Red October

The most terrible days on the market are referred to as Black Monday and Black Thursday.  In accounting and finance, “in the black” is a good thing.  So, for me this label is a bit counterintuitive.  After all, the biggest shopping day of the year is called Black Friday because huge sales on this day push many retailers from the red (losses) into the black (profits).

I think red is more fitting and right now we are approaching the middle of what I will call Red October.

Historically speaking, October is a pretty tough month for stocks.  The two largest crashes on record both occured in October.  First in 1929 and much later in 1987.

Putting this week’s steep decline aside, five of the ten largest daily percentage drops in the history of the Dow Jones Industrial Average came during October.  In fact, the largest three were all recorded in October.

What is it about October?  To tell the truth, I don’t have a clue.  We are only eleven days into this October and the Dow has already plunged 22 percent.

The bright side is that historically, the three months following October have the highest average rates of return.   This tells me that October is a month of overreaction.  Overreactions get corrected, so if you have money in the market this October, seriously consider your options (and if you really need the cash right now) before selling out.

True your account balance may look lower today than yesterday or last year but, cashing out at the bottom goes against the point of investing.

Bottom line: October will only be red if you sell out.