Ah, September! Kids and college students are back in school. The first month of fall with cooler temperatures and the first sign of color in trees. The worst month of the year.
From a short-term stock trader’s point of view, September is historically the worst month of the year. And it is not even close. September’s shining beacon of hope every year is that past performance does not indicate future results.
According to LPL Research, every other month of the year has provided a positive return for stocks over 50% of the time since 1950. We know the odds of a positive return are stacked in our favor in January through August and October through December.
September has only been positive 43.8% of the time since 1950. Why is September such a laggard?
No one really knows. One theory is that money managers return from summer adventure distractions and adjust their portfolios after reassessing what they own. Another theory is that mutual fund managers sell the losing stocks in their portfolio prior to the end of their fiscal year on September 30 so they do not have to report that they owned them. Or maybe analysts start getting nervous as companies start their budgeting process for next year. No one really knows.
What we do know is that while traders tend to scramble in September, successful long-term investors do not overreact to their stock investments’ trajectory on a monthly basis. If your financial or emotional well-being hinges on how stocks perform each month, you are setting yourself up for an overwhelming dose of anxiety.
In our opinion, a better approach may be to only invest in short-term risky investments such as stocks if you absolutely, positively do not need your money for eight or more years. That gives you the freedom and flexibility to put the risky portion of your portfolio in perspective when it stumbles – whether in September or entire years like 2022.
This September could be a little bumpy. Not only is it the worst month of the year, but funding for the federal government ends on September 30. Undoubtedly there will be exciting headlines intended to draw you in to the political theater. Traders will be reacting (and potentially overreacting) to economic reports on inflation which may be creeping up again. The Federal Reserve meets on September 20 and, while traders currently think they will skip another rate increase, we may get hints about the future.
Whatever September throws at us, remember it is only 30 days of potential suffering. Then comes 11 straight months which have had positive returns over 50% of the time.
Quote of the week: Jack Bogle: “Your success in investing will depend in part on your character and guts and in part on your ability to realize, at the height of ebullience and the depth of despair alike, that this too, shall pass.”