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For those unfamiliar with the term, it refers to the historical fact that September is the worst month of the year for the stock market and one of the few months of the year that over many decades of data the S&P 500 has a negative return.
For those interested, here are the average returns for each month of the year from 1950 - 2016:
January: 0.79%
February: -0.05%
March: 1.14%
April: 1.34%
May: 0.15%
June: -0.09%
July: 0.88%
August: -0.27%
September: -0.67%
October: 0.76%
November: 1.38%
December: 1.54%
Source: http://www.moneychimp.com/features/monthly_returns.htm
I've never relied on this data to decide what to invest in at a certain time of the year. But if you believe the future is likely to emulate the past, you could justify doing any of the following:
- holding assets in cash from August 1st to October 1st, then buying stocks.
- Buying most aggressive assets every year starting October 1st (like SCV stocks), then dialing it back throughout the year until you get to your bonds in the summer and early fall, then jumping back into aggressive stocks again on October 1st.
- If you're really comfortable with risk, shorting the S&P 500 in August and September.
As I mentioned, I haven't done any of these things. I am down a little bit in bonds at the moment and have been adding them back recently, but when I see data like this, I wonder if continuing to buy them from October - April is a suboptimal strategy.
Basically, I'm wondering if others think this effect is likely to continue, and why or why not. If so, it would seem like an exploitable inefficiency (despite the wide stdev in averages), and intuitively it doesn't make sense why it would persist when other phenomena like the "January effect" for small caps would get eroded away.
For those interested, here are the average returns for each month of the year from 1950 - 2016:
January: 0.79%
February: -0.05%
March: 1.14%
April: 1.34%
May: 0.15%
June: -0.09%
July: 0.88%
August: -0.27%
September: -0.67%
October: 0.76%
November: 1.38%
December: 1.54%
Source: http://www.moneychimp.com/features/monthly_returns.htm
I've never relied on this data to decide what to invest in at a certain time of the year. But if you believe the future is likely to emulate the past, you could justify doing any of the following:
- holding assets in cash from August 1st to October 1st, then buying stocks.
- Buying most aggressive assets every year starting October 1st (like SCV stocks), then dialing it back throughout the year until you get to your bonds in the summer and early fall, then jumping back into aggressive stocks again on October 1st.
- If you're really comfortable with risk, shorting the S&P 500 in August and September.
As I mentioned, I haven't done any of these things. I am down a little bit in bonds at the moment and have been adding them back recently, but when I see data like this, I wonder if continuing to buy them from October - April is a suboptimal strategy.
Basically, I'm wondering if others think this effect is likely to continue, and why or why not. If so, it would seem like an exploitable inefficiency (despite the wide stdev in averages), and intuitively it doesn't make sense why it would persist when other phenomena like the "January effect" for small caps would get eroded away.
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