i.e. small caps) were just oversold. Too many puts in the system. Bear traps/short squeezes. These conditions cause technical blow-off reversals (in the short term at least). Perhaps also a little hidden QE by central banks in the background.

Little to do with fundamentals.

It happens....but in the end the statistics work itself out. History says so.

[Bubba]

Historically, small caps have had an easier time passing on higher interest rates to their customers than large caps vs. large caps have had a harder time due to larger orders and more permanent pricing (some call that the lag effect). This is a different period where it's reverse since many large caps have taken out new loans over the past few years when rates were ultra low and small caps did not. So, the pain that we're seeing with the smalls will likely happen with the biggies later in time (maybe a year or 2) when the loans come back to haunt people. For now, I'm targeting March 2025, but when everyone thinks that way, just assume the market does its own thing.