Should stockmarket investors sell in September?
Historical data shows that stocks do better in some months than others. But can investors profit from this?
There’s a famous Mark Twain quote in which the great American wit gives the following investment advice. “October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”
Yet historical data – as often highlighted by excitable market commentators – can seem to imply that certain months are in fact more dangerous, or more profitable, than others. A look at returns on the Dow Jones index going back to its creation in May 1896 shows that the average monthly return each July is more than 1.5%. By contrast, looking back across those 125 years, the worst month by far is September, with an average monthly loss of just over 1%. So is the easy way to stockmarket success to cash out in September then lever up in July?
Sadly not. For one thing, this is just one market. Different markets display different anomalies – for example, April and December have historically been the strongest months for the FTSE 100. More importantly, there is no logical rationale to underpin the pattern, so you have no reason to expect it to continue. It’s similar to being shown the results of 100 coin tosses then believing this gives you some insight into the next 100 – it doesn’t. With a fair coin, the odds of heads or tails are always 50/50 each time. It’s quite possible that this is just the way things have panned out in the past century; the next may be entirely different.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The real problem with seasonality
However, the key problem, as Mark Hulbert notes on MarketWatch, is that the opportunity to bet on these monthly variations only comes around once a year. So even if you think you’ve found a statistically significant pattern, and even if you are convinced that it will endure, you can’t bet on it frequently enough to be sure of profiting in the long run.
Some investors do make money from pattern-spotting. As Hulbert notes, the staggeringly successful Medallion Fund, which is the in-house fund open only to staff at hedge fund Renaissance Technologies, has managed to parlay what amounts to a very minor statistical edge into market-thrashing returns over 30 years or more. But these returns come from spotting extremely short-term patterns and using high-frequency trading to exploit them (not to mention having the pool of capital to do so). In other words, the sort of thing that you can only do if you’re a massive hedge fund staffed almost exclusively by people with maths PhDs.
In short, don’t waste your time worrying about seasonal patterns. If they were an easy path to market riches, they would already have been ironed out by arbitrage traders.
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
-
Rightmove: Asking prices edge closer to record peak
Asking prices have been driven up by the top-end of the market, Rightmove has found. But how does the situation look in your area?
By Vaishali Varu Published
-
Coventry Building Society bids £780m for Co-operative Bank - what could it mean for customers?
Coventry Building Society has put in an offer of £780 million to buy Co-operative Bank. When will the potential deal happen and what could it mean for customers?
By Vaishali Varu Published
-
The industry at the heart of global technology
The semiconductor industry powers key trends such as artificial intelligence, says Rupert Hargreaves
By Rupert Hargreaves Published
-
Three emerging Asian markets to invest in
Professional investor Chetan Sehgal of Templeton Emerging Markets Investment Trust tells us where he’d put his money
By Chetan Sehgal Published
-
What to consider before investing in small-cap indexes
Small-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
By Cris Sholto Heaton Published
-
Why space investments are the way to go for investors
Space investments will change our world beyond recognition, UK investors should take note
By Merryn Somerset Webb Published
-
Time to tap into Africa’s mobile money boom
Favourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
By Rupert Hargreaves Published
-
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published
-
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
-
Magic mushrooms — an investment boom or doom?
Investing in these promising medical developments might see you embark on the trip of a lifetime.
By Bruce Packard Published