Take Advantage of the Christmas Stock Market

The stock market is open Monday through Friday from 9:30 a.m. to 4 p.m. Eastern time. In 2020, the NYSE and the Standard will close early at 1 p.m. Eastern time Thursday, Dec. 24, and be closed Friday, Dec. 25. The stock market at Christmas can be affected by having the extra days off for the Thanksgiving and Christmas holidays. The markets tend to see increased trading activity and higher returns the day before a holiday or a long weekend. This is known as the holiday or weekend effect.

Key Takeaways

  • December is typically the best month of the year for trading and the stock market.
  • The Santa Claus Rally is proven to be an excellent time for short-term investors to plan a strategy of investing to reap relatively high profits.
  • The Christmas Stock Market is not as beneficial for long-term investors as for short-term investors.
  • Analyzing stocks and learning which stocks do well during the Christmas stock market can increase the probability of high profits.

Stock Market in December

Image via Flickr by ancasta 1901

December is often the best month of the entire year for the stock market. The S&P Index is generally up 1.6% on average. This month also has the highest frequency of advances. December also tends to be the least volatile month but could see some bumps. History has proven that December can be an excellent time to buy stocks. However, seasonal stock trends don’t apply all the time and should only be one factor in an investor’s trading strategy.

The Santa Claus Rally

The Santa Claus Rally is a sustained increase in the stock market over the holiday season. There are several reasons for this sustained increase, including overall hope for the upcoming year, anticipated tax refunds, and year-end bonuses. Another theory is that some of the larger investors seem to be more worldly and go on vacation at this time, allowing the market to be bullish.

According to ‘The Stock Trader’s Almanac,’ the Santa Claus Rally is a seasonal phenomenon. ‘The Stock Trader’s Almanac’ has been a long-time provider of analysis of seasonal market trends. The Almanac states that since 1969, positive returns occurred in 34 of the past 45 holiday seasons. This rally includes the last five trading days in December and the first two trading days in January. Each year, the stock market at Christmas shows an average collective return over these days of 1.4% and positive returns each day.

Some reasons for this rally could be that there is an anticipation of a rise in stock prices during January, also known as the January effect. Some research supports the fact that value stocks outperform growth stocks in December. Many investors in actively managed mutual funds will also tend to invest in value stocks during the Christmas season.

Christmas Stock Market Pros and Cons

The Christmas stock market rally can make this time of the year very profitable, especially for experienced investors. Investors will use stop orders or stop-loss orders to minimize risk. These strategies provide investors with the potential for a more significant profit in short-term trades. Inexperienced investors need to know that the Christmas stock market can be very volatile, increasing the risk of losing money. Investors who specifically prefer long-term investments are not likely to see any changes to their portfolio caused by the Christmas stock market trends.

The Santa Claus Rally can affect the national market. The surge of the S&P can produce long-lasting effects that last the rest of the year. Historically, the results can be considerable. Besides generating great benefits, the Santa Claus Rally can be an excellent predictor for the year ahead, bringing positive effects.

The short-term increases during the Christmas stock market can be a great opportunity for investors. Short-term investors can take advantage of this seasonal effect to generate relatively significant profits. However, there’s still risk while investing during this time.

The January market can be incredibly volatile as the trade activity increases substantially after the Christmas stock market. Prices can rise and fall without a predictable pattern. The short-term effects of the Christmas stock market have, for the most part, been positive in past years.

Taking Advantage of the Christmas Stock Market

Learning about Christmas’s effect on the stock market and studying history to create a strategy can decrease the risk for an investor while creating an opportunity to turn a nice profit. Understanding a trader’s mindset can lead to success. An investor thoroughly analyzes stocks, develops a strategy, and is aware it’s possible to lose some money. A routine of devoting attention to trading will lead to success since there’s minimal leniency.

If an investor takes their eyes off the market momentarily, this could mean a missed chance of making a profit. Patience and discipline are crucial for successful trading during the Christmas stock market.

An investor capable of doing their research and analysis, creating their trading strategy, leads to success. As an investor staying true to their trading plan is crucial. It’s imperative to develop a predetermined plan that includes knowing what stocks you’re considering, how much risk you’re willing to take, and what you hope to make in profit. Other key components are knowing what resources are relevant and how to react in case of unexpected circumstances. These will all help you invest wisely during the Christmas stock market. It’s also excellent planning for trading at all times of the year.

Tips and Tools

Stock indicators are an excellent tool to help an investor analyze stocks and determine which ones will be part of the broader strategy. Indicators are designed primarily for analyzing short-term price movements. They may not be as useful for long-term investors, but for those looking to make quick profits during the December stock market rally, they’re worth considering.

Observing stock chart patterns can help investors understand the behavior of stock over the last year. It will also show how the annual Christmas stock market rally affected the market. This can help to determine what stocks generally perform well during the holidays. Stock screener software is another tool used by many of the best world traders, as is charting software that can help investors find the right stocks for their plan.

Stocks That Perform Well During Christmas Stock Market

Trends of the season offer many possible rewards. Many of the best-performing stocks during the Christmas season are those companies behind the latest fads. From the best-selling toys to the new electronics, investing in the related stocks can often be great for the short-term investor’s strategy during the Christmas stock market.

Everyone has heard the day after Thanksgiving called Black Friday. This is a day that many retailers come out of financial loss (red) to make a profit (black). Retailers can see as much as 40% of their total annual sales made during the holiday season. Investors looking to take advantage of this trend may buy shares in apparel or jewelry, hoping that the positive attitude will continue through the Christmas season.

Transportation stocks stand to benefit from the momentum of the Christmas stock market. With online sales growing faster than sales at traditional retail locations, the transportation industry will have their busiest days during the holiday season. There will be an expected bump associated with this trend with transportation stocks during the holidays. Transportation stocks are a great option for those looking for quick, short-term profits.

The stock market is inclined to repeat seasonal trends, which affect both individual stocks and the stock market. Understanding how these trends work can give investors an advantage and result in larger profits. As history often repeats itself, it can predict the Christmas stock market or Santa Claus Rally. This has been a market in which short-term investors can make a great profit.

There are many factors to consider before investing in the stock market during the holiday season. Past trends at Christmastime indicate a higher probability of profits but are not guaranteed. Besides the effect of Christmastime on the stock market, the stock market can also be affected by the world and national events. But in most years, we can expect an upswing in the sales of stocks during the Christmas stock market.

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

The Ultimate Guide on Selling Private Stock

D espite all the attention that the stock market gets in the world of investing, most companies do not trade publicly. Going through an initial public offering brings several challenges, and many companies prefer to privately issue stock to employees or investors. If you own private stock, selling these shares requires a different approach than simply trading on the stock market. Learn more about how and when to sell private stocks to reap the highest returns.

Key takeaways:

  • Just like trading a public stock, investors need to make sure they sell their private stocks at the right time.
  • Pricing private stock is more complicated than public stock, and there are different approaches to calculating an accurate selling price.
  • Pre-IPO stocks are easier to liquidate than non-pre-IPO stocks. The reason is that there is a secondary market in trading stocks for companies that are about to go public.
  • Most people purchase private stock by exercising a call option on the shares.
  • When investors sell their private shares, they’ll pay taxes based on the length that they held them.

Determine the Value of Liquidity

Keep in mind that if you want to sell private shares, you need to determine the value of liquidating your shares before proceeding with the transaction.

Determining the value of liquidity means finding the cash value of the private stock. With this value, it’s key to find out whether it’s worth it to sell the stocks sooner rather than later. A good reason to liquidate in the short term is typically to fund a significant life event, like paying a down payment on a home.

If investors have no major life events on the short-term horizon, it might be worth holding their shares and waiting for the stock’s value to rise. People who hold private stock are often close to the company, which can give them a better indication of whether the value of the stock they hold is likely to rise. Holding stock without any immediate need to liquidate can be a smart decision that leads to large future windfalls.

Don’t Try to Quickly Flip Stock

Many investors avoid immediately selling stocks once they buy them for a few reasons, one of them being that most company executives discourage the practice.

The executives at private companies tend to look unfavorably at people who try to resell their stock soon after they get it. Given that many of the recipients of private stock are also current company employees, it shows good faith when they hold their stocks for at least a year before trying to sell them.

Aside from the unfavorable view that executives may have of a quick stock resale, regulators also prefer that private shareholders demonstrate an intent to hold their shares. There is no regulatory minimum holding time, but it’s best to stick to the guideline of waiting 12 months before considering selling private stock to satisfy both company executives and regulators. A potential bonus of holding is that the shares could grow in value during the holding period.

Understand Your Shareholder Agreement

Every company that has shareholders needs a shareholder agreement. The document outlines the rights people have as shareholders of a company. Investors can also find limits on how much company information they can reveal to potential buyers and the financial and tax guidelines when selling the stock.

It’s vital to read through and understand the shareholder agreement because this document regulates exactly how shares can be transferred between private shareholders. By understanding the shareholder agreement, investors can ensure they follow the rules without the risk of losing their shares.

Choose a Pricing Model

When selling publicly traded stock, the pricing of that stock depends on the current state of the market. The economic forces of supply and demand set the price at which an investor can sell their shares. This relatively uncomplicated pricing approach is part of what makes trading public stocks so approachable for many investors.

With private stock, choosing how to fairly and accurately price the shares becomes more complicated. One approach investors can opt for is to find a comparable publicly traded company and apply that company’s price-to-earnings ratio to the private company.

Another more complicated pricing method is discounted cash flow analysis, which calculates the present value of future cash flows using a discount rate. The difficulty with discounted cash flow analysis is that it requires several assumptions, such as choosing a suitable discount rate and estimating future cash flows.

In scenarios where there is a dispute over the value of shares, there are several businesses that specialize in providing professional valuations for privately held shares to ensure they are sold at a reasonable price. It’s also worth getting a professional opinion if you feel uncertain about the value of your shares.

Understand Pre-IPO and Non-Pre IPO Stock

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It’s important for anyone considering selling private stock to understand the difference between pre-IPO and non-pre-IPO stock. An initial public offering (IPO) is when private shares are offered to public investors. Many private companies plan to go public, and in the industry, they are referred to as being pre-IPO. The shares of pre-IPO companies are easier to cash out. Several online marketplaces exist that specialize in trading pre-IPO shares by connecting sellers and investors of those shares.

Non-pre-IPO stock is more difficult to sell because the private company that issued the shares does not intend to go public any time in the near future. In cases where the shareholder agreement stipulates that company shares can actually be sold to outside investors, it can be difficult to convince outside investors to buy these shares due to a lack of information. The shareholder agreement tends to limit the information about a company that its shareholders can disclose, and people don’t like to invest in companies they have little information about.

Another difficulty is that the company’s decision-makers might not give the go-ahead for selling shares to outside investors. The most straightforward approach with non-pre-IPO stock is to determine how other investors have sold their shares and attempt to sell in the same way.

Selling Private Stock Back to the Company

A common method of selling private stock is for investors to sell their shares back to the company that issued them. Some private companies have share buyback programs in which the company agrees to purchase back a set number of shares. These buyback programs are sometimes termed tender offers.

In many cases, share buyback gives investors a simple way to get a fair price for the shares they want to liquidate. Buyback programs can also be used for employees who purchased stock after exercising stock options but who are leaving the company.

Account for Tax Implications

When people purchase private company stock, they often do so by exercising call options. A call option gives investors the right, with no obligation, to purchase shares for a specified price before a specific date. There are specific tax implications for investors selling private stock held as a result of exercising a prior call option. The main tax implication is the payment of capital gains taxes.

If an investor exercises their option to buy shares and sells within a year, they pay short-term capital gains tax. The rate of this tax is the same as the investor’s usual income tax bracket. If the investor holds their shares for at least a year after exercising the right to buy and two years after the option was granted by the company, they pay long-term capital gains tax on any gains. The long-term capital gains tax is lower than the short-term rate at all tax brackets.

T here are many things to consider when selling private stock. From tax implications to pricing to shareholder agreements, it’s generally much more complicated to sell privately held shares than those purchased on the stock market. By thinking about these factors, you can approach the decision to sell your private shares from a more informed perspective.

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

Guide To Selling Shares In a Private Company

Private company stock, typically issued to employees or investors, offers plenty of advantages for both the business and the shareholder. Trading private stock requires company approval and compliance with the Securities and Exchange Commission guidelines.

Private share ownership is quite a bit different than owning stock in a public company. Owning private stock can be lucrative, but trading it requires investors to overcome many hurdles. Learn more about the various factors involved in selling private stock, like the difference between pre-IPO and non-pre IPO shares and company approval guidelines.

Key Takeaways

  • Private companies issue stock almost exclusively to employees and investors.
  • Private company stock trades require the approval of the issuing company. Traders also need to seek approved buyers.
  • Purchasing private stock in a company planning an initial public offering may bring high profits.
  • Investors may hesitate to purchase private stock because privately owned companies aren’t required to release inside information.
  • SEC regulations guide private stock trades even though they don’t register private stocks.

What Is Private Stock?

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Private stocks are shares issued by a private company that doesn’t trade on public markets. This type of stock is reserved for employees and investors, often replacing some compensation through equity for cash-strapped startup companies. Issuing private stock over time can be a way for owners to transfer ownership and limit tax exposure in the case of a sale of the company.

Private companies may sell shares for many purposes, such as expansion, debt reduction, or risk diversification. Owners may transfer some or all of the ownership to shareholders over time. Employees or private investors may purchase the shares depending on the owner’s preference. Private stock may be issued for all or a portion of the company, but selling too many shares could result in the owner becoming a minority investor and losing decision-making ability.

Companies may sell private shares to three main groups of investors:

  • Large private investors: These investors are appealing to privately owned companies because institutional buyers have the capital for investments. Privately traded shares are easier, quicker, and less costly to parcel out, though there are still SEC limitations. Such sales typically have venture funding through venture capital investors. Larger private owners may have seats on the board of directors.
  • Small investors: These investors likely are handpicked people the private company owner knows. Smaller investors are usually individuals who don’t purchase large blocks of company stock, meaning they often have less of a say in company decisions.
  • Employees: Companies could offer shares to employees in lieu of higher salaries or other benefits. Usually, executives and other company decision-makers are the ones who get private stock, but companies can offer it to any employee.

Does Trading Private Stock Require Approval?

Private shareholders who are ready to sell their stock need to get approval from the company and also follow SEC guidelines. Private companies can deny any sale they want based on their ownership preferences, so selling can get a little tricky. A lot of the time, companies want their private stocks held by people they know to make sure private information and details remain private. Employees and investors may have a hard time selling shares to someone outside of the company unless they have good reasons, like needing the money to buy a house or pay for an emergency expense.

Since companies can be selective about the type of buyers they’ll approve, many shareholders ask the company’s decision-makers how others have liquidated their shares. Shareholders can receive suggestions for various ways to sell their shares, with one of the most common methods being a company buyback.

A buyback is when a company purchases stock back from investors. Companies with buyback programs consent to buy a specified number of shares and typically pay a solid price to sellers. Buybacks have advantages for both sides of the trade; companies keep control of the stock, and investors can quickly get the cash they need. Buyback programs may be limited, so those wanting to take advantage of them should act quickly.

Pre-IPO vs. Non-Pre-IPO Shares

Investors who hold shares in private companies either have pre-IPO or non-pre-IPO stock. If the company has no intention of going public anytime soon, then the shares are non-pre-IPO. These shares are usually the hardest to sell since the company wants to remain private and hold control. On top of that, many potential investors are wary of buying non-pre-IPO stock because shareholders can only offer so much information about the company. Without that valuable company insight, potential investors have no idea what sort of financial position the company is in.

Pre-IPO shares are a little different. The company plans to go public sometime in the near future, so it might be a little more relaxed about who the shareholder sells the stock to.

IPOs give companies and their stock a lot of market publicity, making IPO shares attractive to investors. The pre-IPO sales market is large and has many willing buyers. This market, by some indicators, could reach $50 billion.

There are even exchanges that specialize in pre-IPO stock trading. Employees and investors in pre-IPO private companies list on such marketplaces, some of which loan investors money for the trades.

What Are the SEC Regulations for Trading?

Private company stock can be lucrative and bring solid profits, but sellers must follow regulations if they plan to sell and realize those gains. Private company stock trades need to follow SEC regulations even though private stocks aren’t registered and aren’t traded on an exchange. It’s up to the seller to make sure they’re following these SEC regulations, so most shareholders work with securities lawyers to make sure all of the paperwork complies with the rules.

Prospective sellers must attract qualified, or what the SEC calls accredited, buyers. Accredited buyers include executives and directors at the company or investors with a net worth exceeding $1 million or an income of $200,000 for individuals or $300,000 for couples.

Selling Shares in a Private Company

T rading private shares is tricky because there’s no exchange and company information isn’t readily available. Investors can follow these steps to sell private shares:

  1. Hold private stock for at least a year. Most companies expect investors or employees to hold the stock for much longer.
  2. Seek qualified buyers with the guidance of the company. Company leaders often know potential buyers who will purchase the stock at a fair price. Investors can contact human resources or the chief financial officer to get more information.
  3. Provide information about the stock and company to prospective stock buyers. They need to share as many details as possible, being mindful of private information. Sellers may need a non-disclosure agreement.
  4. Follow contractual obligations as a shareholder listed in the private stock ownership agreement. Shareholders should know what rights they have and be aware of financial and tax implications.
  5. Decide how many shares to sell. Just like public trading, private sellers can liquidate as many or as little shares as they want. They do have to follow the same process each time they sell shares, so many shareholders try to limit the number of transactions they make.

Private and public stocks and their tradings have stark differences. Private stock owners have to navigate complex sales without an exchange and do the legwork, including securing approval of the company and finding qualified buyers. Companies that are approaching initial public offerings are easier to trade because there’s a large market for pre-IPO stocks. Regardless of the stock’s characteristics, investors must follow SEC regulations in both public and private stock trades.

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.