What October jitters?
This week we reflect on the month of October.
How we started the month
Looking back to the start of October, there was a real element of fear and trepidation – anticipation of a market correction was high.
This was partly based on superstition - fear that history would repeat. October is often considered the month share markets are likely to fall.
The press also contributed; sensational headlines add to fear, as well as sell papers.
In the middle of October, in the days before the 30 year anniversary of the 1987 crash, more fuel was added, e.g. exposés with interviews of traders that were there as the market fell, bold headlines, and intraday graphs with sensational headings.
Now, let’s look at the reality
1/ Oct-17 was the best month of any in the last 12 months (+4.03% for the Australian share-market). In fact, it was the strongest month since Jul-16. [The weakest month over the last 12 months was May, at -3.13%.]
2/ The market (XAO All Ordinaries) reached the 6000 mark in October – the first time since Nov-07.
Longer term perspective
The following graph shows the movement of the market each October over the last 40 years.
It is interesting to see what correlation exists in these movements. None.
It is also interesting to look at what the average movement was across all the Octobers in the last 40 years – it was +0.29% (yes positive), or +1.48% if Oct-87 (87 crash) and Oct-08 (GFC) are removed.
Looking back at the history of October market movements tells us zero. No predictive power or wisdom is imparted. Historical observations are irrelevant when it comes to short term market movements.
It really doesn’t matter what market observers, media commentators or your Uber driver think. The market will do what it likes, and trying to predict market movements over short time frames, including for Octobers, is fraught – we think it is anyway.
And notably, corrections most often occur when they are not expected.
First Samuel views the simple approach of not over paying for investments to be the key thing we can do on your behalf to address the risk of a market correction. By doing this, when a correction occurs, there is less downside (cheaper shares fall less). Additionally, having access to cash allows us to buy favourably priced investments during such times. We view this as a far sounder approach than selling at the start of October because of an irrational fear.