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September blues? Prepare to gain from the fall

Alan SteelI assume I’m not the only one who noticed that a couple of unwelcome anniversaries have just slipped by.  

Didn’t spot it in the headlines though.  Seems to me commentators right now are either obsessed with the “big” collapse in share prices that kicked off on the ninth in the US when the Dow Jones posted a one day 2.5% drop, or they still have their knickers in a twist about investment charges.

What anniversaries? Well, for starters, the 11th was the 15th anniversary of 9/11. Remember that?  Don’t know about you but I recall exactly where I was, and the shock felt by me and my colleagues as we watched that second plane slam into the World Trade Centre. 

The fifteenth of this month was the eighth anniversary of the sudden collapse of US Bank Lehman Brothers. That in turn escalated over days into the worst financial crisis since the  October 1929 Wall Street Crash which triggered the Great Depression of the 1930s.  

For those who think a one day fall of 2.5% is a reason to panic , how about a 14.3% fall on 9/11, or an 18.8% fall after Lehman Brothers went down the tubes, never mind the 43.7% collapse in October 1929?

Yep, September and October aren’t typically clever months for investors, despite what Mark Twain said about not investing in equities any month.

Going all the way back to 1900 September has the dubious record of being consistently last in Stockmarket performance. Taking the Dow Jones Index again as an example (and why not given what happens over there is mirrored here)? it has risen in September in only 43% of those years. The average loss isn’t all that bad though, at minus 1%. 

October lies in second last place, but despite the famous and heavy falls associated with the month over the years, it boasts rising stock markets 57% of the time , slightly below the norm for all months. And remember that’s a 116 year period. 

Since 1900, data put together by Ned Davis Research (NDR) show there have been 53 “crises” impacting stock markets over the last 116 years, but only 42 of them led to first day falls. One third of them were in September and October, twice what the law of averages would suggest.  Is that why Autumn is referred to as The Fall ?

Do you think it could be anything to do with the fact that by far the biggest capitalised stock markets are in the Northern Hemisphere? Maybe us northerners get increasingly depressed as we look forward to longer nights and crappier weather. 

Whatever. Here are some of other first day reaction falls of “crisis” events from the NDR list….. October 1973 Arab Oil Embargo, down 18.5%, October 1987 Financial Panic, down 34.2%, and September 1992 ERM UK crisis, down 4.6%.

Want some good news?  History shows that within nine months the average gain was 16.9%.  History also shows that in 85% of the time since 1900 stock markets have been in bull markets.

NDR recommended back in August 2008 before the Lehman collapse that investors be cautious, with only 40% exposed to equities. It is still recommending they hold equity exposure at 70% of their maximum optimistic position. 

As to charges , if you Google “fund charges” you get 232 million results.  Then Google “the benefits of active management” and you only get four million.  Right now there is 58 times more interest from investors in cutting costs than in improving net investment performance. 

While I appreciate there are funds and pension plans that under-deliver and over-charge, usually simultaneously,  there are enough fund managers and advisers out there who work hard at a fair price to deliver superior performances for long standing clients who pay no attention to sexy or scary headlines or September and October “crises”. 

So when you are approached by folks assuring you that average tracking funds beat all comers in the active sectors go check for yourself, and ask yourself this… when was the last time an average tennis player won a Grand Slam?

Alan Steel is chairman of Alan Steel Asset Management

Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.

www.alansteel.com

This is a regular column submitted via the DBdirect service. For details click here.

 



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