Opinion: August spooks many stock investors but it’s actually one of the Dow’s best months

But since 1986 the reverse has been true, with August being the worst month — posting a median lack of 0.7%, versus a median acquire of 0.9% for the opposite months.

Buyers who’re cautious of August’s horrible seasonal tendencies are specializing in this newer historical past and ignoring the long-ago report.

There’s nothing magical about 1986, by the way in which. I selected that because the yr to divide the historic pattern as a result of that was the top date of an early educational evaluation of the Dow’s seasonal tendencies. That research, by Josef Lakonishok of the College of Illinois at Urbana-Champaign, and Seymour Smidt of Cornell College, was entitled “Are Seasonal Anomalies Real? A Ninety-Year Perspective.” It appeared in The Review of Monetary Research in 1988 and reported that August was certainly the very best month for U.S. shares, on common.

It maybe is no surprise that the market’s August’s fortunes turned south virtually instantly after that research appeared. Inventory market patterns usually cease working as soon as too many traders turn out to be conscious of them.

Buyers who guess on August due to that research didn’t learn it very fastidiously, nonetheless. The authors wrote that, although August got here out on prime in a rating of common month-to-month returns up till then, “there isn’t a constant month-to-month sample within the inventory market.” Their conclusion is even more true right this moment, after all.

Nonetheless, it’s value noting that, when specializing in all years since 1896, August stays an above-average month. Its common acquire is 1.1%, almost double the 0.6% common for all different months. So in the event you needed to guess on historical past repeating itself, you’d count on August to be an above-average month for shares.

The funding lesson from this dialogue is the significance of specializing in greater than the current previous. It’s human nature to violate this rule, after all; this violation has even been given a reputation by behavioral economists — “recency bias.” However the long-ago historical past isn’t any much less vital.

At all times give attention to as a lot knowledge as can be found when making an attempt to learn historic tea leaves. Upon doing that, you uncover that the inventory market in August shouldn’t be, from a strict statistical perspective, destined to be higher or worse than common. That doesn’t imply the inventory market gained’t rise loads this month — or plunge. But when it does, it gained’t be as a result of it’s August.

Mark Hulbert is an everyday contributor to MarketWatch. His Hulbert Scores tracks funding newsletters that pay a flat price to be audited. He will be reached at mark@hulbertratings.com

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