With characteristic inimitable drollery American author Mark Twain once remarked: “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 even February." Yes, the October Effect was well known even in the 19th century, and this year is no exception. With the arrival of the fourth quarter this year, came investors concerns that stocks were overpriced when viewed through the lens of rising interest rates, slowing global economic growth and an American-Chinese trade war that looks to go from cold to hot any moment. With investor sentiment shifting from optimism to pessimism, broader markets have sold off 10% to 15% in the past 3 months.
So what’s a worried investor to do? Well, for starters go back and look to history for what markets have done following any market sell-off and draw comfort from the fact that 100% of the time markets recover and go on to higher levels in the future. Omnipresent disclaimer: past performance is not a guarantee of future results. That said, history helps to provide context within which portfolios with declines year-to-date (YTD) can be viewed and understood. Second, know that portfolios are dynamic and that market volatility equals market opportunity. With every market pull-back the institutional wealth management companies we partner with use cash positions in their holdings to acquire companies trading at lower prices. Bargain hunting in other words. Third, lower stock markets present an opportunity for investors to invest additional capital to take advantage of these lower prices too. A commitment to add to one’s portfolio when markets are lower is smart investing and I will be calling you in January on this basis.
Most importantly, it is important to be calm and circumspect and not to succumb to panic. I’ve been managing client assets for over 25 years and have delivered solid, risk-adjusted returns over this time frame. My biggest worry (make that only worry) when markets sell-off is not the sell-off itself, but clients’ reactions to it. Remember, there’s only one planet Earth and we’re all in this together. Declines are short term, while gains are long term, so looking past the past 3 months is good advice.
The jaunty Christmas carol Santa Claus is Coming to Town advises us that “...you better not cry, you better not pout I’m telling you why...” does not specifically reference global stock markets, but it offers sage council (as only Santa can!) because it is a reminder that the Santa Claus rally always shows up -sooner or later. I was hoping it’d be hear by the 25th this month, but we may have to wait until Groundhog Day or maybe later. But it’ll come, at least to those who have been good - so be good for goodness sake!
Merry Christmas to you and your families at this festive time of year!