Why Buyers Might Take October Off

In light of the recent volatility and the ongoing debate about the meltdown and proposed solutions, one important question comes to mind for investors. What do we do about equity positions?

While the VIX spiking up to 50 on the Monday sell-off has the classic signs of a capitulation bottom, near term movements are highly dependent on news flow. In the short term, investors aren’t bearish enough for the market to make an intermediate term bottom. Mark Hulbert's analysis shows that there is too much complacency out there.

Mebane Faber did an interesting study indicating that there is some potential for excess returns. After a really bad month (yes, September certainly qualifies), wait a month and buy the market for a two month hold (November and December), you can expect an average return of 3.1% for the S&P 500 and 3.8% for EAFE.

In light of the current market volatility and this study, perhaps it would be best to wait until Halloween (Oct 31) before buying again.

Comments

[investor88:]

Fair enough, after all the period Nov-April is traditionally a good period. I wonder if this year will be one of those exceptions to the rule?

2008 Oct 01 09:33 AM

[Brad Ferris:]

If investors want to take October off and maintain the current valuations of the market, then I'm more than happy to step in and continue buying positions of stocks I own at what I view to be very attractive prices.

I am a long-term investor, so keep in mind that I look at this as an opportunity rather than something negative that impacts my portfolios

2008 Oct 01 09:48 AM

[bbzz24:]

buying around 10,000 seems attractive opportunity long term, but better got in index funds as another 10% drop is not impossible and better shield your portfolio from more of the inevitable lemons.

2008 Oct 01 09:55 AM

[SW Richmond:]

Everyone who is considering buying stocks, I invite you to consider this:

www.chartsrus.com/char...=^N225

2008 Oct 01 11:11 AM

[SW Richmond:]

Link didn't post....try this one, then click on "max" on the range bar

finance.yahoo.com/q/bc...=^N225&t=my&l=...

2008 Oct 01 11:15 AM

[SW Richmond:]

Cant post links anymore huh?

never mind then.

2008 Oct 01 11:15 AM

[User 68127:]

Interesting, but these kind of black box decision rules rarely have any relevancy to what actually happens. Either past patterns repeat, or this time is different. The key is to figure out which, and act accordingly.

2008 Oct 01 12:11 PM

[nym:]

Unable to use SWR's links.

2008 Oct 02 12:50 PM