As we all look to wind down from the summer months and get back in to the so called swing of things, most people start to revisit their investment portfolio statements. Many will ask what the heck goes on in the summer and why are some of the positions down?
Given the weather forecast for this week, I have decided to stay in summer mode for as long as I can. I just don’t feel ready to give it up yet. That being said, I still get the questioned about what goes on during the summer months.
The short answer is not very much.
For years there have been studies of stock market volumes (how many shares are traded in a day) and these studies have shown that volumes drop off during summer. This could be due to many things, but it is widely theorized that, simply put, people go on vacation.
This leads me to my title “the small trades of summer.”
What does go on is that many of the smaller investors are trading throughout the summer but without the support of the institutional traders. Smaller investors are usually not as well informed and trade on speculation and feelings rather than experience and systems.
We can look up the time and sales on our trading systems and when I see a massive line of trades for 100, 200 and 300 shares being traded on a $6 stock, I am willing to go on record that this is most likely not an institutional trader.
I call this the summer drift. We see small trades leading stock prices lower. As well as less volume, there is usually less news and therefore nothing to motivate these trades to move up.
Once again, this could be attributed to people being on vacation.
The trading this summer was exacerbated in June because we had U.S. Federal Reserve chairman Ben Bernanke state that they were going to taper the purchases of U.S. treasuries and mortgage-backed securities (discussed this in my June 19, 2013 column) and the markets were even more motivated to trade downward.
Now what happens as we enter September and everyone gets back to work is volumes will get moving again and stock prices will adjust accordingly. That is not to say they will go up, but that they should be valued a little more based on fundamentals and less on speculation.
There are positions out there that are undervalued, as well as overvalued, and we should see some of the more informed investors trading those stocks more in line with their value.
Les Consenheim is a financial adviser with Raymond James - Consenheim and can be reached at 250-372-8117 or les.consenheim@raymondjames. Raymond James Ltd. is a member of the Canadian Investor Protection Fund. This article is for general information purposes only. The views of the author do not necessarily reflect those of Raymond James. Individuals should seek professional advice prior to acting on any information referred to herein.