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October market and clutch hitter myth

On Second Thought

There has been much discussion over the past year regarding the continued success of the stock market. During much of the 1990s the U.S economy has remained remarkably stable and produced phenomenal returns previously considered unimaginable.

Almost everyone is investing in the market, and on-line trading has become an American past-time, much like baseball. Many believe that almost any stock will produce a return, and investment advisers are being replaced by computer programs available free and on-line.

Few are truly prepared for the inevitable “correction.”

After consulting all of my reliable sources (a friend of a friend at a wedding, a fraternity brother who sells oriental rugs and a book about how to prepare for Y2K), I made the decision to sell all of my stocks and invest in precious metals at the end of September. Why September? Because everyone I spoke with at some point mentioned what a terrible month October is for the stock market.

“Remember October 19, 1987,” one remarked. “The market dropped 22.6% in one day, and that was nothing compared to the October 1929 crash.”

Everyone questioned spoke of the dire history of the October market.

Confident in my knowledge that October 1999 was the month the correction was to occur, I called my broker and informed him of my interest in adjusting my portfolio. He immediately questioned why I was so determined to make such a rash decision. He reminded me that most studies show the “buy-and-hold” strategy of long-term investments typically fares better than more risky ventures similar in nature to my proposed strategy.

Still not entirely convinced, but preoccupied with other things, thoughts of avoiding the travails of the October market soon faded. Ironically it would be baseball, the sport of “Mr. October,” Reggie Jackson, that would serve as a catalyst for revisiting my attitude toward the October market.

Some days later, a friend who is a sports fanatic, commented about a recent article concerning the myth of the “clutch hitter.”

The author, according to my friend, used statistics to prove that most of the baseball players historically viewed as clutch hitters often did not perform as well in situations when their team was behind and runners were in scoring position. In short, the clutch hitter is a myth. Could it be true? Was it possible that baseball greats like Babe Ruth and Reggie Jackson were no better hitters in a pinch than when their team led an opponent?

The statistics are undeniable. There is no such thing as a clutch hitter.

Then it hit me. If there is no such thing as a clutch hitter, perhaps the poor performing October market is also myth?

A few hours at the local library revealed a startling discovery.

Contrary to what almost everyone believes, October has a history of being one of the best months for market performance. When matched against other months, by comparing the Dow at the close of the first day of the month and the close of the final day of the month, October has the second best performance over a more than 50-year period. Only in the month of December did the Dow consistently close higher, a staggering 72% of the time. Surprisingly, June, September and May were the worst performing months for the Dow.

September, the poorest performer, closed lower at the end of the month more than 60% of the time.

The Dow was the standard used in my research, the most frequently used indicator of stock activity, but other indicators produce similar results.

Pundits offer a range of “explanations” for why the markets perform better in certain months than in others. The large number of May, June and September weddings was one explanation offered for the poor performance during those months. It has also been suggested that September has historically been such a bad month for the market because it is the last month of the Federal fiscal year. Others say that stock price fluctuations just happen and can not be explained. One conclusion easily deduced, however, is that it would be foolish to make an investment decision based solely on the month of the year.

Personally, I do not have an explanation. The one thing about the stock market that I thought I could count on is nothing more than a myth. And baseball – the great American past-time we celebrate every October – has lost some of its luster as well.

The World Series just won’t be the same without a clutch hitter.

Donald C. Simmons Jr., Ph.D., is associate director of the Mississippi Humanities Council in Jackson. His column appears regularly in the Mississippi Business Journal.


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