Don Steinmann's Investment Tip of the Week

Don Steinmann's
Investment Tip of the Week

Market Patterns

Many people invest based upon patterns they see in the stock market. For example, September is usually a lousy month to invest. It’s the only month of the year that on average the stock market declines. Why do people look for things like that? I believe because it’s easier to find a pattern like that than to do the hard analysis required to figure out which stocks to buy.

But there are two problems with using those patterns to actually invest your hard earned money. First, often those patterns are no more than statistical oddities. One month was bound to not be very good. Predicting in advance that it would be September is the hard part. You can always see in hindsight what was the bad (or good) day, week, month. In advance? Different story. Second, even if there is a real reason for it, that reason will probably change. If everyone believes that September is a bad month, they’ll sell in advance in August, and August becomes the new bad month.

If we think of it in real world terms, that’s when it sounds really silly. For example, you’ve invested in a part ownership in a duplex. But you’re going to sell your share in that business because sometimes in September the market for duplexes is soft. That doesn’t make much sense for a long term investment like a rental property. Or a long term investment like part of a business enterprise (i.e. a stock).

Oh, and how has September been by the way? This September has been the best performing one for stocks in 70 years. Those market patterns always work…. until they don’t.

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