Ian Cowie reports in The Times online that October is one of the peculiarly dangerous months for stock market investors. However, as Mark Twain said more than a century ago the others are July, January, September, April, November, May, March, June, December, August and February.
Since the author went bankrupt, share prices have fallen sharply in October in 1929, 1987 and 2008.
Nobody knows why this is often a bad month for shares, but maybe it has something to do with traders feeling fed up after summer holidays and sad before winter! Last week fears of trade wars, higher interest rates and Brexit uncertainty were specific catalysts to force the FTSE 100 index down to a six-month low. Many smaller companies suffered even bigger falls and in America stocks plummeted.
At times like these, it may pay to remember that shares reflecting the changing composition of the London Stock Exchange delivered higher returns than cash over three-quarters of all periods of five consecutive years since 1899.
In plain English, that means if investors could hang on for five years, they had a 75% chance of beating bank deposits, according to comprehensive analysis in this year’s Barclays Equity Gilt Study. Despite much worse setbacks than the current crisis — such as the Great Depression and two world wars — shareholders who remained invested for a decade had a 90% probability of beating deposits.
It makes sense to have a clear idea of what you hope to achieve by investing and how long you are prepared to wait to do so. That can provide a degree of certainty during periods of extreme anxiety.
At Mantles, we believe it is impossible to time the markets (remember it’s not only timing coming out but also importantly when you go back in) and we are advising clients to sit tight and ride out October’s stock market storms. As the saying goes, it’s better to have time in the markets rather than trying to time the market.