Hurting Days Hath September

I’ve always loved the month of September. The weather was usually agreeable, the pennant races were in the home stretch, hockey was becoming more the buzz (go Habs!) and the NFL season was kicking off.

It was also a month of new beginnings, as the school year got underway with a chance to improve upon the sorry performance of the previous year. This goal was usually doomed from the start, since September is also the month all the new TV shows came out, as well as new seasons of the old favorites.

As I matured (don’t say it!), sports became less important to me and spirituality took over at the top of my priorities list. For members of the Jewish faith, September, or the month of Elul, is generally a time of reflection and spiritual opportunity, just ahead or coincident with the holiest days of the Jewish year, Rosh Hashanah.

For investors, September is significant—some would say infamous—for another reason: it has historically been the worst month in terms of performance, period. For instance, dating back to 1928, the average return on the Dow Jones Industrial Average for the month of September has been -1.40%, far worst than the average return for May, the second worst month. May is the only other month with a negative return (-0.16%) But at least May gives a positive return most of the time (52.5% of the time). September has been profitable only 39.2% of the time, the only month batting less than .500. October seems to grab the headlines with the big, dramatic days, including 1929 and 1987.

In case you’re wondering December is the best month in which to be invested, with an average gain of 1.44% and a 72.5% “success” rate.

This point hit struck a chord with me as I sat here deciding what to write about this month. The Dow is off about 4.1% so far this month, although most Canadian investors would gladly change positions with their US counterparts these days. As we wrote in a weekly commentary (www.timingthemarket.ca, see guest column by the site’s market master Don Vialoux in this newsletter), we hope Canadian investors had a restful Labour Day, because the rest of the week saw nothing to write home about: down 11.2% as of this writing.

At our shop, we do consider seasonal tendencies, as well as the fundamentals of markets, sectors and individual securities, but these factors are considered adjuncts to our most valuable investment tool: KNOW THY TREND. Only by doing so can an investor master the most difficult task he or she will ever have: selling. After all, it’s market declines that separate the contenders from the pretenders in this business. Selling, not only preserves confidence, but also capital, two dear resources which allow investors to carry on.

Throughout my career as a Portfolio Manager, I’ve always considered risk reduction and capital preservation to be my Prime Directive. Hence, I’ve never to my knowledge, had a problem selling any security, save for one:

After having sold Microsoft, I quickly found that my Excel didn’t, my Outlook became cloudy, my Power Point became pointless, and suddenly my Word wasn’t good enough. Moreover, after using Microsoft’s Flight Simulator, my luggage went missing.

Just kidding of course. I can truly say that Microsoft has added value to my life just as it has added value to thousands of portfolios over the years.

As for the month of September, I am happy to report that it only has 30 days, and we’ve held the line for client portfolios so far, edging them up slightly to date.

To all our Jewish friends, may the New Year bring Peace, Health, and, of course, Prosperity.

-Shel

sheldon@castlemoore.com
1.416.306.5770 or toll free 1.877.289.5673