How Summer Businesses Survive

Seasonal businesses are tasked with an unusual feat: make one season's revenues enough to sustain the business for an entire year. Some businesses have the advantage of being able to close in the off-season, while others remain open all year. Some businesses have cycles which coincide with actual seasons while others are heavily dependent on particular seasonal occasions such as tax deadlines, weddings or graduation. Let's examine some popular businesses that thrive during the summer and the challenges they face when the seasons change.

IN PICTURES: 6 Ways To Save Money This Summer

Ice Cream and Summer Treats
During the summer, people are always looking for ways to beat the heat. As a result, ice cream shops see a nice bump in business. Rita's Italian Ice is an ice cream franchise which ranked #121 on Entrepreneur.com's 2013 Franchise 500 Rankings. Ice cream businesses are often risky because winter months tend to be slower; therefore, warm locations or seasonal hours are an integral part of the business model to find the recipe for success.

Generally, most locations in colder climates are only open the months of March through September, but there are also several locations and businesses like Rita's, which are open year-round. However, most of them are located in states where the weather is warm all year. According to the company website, Rita's is the top Italian Ice franchise in the United States.

Theme Parks
Once school lets out, the rush is on for families to take vacations and for parents to find ways to occupy their kids. Most theme parks are open between late spring and early fall to accommodate the rush. Six Flags is the world's largest theme park company, with 21 parks across North America and one destination in Dubai.

Some locations are able to stay open year-round because of their moderate to warm weather locations, but others such as The Great Escape & Splashwater Kingdom in New York are only open in the summer months. (We break down some of the U.S.'s most popular amusement parks to find out which one provides the best value.)

In recent years, Six Flags hit hard times, but the company reemerged from Chapter 11 restructuring in May 2010. As an example of the seasonal nature of the business, in the last 3-month period of October 2009 through January of 2010, revenue amounted to $102 million while in July through September of the same year it was $457 million.

Tour Guides
Aside from the major holidays, summer marks the peak season for travel, and hence tourism. Destination-based tour guides stay in one location and let the tourists come to them. Many offer tours on foot or by way of bus and even boat.

One such boat line, the Maid of the Mist, has been granting tourists an up-close and personal view of Niagara Falls since 1846. For less than $15 per person, passengers can depart from either side (American or Canadian) of Niagara Falls and ride into the water at the base of the falls. Depending upon the weather, the fleet operates from April to October.

As with the aforementioned businesses, tour guide companies must generate enough cash flows during their time of operation to justify their operations. (If flying to an exotic locale isn't in the cards this year, check out these cheaper vacation alternatives.)

Landscaping
Depending on what region the business is located in, the revenues for landscaping firms may dry up with the shrubbery.

Lawn Doctor, the largest "automated lawn care franchise" in the United States, boasts an average annual gross profit margin of 68% for locations that have been open for at least two years. Even though summer is the season most often associated with yard maintenance, the company provides services year round. Their website provides "Lawn Care Tips By Season" and their services include assessments and periodic visits to maintain each customer's yard, thus providing potential for a revenue stream beyond summer's end.

Seasonal Business Challenges
The bills don't stop - while it is true that many costs will decrease when the business is not operating, some large obligations will remain constant. For example, any business with leased space will be responsible for paying the bank every month regardless of the season. Other constant bills which may apply include insurance, utilities and security costs.

For businesses with weather sensitive equipment, arrangements must be made to protect valuables. Finding storage or weatherizing equipment and locations for the off-season can also produce new costs.

Each year the business is responsible for reaching out to old employees and/or recruiting new ones. Hiring takes time, money and other resources since prospective employees have to be interviewed, screened and trained before the business opens.

Unlike business that remain open all year long, seasonal businesses must survive each year on the cash flow generated over the course of a few months. While the business is open, it is important to maximize profits as they will be needed to cover any costs that linger year round.

The Bottom Line
Even though summer sales may cease after a certain date, the responsibilities of a seasonal business owner will continue throughout the year. Maintaining a watchful eye over cash management, equipment and personnel all year long can improve the chances of a seasonal business making it successfully from one season to the next.

The Complete History of the SPY

The S&P 500 SPDR (SPY) is the oldest and best-known exchange-traded fund. Here's a quick primer on the history of SPY, by the numbers:

Vital StatsBelow are some stats that put SPY into perspective:

Oldest U.S.-listed ETF (launched 1993)Largest U.S. listed ETF ($141.6 billion in AUM)Most Heavily Traded U.S. listed ETF (ADV of 5.2 million shares)Year by YearBetween its first full year of trading in 1994 and 2012, SPY has turned in 15 positive annual performances and lost ground in four years:

Combined together, that translates into an aggregate performance of about 331% between inception and June 30, 2013:

Since it launched in 1993 (and through June 2013), SPY's winning sessions outnumber its losing ones by about 1.17 to one. Visualized another way:

Visualized another way, here's a look at the daily performance of SPY since its inception (note the significant increase in volatility throughout 2008 and 2009):

Here's yet another way to look at the daily historical volatility of SPY:

To put the volatility of the recent recession and recovery in perspective, here's that same chart for 2008 and 2009 only:

Of the 29 sessions in which SPY has moved by 5% or more, here's the chronological breakdown:

Over one week (five session) periods, SPY has gained as much as 19.4% and lost as much as 19.8% of its value:

Here's a look at SPY's biggest swings over a 10-session period of time:

Fun FactsWith $145.44 billion in assets, SPY represents about 9.7% of the total ETF universeSince inception, more than 411 billion shares of SPY have been tradedApproximately 25.7 million shares, or 3% of total shares outstanding, trade hands every dayDividend HistoryHere's a look at every dividend SPY has paid since its launch, as well as the yield based on the stock price at the time:

ExpensesSPY charges an annual management fee of 0.09%, making it one of the cheapest ETFs out there. With assets of 149.6 billion, that means SPY genera! tes about $141 million annually, or about $16,000 every hour.

Disclosure: No positions at time of writing.

This Once-A-Year Trading System Averages Double-Digit Returns

In a bear market, diversification reduces losses. In a bull market, diversification can reduce your gains. This is the trade-off all investors face. The price of decreased risk is almost always lower returns. Despite its disadvantages, holding a diversified rather than a concentrated portfolio is usually the best choice for an individual investor.

Diversification is also the best choice for many institutional investors, including the managers of large endowment funds at colleges and charities. Managers of these funds must balance current income needs and demands for growth of capital that will allow the institution to continue meeting its goals in the future.

 

Historically, diversification has been the best way to strike this balance.

One of the research papers we recently read showed how profitable it would be to perfectly time the markets. If you could invest each year in the asset class that would prove to be that year's biggest winner, $10,000 would have grown to $959 million in 39 years. That is an average annual return of 34.2%.

Of course that gain is impossible because it requires knowing in advance which asset class will be the biggest winner. We can never know what will happen in the markets, but we do know what happened in the past -- and that can be profitable information.

This paper showed how you could trade once a year, buying the asset class that had the largest one-year gain in the previous year. The average annual return from this once-a-year trading system was 13.9%, and $10,000 would have grown to $1.6 million in the 29 years beginning in 1970.

This strategy looked at seven different asset classes, all available as exchange-traded funds (ETFs).

-- iShares Dow Jones US Real Estate (NYSE: IYR)
-- iShares Russell 2000 Index (NYSE: IWM)
-- PowerShares DB Commodity Index Tracking (NYSE: DBC)
-- SPDR S&P 500 (NYSE: SPY)
-- Vanguard Total World Stock Index ETF (NYSE: VT)
-- iShares Barclays 7-10 Year Treasury (NYSE: IEF)
-- iShares Barclays 1-3 Year Treasury Bond (NYSE: SHY)

The rules for this trading system are simple. Every January, calculate the total return for each ETF over the past 12 months. If the current holding is no longer the leader, sell it and replace it with the ETF that is the new leader.

That's the entire system. For such a simple strategy, the returns are impressive. The downside, however, is this system does not create a diversified portfolio since it is invested in only one ETF at a time.

To create a diversified portfolio, we recommend making the strategy just a little more complicated. Divide your initial investment into eighths and buy each of the seven ETFs with one eighth of your portfolio. Use the remaining eighth to apply this momentum rotation strategy. In addition to placing the momentum trade once a year, also rebalance your portfolio at that time. This would have gained an average of 10.6% a year since 1970.

You could also use options for the momentum strategy and increase your returns significantly.
With this variation of the strategy, instead of investing one eighth of your account into the ETF with the highest total return in the past year, you buy long-term call options on that ETF.

Call options give you the right but not the obligation to buy the underlying ETF at an agreed-upon price (known as the exercise price) before the expiration date of the option. You can find options with one year or more to expiration on most of the ETFs used in this strategy, and options with at least to six months to expiration will be available on all of them.

Options provide leverage, and you can see significantly larger gains when the options trades turn out to be winners. The risk of the option is limited to the amount you paid for the call.

At-the-money options with about a year to expiration should cost about 6% to 10% as much as the ETF would. We will use 10% in this model. That option should deliver an average gain of about 30% over time. When combined with the gains from the diversified portfolio, your total returns should be about 12.2% a year.

The rules are to allocate 12.8% of your portfolio to each of the seven ETFs identified above and rebalance these positions once a year. Use the rest of your portfolio to buy long-term options on the ETF that has the largest total return in the past year. Use call options with an exercise price near the current market price of the ETF.

We understand this system will require a little effort to implement, but the results should reward investors who make that effort.

Regardless of which system you prefer, you should consider maintaining a simple-to-manage diversified ETF portfolio and use options to boost the returns of that portfolio.

This article originally appeared on ProfitableTrading.com
This One-Trade-A-Year System Averages 12.8% a Year in Gains

P.S. -- Amber Hestla-Barnhart is a former Military Intelligence Analyst with an eye for seeing what others miss. She now applies her unique training to the options world where she's uncovered a glitch that could be worth thousands of dollars per year to traders. To see what she's uncovered, click here.

Middleby's CEO Offers Advice on Building a Successful Company

In the following video interview, Motley Fool CEO Tom Gardner speaks with Middleby CEO Selim Bassoul. Since becoming CEO in 2000, Bassoul has led a remarkable transformation at Middleby, the cooking equipment maker, turning the stock into a nearly 50-bagger over that time. In the video, Bassoul discusses the importance of customer service to Middleby's success.

Middleby is one of Tom Gardner's favorite stocks, but you can never have too many great companies in your portfolio. If you're looking for more ideas, our chief investment officer has selected a different stock as his favorite for this year. Find out which stock it is in the free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company. 

Tom Gardner: That's a great answer. "I'm 25 years old. I'm currently working in the customer service sector, in addition to owning a small business with my father. Customer service is our bread and butter, both in my career and in my small business. As someone who looks to invest in companies that provide top-tier customer service, I would like to know," Joe asks, "how big of a role did your customer service model play in your success, and what advice do you have for someone who's still getting their feet wet in the world of entrepreneurship investing and customer service?

Selim Bassoul: Well, customer service is very, very important to us in a way that is literally more important than salespeople.

Gardner: Customer service is easier when you have a no-quibble warranty. Your customer calls up and is upset; you can return the product if you don't like it. That makes customer service a little easier.

Bassoul: Yes, but I can tell you, it makes it even more complicated. Why? Because ultimately nobody buys a product to return it. At the same time, customer service is not only about returning products. People usually try to ask specific questions about which oven I need to buy. We haven't even started with the warranty. People coming back and saying, OK, I am a small pizza store. I deliver 200 pizzas on a Friday. Which oven should I need to do? So they need to be trained. Customer service also is about most probably having somebody being able to talk to somebody at the end of the line.

The key for us, and I've had so many bad experiences -- I don't know if you have ever tried to get to AT&T if you had an issue at your home. You're on the phone for an hour. Try to get on an airline, try to change a ticket and talk to an airline representative. You're 20, 25 minutes. And the worst is I hate those systems that say, "Your wait is 27 minutes," and you have that music. Twenty-seven minutes does not help me. I need somebody to respond. So what we've done -- we've basically found out that three things we've done. We've, one, made sure to return to our customers in hours in terms of getting back to them answers.

Number two, we've used an app. If you go on to the app on your iPad, we have a Middleby app. It's a free Middleby app, and in there we basically do a lot of things. We provide answers on sizing your oven, on energy saving, costing, what is the warranty, where to find parts, who to call, locally and everywhere around the world -- so you map wherever you are, you put your ZIP code, you find out. If there are rebates issued by the company, you put your code. You say is there a rebate, and in my backyard, where I can go get it.

We have basically used our information technology to help people not always get on the phone. But customer service is critical. Customer service is also critical in making sure that they say no. That's the power we give customer service. If we don't have the right product, we don't want to oversell you something that doesn't make sense.

One of the things that there is a tendency in companies is to upsell. I want to sell you a stronger BTU. Instead of selling you a medium-duty range, we are selling you a heavy-duty range. Or the opposite comes even more true. In order to not lose a sale, somebody needs to have a heavier-duty range. ... We'll sell them a cheaper one just to get the sales and finally six months down the road, we find out that, or a year down the road, we find out that that piece of equipment did not meet the needs, so it's very important for us to match the need honestly. So we have very high integrity and empowerment of customer service to override a sale.

Big Gains This Week May Lead to Big Losses Next Week

 The days right before and after Independence Day tend to lean bullish.   So lots of folks are expecting this to be a good week for the stock market. And following yesterday's big gain, we're off to a good start so far.   But there are a couple reasons to be cautious. In fact, any gains this week may lead to weakness next week. Let me explain...   The two indicators we used last month to call for a short-term rally in stocks are now neutral. Any further progress this week is likely to have them pointing to a short-term decline.    Take a look at this chart of the McClellan Oscillator plotted alongside its Bollinger Bands...     Last Thursday, the McClellan Oscillator closed above its upper Bollinger Band – which indicates an extreme move. This is an early warning sign that any additional gains in stock prices in the days ahead are likely to be given back.    Here's how the S&P 500 traded after the McClellan Oscillator popped above its upper Bollinger Band last September and November...     Stocks didn't fall right away. In fact, in December, the market actually posted solid gains. But those gains were short-lived as stocks relented to the overbought conditions.    Here's another reason to be cautious of a rally this week...     The Volatility Index (the "VIX") triggered a buy signal in stocks two weeks ago by closing above its upper Bollinger Band and then dropping back below it. This confirmed the buy signal we wrote about last month.   The VIX dropped rapidly following the three previous buy signals this year. But it never reached its lower Bollinger Band before reversing and heading higher again. A rising VIX typically coincides with a falling stock market.   Any additional gains in the market this week are likely to push the VIX down toward the 15 level. That move would match the action following previous signals. It would likely mark at least a short-term bottom for the Volatility Index... and a short-term top for stock prices.   – Jeff Clark