Capitalizing on Historical Market Trends


With September being the worst month for the stock market every single decade since 1970, today’s episode analyzes some of the other month-to-month trends that could be important to recognize in order to create a better, more secure financial future for you and your family.

This week’s highlights include:

*A brief summary of why September has historically been the worst performing month for stocks across the market.

*A breakdown of the January Effect, and why some economists feel it is a sure way to receive material bonuses at the beginning of every year.

*Other strategies that might help you capitalize on monthly trends.

*Why portfolio diversification is an optimal method to provide future financial stability.

If you learned something new from today’s episode, share it with a friend or family member!

tax loss paxfinancialgroup.com


Hey, this is Darryl Lyons, CEO and Co-Founder of PAX Financial Group. Thanks for tuning in to Retire in Texas. This information is general in nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXFinancialGroup.com for more information. So, in this particular episode I want to talk about a time in the market not timing the market.

So, time in the market, not timing the market, but some very specific things. I want to talk to you about that. I think you’ll find it to be intellectually interesting. I was doing a little research. I’m not a big fan of multitasking, but I was multitasking because the football game was on, and I was researching some stuff on today’s topic.

And I asked my wife the question, how many months have 28 days? And she looked at me and she goes, one, it’s February. And that’s not all the time. I go, that’s not the answer I was looking for. She looked frustrated with me, of course, like, what are you talking about? And it was a joke.

I was like every month has 28 days. So, she didn’t find it funny. But sometimes when you’re doing research for a podcast that sends you down some rabbit trails of riddles and jokes. And so here we are. I’m going to be talking about the months of the year, and I don’t necessarily I don’t subscribe to market timing.

I have tried it before. PAX in 2011, maybe 2010, had invested a lot of money in market timing tools, some that were in the systems would turn green lights by red light. So, you’ve seen them on the radio, and I’ve seen them proposed in various seminars. They just don’t work. I’ve lost a lot of money, a lot of time, a lot of energy trying to do that kind of stuff.

So, I’m not a market timing person, but this is just interesting information and because I’m going to talk about what months are the best months for the stock market, and I ask myself, why do I want to tell you guys this? Why is this even relatively important? I think it’s important because I’m convicted that expectations are everything. And I think that’s a quote from C.S. Lewis.

Maybe he took it from somebody else. But expectations are everything. So when you understand kind of what’s going on in the stock market, whether you look at your statements or not or you hear something on the news and you have a point of reference of why it might be doing that, it prevents you from manufacturing a worst case story in your head and we tend to go there for the worst case story in our heads.

So, let me talk about first talking about the worst months to invest or let’s talk specifically let’s just go right into what is the worst month for the stock market? Now I’m filming this, um, recording this on 9/11. So, September 11th. And it just so happens that September is in fact the worst money for the stock, but worst month for the stock market, worst month for your money every single decade since 1970.

And so, a lot of people, they just, they just sell in August. They’re like, I’m not interested in September. It has a track record of not being good. And I ask myself, well, why? Why September? And frankly, there’s really not a lot of good reasons. You know, some people say the summer months are pretty bad and I’ll talk about that, but September’s kind of a seven month, is a transitionary month.

Right. But the summer months are generally months that don’t have a lot of activity in the stock market. It’s kind of where we can measure volume of trades and the volumes are really, really low. So, there’s not a lot of stuff going on during the summer. But September is a very, very peculiar month because it’s not a good month for the stock market.

Historically. And so, you could make the case I’m going to buy in September or by late September and enjoy the benefits of October. You could do that, and October generally bodes well. Fact November is the single best month for stock market investing. So, let’s say you wanted to be really cute. You wanted to go; I’m going to buy one.

It’s for a low in September and make sure that my money’s there for the November rally. But then you’ve got this month in between, October, which is always weird because it’s the 10th month of the year, but it has Octo in it, which means eight. I think it comes from the Roman calendar. But October is not a bad month either, except if you look at some crashes, we’ve had some pretty big crashes there.

Some of you guys might remember in 1987 we had that crash. I think the oil you guys know the oil and gas crisis, the S&L crisis, is really scary. The market went down like 30%. So, I say all that because September is historically the worst month.

October has had some pretty devastating months in it. Not a bad month, but there’s just been these weird months. November moving on to the best month has generally been November. Um, so you could make a case with the removal of some of these outliers. You could make a case that September’s really, really bad. But October, November, December are generally good months, so September’s not good.

October, November, and December are generally good. And, there is actually some rationale behind why those months are good, because you’re having this buildup of Christmas and you have retail sales. So you can imagine, we are in September. So, every year, December 25th, every single year is Christmas. And if you’re thinking about it prudently and wisely, you should probably start thinking about getting gifts now.

Right. And some people do that. So, we’ve got this build up for Christmas. And as that snowball starts to gain momentum come December, we’ve really started to stimulate the economy by money moving and getting in motion, whether people are going out to eat or visiting family or buying gifts. This money is in motion, and it really helps the stock market.

So historically, this October, November, December time frame has historically been the better months for investing. And again, all this research, I’ll put in my show notes for you guys so you can see it yourself. But September’s not been good. Now there are some rules of thumb that exist in the marketplace that are important. One of them, I’ll mention two of them, are real popular.

One is called the January Effect. Now rules of thumb, heuristics, whatever you want to call them. They usually are terminologies that have become nomenclature in the investment world, and some even people consider them true. And the January Effect is one of them. And this goes back I think it may go back even to the forties, but the theory is that you buy in January and the market goes up in January because what happened in December is people sold their stocks for a loss and then bought again in January.

And so, because they were taking a tax loss in December, so they took that tax loss in December, but they want to buy those same investments again in January. And so that gives the stock market kind of this synthetic bump early in the year. And so, they call that the January Effect. And some people then use those January returns to forecast what might happen the rest of the year.

So, they say that it’s either the tax what’s considered tax loss, harvesting, harvesting those taxes in December, buying back again in January, or some people getting material bonuses in January for the work that they had done in the prior year. And they use some of that money to buy stocks and that drives up the prices of the stocks.

And so, a lot of people have a strong belief in the January Effect, and they also have conviction that whatever happens in January will happen the rest of the year. But if you look at the data, it’s really a coin flip. I mean, it’s really, it works, sometimes it works, sometimes it doesn’t. So, but some people believe it.

The data I’ve looked at, all the data I looked at, I’ve been studying finance for a long time, I mean, obviously since 99. But I’ve actually looked at this monthly calendar fact for years. The one I study; I could not find when I was trying to prepare for this was from Brown University. But the main conclusion I drew from all of the research is that there’s really not like the secret sauce, so to speak.

There’s another one that’s pretty interesting, though. I think this one seems to have pretty good legs. But again, it’s still not conclusive and this one’s sell in May and go away. So, this is basically saying stay away from those summer months. Basically, it’s saying, you know, in May, June, July, August, even September, those five months, it sounds, sales in May go away and come back in October because the volumes are really low, people are on vacations.

There’s just not a lot of money in motion. There is some travel. So that’s some people’s thesis. Now, it might be true in retail sales and maybe Gap or whatever retailer you want to put out there. But during the summer months, if you look, there have been some pockets of performance during those summer months.

Oil and gas companies. If people are traveling a lot and the gas prices go up, that’ll help their profitability and health care does pretty good during those months. So, it’s not necessarily a dead month for investing, but the selling may go away. A lot of people like that. Again, you look at the research, it’s like, yeah, maybe I’ve looked at enough data over the years that sometimes people take samples of data to make their point to substantiate their point, and if you like, extend that data sample period by a year or two, it totally offsets their point.

So, you know, I, I haven’t seen anything conclusive in any of these heuristics, but I think it’s good to know them just to have reasonable expectations. So maybe you’re looking at the summer months and you’re not seeing performance, you’re getting impatient. You may even think your advisor is not that good, you know, just know that the volume may be low during that month for that reason or December, you might have lost money and you’re now frustrated.

You’re looking at your statement, you’re going to sell, you’re going to do something different. You might want to just kind of hang out through January because there might be some of this stuff going on. So, I think just kind of having these expectations, again, not timing the market, but time in the market and having these expectations a couple of little strategies that that might be, I think, helpful for you as you construct your investment portfolios and having this new information about how some of the months work is 2 strategies, 1, dollar cost averaging.

Sometimes if you’re nervous about getting in the market, you know you need to be in there, but you’re just struggling whether or not you should put that, you should put that money in right away because you’re nervous about maybe even October, because I just mentioned October, you’re like, Oh, the market crash in October, I’m going to wait till November.

But you’re like, I don’t know, I, I still don’t feel comfortable. Well, the way to get you off the seat, I think, is dollar cost averaging and working with your advisor and say, hey, rather than putting all my money in at one time, why don’t we put 25% over the next four months and the advisor will work with you?

And that’s just an easier way to get in. Now here’s what you don’t want to do. So, hear me out here at the end of four months saying, hey, the stock market went up 10%. I only made four or five. What happened? Well, dollar cost averaging means we kept money on the sidelines, and we incrementally put it in there over four months.

So just keep that in mind. But dollar cost averaging is a very good strategy as you are maybe entering the market during a peculiar time period. And then also something that we adopt that we’re fairly comfortable with. And I think that you would too is core satellite. That’s an option term for core satellite. So, what we would do is we would take the core of your portfolio and many of you guys know what I’m talking about.

The core of your portfolio, which needs to be a certain style, let’s say 60% stocks, 40% bonds. But you may have an idea or thesis that you want to do something different, maybe even say, hey, I want to be a little bit more aggressive. I heard about this in January. In fact, I’ve been doing my homework. I like it.

I want to add a little bit more stocks to my portfolio. Well, what we do is we don’t mess with the core of your portfolio because that’s your future self. We don’t want to mess with your future self, but we might take 5% of it. We call that a satellite and we might buy some stocks based on a thesis or an idea.

We’ll wrestle on the merits of it. But that core satellite says, hey, let’s take some of your money and maybe get you exposure based on something that we see in the market collectively that we agree on. So, the core satellite approach is really good because you don’t go all in on a theory. You maintain the core of your portfolio and a specific structure that will benefit your future self.

And you just take a little bit of the pockets of the satellite to invest in areas like maybe small cap stocks, which seasonally they do good during certain times and then of course dollar cost averaging those two strategies. So, dollar cost averaging, and of course satellite. And then as always, just manage expectations through these different months. Hopefully between now and the end of the year, we get to enjoy these retail sales, this build up towards Christmas, which would be really nice.

But you know what? The market has a funny way of making smart people look dumb. So, something that we didn’t think of, something surprising will likely happen. So just know that that’s just a part of the game and check with your advisor. Make sure you’re fully diversified, making sure that you got the right strategy. And as always, I just want to remind you, in this whole world of investing, the purpose of investing is to take care of your future self or your family or your legacy.

And you do much better when you think differently because you think long term. Have a great day.



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