Lots of scary things can happen in October. Turn the tv on and you’ll see one horror movie after the other scheduled on your movie channels. Theater releases are filled with scary movie options. And your neighbors front yard looks like something out of a Hitchcock flick.
That’s not all that’s scary though. It’s also a scary time for stocks. Why? Well, mainly because of what has happened in the past. It’s hard to say whether it’s just plain bad luck in October or if what happened in the past plays on a person’s psyche for the present.
What has happened in October?
So what has happened in October to scare all the hedge fund managers, traders, and retail investors out of their socks? Taking a look back at some of the worst crashes in stock market history should paint a better picture for you. You could say that it all started back in 1929 and the Great Depression. A look back at that October will reveal numerous very bad days in the market which happened to take place in October.
If that wasn’t enough, then maybe something a little more recent might convince you. The market dropped 22% on “Black Monday” October 19, 1987. Not recent enough for you? Then how about October of 2008 when the market tanked 16% in front of the banking crisis and the Great recession. October can be a scary month for stocks, indeed.
Why does it happen in October?
Who knows really. There’s probably no real “reason” why. Maybe other than people have been following the history of it so much that they are looking for it in October which in turn could make it come true. It could just be enough investors that believe in the hype which starts the sell off which then in turn causes the hype again. Why it happens is a real mystery, but the history of it happening is in the books for you to read and decipher.
Although October isn’t historically the worst month it is the scariest month. Historically, September is actually the worst month for stocks performance. Have you heard the saying “sell in may and go away”? It’s kind of the same thing with October. It could be called a superstitious type thing if you will. Even if you don’t believe in superstition you can’t deny that other people do, other investors do, so you have to take notice in the markets.
What should you do in October?
The real question is what should you do as an investor? Should you get out before it all goes down hill or just wait it out and hope for the best? Even with these bad Octobers in our history there’s one thing that always remains true about the stock market. It always recovers and goes back up in the end. It has never failed to do this. Therefore, it would be the wisest to buy and hold instead of trying to time the market. This is especially true if you’re a long term investor. If you try to get out and time the market you might miss out on the rally that you didn’t see coming and at that point you’ve done worse than if you would have just left everything alone.
If you’re a short term investor you shouldn’t be too exposed to stocks anyway so you can also keep the course. Now, that’s assuming you have your investments diversified and picked out wisely for your investment goals and time horizon. Don’t be scared, and stay the course.
Take advantage of the scary October for stocks
If you do see the market drop a good deal in October then one of the wisest things you could do is take advantage of the fear by looking for bargains. Even though my portfolio would be hammered if we got a 20% drop in October I would still be ok with it because it would make it that much easier for me to find a bargain for my next investment.
When you do find that bargain you shouldn’t be buying it all at once though. Make a sizable investment, but you should also leave some cash behind to buy some more if the market decides to go down some more. If you do run into a bear market then you can keep adding to your portfolio, systematically, throughout the downturn and you’re likely to come out ahead at the end of it.