My Favorite Con on the Stock Market - It's Window Dressing
Oct 01, 2024"WINDOW DRESSING"
It’s my favorite con on the stock market.
It’s completely innocent and also wildly deceptive, depending on the angle you take to viewing it.
Window dressing is a retail term. It is when store owners make windows that face the street showcase their best items and draw you into their store to shop. During the holidays, our favorite shops deck themselves out in bows, gold, and glitz to get us in to spend our money. And, it works.
Well, the same thing happens on the stock market.
At the end of the year, the ETFs and mutual funds buy the best-performing stocks in the market in 2024 to add to their portfolios. They use October to dump stocks they don’t want to have in their portfolio anymore. (This is one reason we often see a dip in October.)
From the innocent POV, they are working in the funds' best interests to improve.
From the shady perspective, it’s essential to know that every year, funds have to publish what stocks made up their portfolio for 2024 so that new clients can be better educated about what to buy, what to keep, and what to sell.
The shady part is that a fun only needs to hold the stock for the tail of the year to say the stock was in their fund in 2024. As an investor, you’ll mostly likely assume in 2025 that NVDA was a part of their overall portfolio in 2024 during it’s meteroic rise and deem that fund to be genuis. But the truth is, they may have only held it for the last 6 weeks of the year and required my rules and regulations and they may have missed out of most of that stocks bull run.
So- you see- they "window dress" the front of their fund to look gorgeous to investors in 2025 by buying up the best stocks of 2024 only at the tail end of 2024 when the best stocks of 2024 were obvious.
Now…. If you know that window dressing happens…and it happens every year, without fail…what can you do with that information?
*One more note to keep you in the know. The stocks that will benefit most from window dressing are also household names. An obscure brand no one has heard of will not help as much as known names like AMZN or AAPL. This is because window dressing aims to have the best stocks AND stocks that are recognizable to anyone as a GOOD COMPANY.