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Chart of the Week

Do You Believe in the Santa Claus Rally?

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Do You Believe in the Santa Claus Rally?

Do You Believe in the Santa Claus Rally?

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

Just like children eagerly anticipate the arrival of the big man in the red suit, stock traders have a similar holiday tradition of importance.

According to the 2019 Stock Trader’s Almanac, there’s an average 1.3% market rally in stocks that occurs every year during the holidays. Dubbed the “Santa Claus Rally”, it’s happened about 75% of the time since 1969.

And this year in particular, after one of the worst months for the market in recent memory, it’s no secret that investors have their hopes up for a sizable present under the tree.

Recent Rally History

Although the Santa Claus Rally has historical significance going back many decades, over the more recent period it’s been much more elusive.

Here is the data over the last five years.

We’re using the time period as defined by the Trader’s Almanac (last five trading days of December, and first two in New Year), and S&P 500 Index prices.

YearDay 1*Day 7**Change
2013-141828.021831.370.2%
2014-152083.252020.58-3.0%
2015-162063.522016.71-2.3%
2016-172260.252270.750.5%
2017-182684.222713.061.1%

Data for S&P 500, *Opening price **Closing price

As you can see, Santa provided a nice gift to traders (1.1%) last year – but in two of the previous holidays stretches, Wall Street must have been far naughtier.

During the 2014-15 and 2015-16 seasons, the S&P 500 saw -2.7% returns, a proverbial lump of coal in portfolio stockings.

Do You Believe?

No one is really sure why the Santa Claus Rally happens, but various theories have been proposed.

Some say investors are buying in anticipation of the January effect, or that it happens as a result of tax reasons. Others say it’s a period of time where institutional investors are home with their families, and bullish retail investors take control of the market.

Either way, it seems after a brutal December – which included the worst week for the Dow (-7%) since the financial crisis – the market could benefit from the Santa bump this year.

At time of publication (Dec. 28th, 4pm ET), the S&P 500 is up 5.7% from Christmas Eve lows – though there are still a few days left in the typical rally time window to see if the gains hold.

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Chart of the Week

Visualizing the Life Cycle of a Mineral Discovery

Building a mine takes time that poses risks at every stage. This graphic maps a mineral deposit from discovery to mining, showing where value is created.

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Visualizing the Life Cycle of a Mineral Discovery

Mining legend Pierre Lassonde knows a little bit about mineral exploration, discovery, and development. Drawing from decades of his experience, he created the chart above that has become a staple in the mining industry—the Lassonde Curve.

Today’s chart of the Lassonde Curve outlines the life of mining companies from exploration to production, and highlights the work and market value associated with each stage. This helps speculative investors understand the mining process, and time their investments properly.

Making Cents of Miners: The Stages of a Mineral Discovery

In the life cycle of a mineral deposit, there are seven stages that each offer specific risks and rewards. As a company proves there is a mineable deposit in the ground, more value is created for shareholders along the way.

  1. Concept

    This stage carries the most risk which accounts for its low value. In the beginning, there is little knowledge of what actually lies beneath the Earth’s surface.

    At this stage, geologists are putting to the test a theory about where metal deposits are. They will survey the land using geochemical and sampling techniques to improve the confidence of this theory. Once this is complete, they can move onto more extensive exploration.

  2. Pre-Discovery

    There is still plenty of risk, but this is where speculation hype begins. As the drill bit meets the ground, mineral exploration geologists develop their knowledge of what lies beneath the Earth’s crust to assess mineral potential.

    Mineral exploration involves retrieving a cross-section (drill core) of the crust, and then analyzing it for mineral content. A drill core containing sufficient amounts of metals can encourage further exploration, which may lead to the discovery of a mineable deposit.

  3. Discovery

    Discovery is the reward stage for early speculators. Exploration has revealed that there is a significant amount of material to be mined, and it warrants further study to prove that mining would be feasible. Most speculators exit here, as the next stage creates a new set of risks, such as profitability, construction, and financing.

  4. Feasibility

    This is an important milestone for a mineral discovery. Studies conducted during this stage may demonstrate the deposit’s potential to become a profitable mine.

    Institutional and strategic investors can then use these studies to evaluate whether they want to advance this project. Speculators often invest during this time, known as the “Orphan Period”, while uncertainty about the project lingers.

  5. Development

    Development is a rare moment, and most mineral deposits never make it to this stage. At this point, the company puts together a production plan for the mine.

    First, they must secure funding and build an operational team. If a company can secure funding for development, investors can see the potential of revenue from mining. However, risks still persist in the form of construction, budget, and timelines.

  6. Startup/Production

    Investors who have held their investment until this point can pat themselves on the back—this is a rare moment for a mineral discovery. The company is now processing ore and generating revenue.

    Investment analysts will re-rate this deposit, to help it attract more attention from institutional investors and the general public. Meanwhile, existing investors can choose to exit here or wait for potential increases in revenues and dividends.

  7. Depletion

    Nothing lasts forever, especially scarce mineral resources. Unless, there are more deposits nearby, most mines are eventually depleted. With it, so does the value of the company. Investors should be looking for an exit as operations wind down.

Case Study: The Oyu Tolgoi Copper-Gold Discovery, Mongolia

So now that you know the theoretical value cycle of a mineral discovery, how does it pan out in reality? The Oyu Tolgoi copper deposit is one recent discovery that has gone through this value cycle. It exemplifies some of these events and their effects on the share price of a company.

  1. Concept: 15+ Years

    Prospectors conducted early exploration work in the 1980s near where Oyu Tolgoi would be discovered. It was not until 1996 that Australian miner BHP conducted further exploration.

    But after 21 drill holes, the company lost interest and optioned the property to mining entrepreneur Robert Friedland and his company Ivanhoe Mines. At this point in 1999, shares in Ivanhoe were a gamble.

  2. Pre-Discovery/Discovery: ~3 years

    Ivanhoe Mines and BHP entered into an earn-in agreement, in which Ivanhoe gained ownership by completing work to explore Oyu Tolgoi. A year later, the first drill results came out of drill hole 150 with a headline result of 508 meters of 1.1 g/t Au and 0.8%. To get a sense of how large this is, imagine the height a 45-story building, of which a third of story is copper. This was just one intersection of an area that could stretch for miles.

    Wild speculation began at this stage, as steadily improving drill results proved a massive copper-gold deposit in Mongolia and drove up the share price of Ivanhoe.

  3. Feasibility/Orphan Period: ~2 years

    In 2004, the drilling results contributed to the development of the first scoping study. This study offered a preliminary understanding of the project’s economics.

    Using this study, the company needed to secure enough money to build a mine to extract the valuable ore. It was not until two years later, when Ivanhoe Mines entered into an agreement with major mining company Rio Tinto, that a production decision was finalized.

  4. Development: 7 years

    By 2006, the Oyu Tolgoi mineral deposit was in the development phase with the first shaft headframe, hoisting frame, and associated infrastructure completed. It took another two years for the shaft to reach a depth of 1,385 feet.

    Further development work delineated a resource of 1.2 billion pounds of copper, 650,000 ounces of gold, and 3 million ounces of silver. This first stage of development for Oyu Tolgoi made Mongolia the world’s fastest growing economy from 2009 to 2011.

  5. Startup/Production: Ongoing

    On January 31, 2013, the company announced it had produced the first copper-gold concentrate from Oyu Tolgoi. Six months later, the company stated that it was processing up to 70,000 tonnes of ore daily.

  6. Depletion: Into the Future

    The Oyu Tolgoi deposit will last generations, so we have yet to see how this will affect the value of the mine from an investment perspective.

    It’s also worth noting there are still other risks ahead. These risks can include labor disruptions, mining method problems, or commodity price movement. Investors will have to consider these additional conditions as they pan out.

  7. The More You Know

    Mining is one of the riskiest investments with many risks to consider at every stage.

    While most mineral discoveries do not match it perfectly, the Lassonde Curve guides an investor through what to expect at each stage, and empowers them to time their investments right.

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Chart of the Week

Visualizing 200 Years of Systems of Government

At the start of the 19th century, less than 1% of humanity lived under democratic rule. See how systems of government have changed over the last 200 years.

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Visualizing 200 Years of Systems of Government

Centuries ago, most of our ancestors were living under a different political paradigm.

Although democracy was starting to show signs of growth in some parts of the world, it was more of an idea, rather than an established or accepted system of government.

Even at the start of the 19th century, for example, it’s estimated that the vast majority of the global population — roughly 84% of all people — still lived under in autocratic regimes or colonies that lacked the authority to self-govern their own affairs.

The Evolution of Rule

Today’s set of charts look at global governance, and how it’s evolved over the last two centuries of human history.

Leveraging data from the widely-used Polity IV data set on political regimes, as well as the work done by economist Max Roser through Our World in Data, we’ve plotted an empirical view of how people are governed.

Specifically, our charts break down the global population by how they are governed (in absolute terms), as well as by the relative share of population living under those same systems of government (percentage terms).

Classifying Systems of Government

The Polity IV data series defines a state’s level of democracy by ranking it on several metrics, such as competitive and open elections, political participation, and checks on authority.

Polity scores are on a -10 to +10 scale, where the lower end (-10 to -6) corresponds with autocracies and the upper end (+6 to +10) corresponds to democracies. Below are five types of government that can be derived from the scale, and that are shown in the visualization.

  1. Colony
    A territory under the political control of another country, and/or occupied by settlers from that country.
    Examples: 🇬🇮 Gibraltar, 🇬🇺 Guam, 🇵🇫 French Polynesia
  2. Autocracy
    A single person (the autocrat) possesses supreme and absolute power.
    Examples: 🇨🇳 China, 🇸🇦 Saudi Arabia, 🇰🇵 North Korea
  3. Closed Anocracy
    An anocracy is loosely defined as a regime that mixes democratic and autocratic features. In a closed anocracy, political competitors are drawn only from an elite and well-connected pool.
    Examples: 🇹🇭 Thailand, 🇲🇦 Morocco, 🇸🇬 Singapore
  4. Open Anocracy
    Similar to a closed anocracy, an open anocracy draws political competitors from beyond elite groups.
    Examples: 🇷🇺 Russia, 🇲🇾 Malaysia, 🇧🇩 Bangladesh
  5. Democracy
    Citizens exercise power by voting for their leaders in elections.
    Examples: 🇺🇸 United States, 🇩🇪 Germany, 🇮🇳 India

A Long-Term Trend in Question

In the early 19th century, less than 1% of the global population could be found in democracies.

In more recent decades, however, the dominoes have fallen ⁠— and today, it’s estimated that 56% of the world population lives in societies that can be considered democratic, at least according to the Polity IV data series highlighted above.

While there are questions regarding a recent decline in freedom around the world, it’s worth considering that democratic governance is still a relatively new tradition within a much broader historical context.

Will the long-term trend of democracy prevail, or are the more recent indications of populism a sign of reversion?

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