Happy Trick or Treating!
“I’m just a girl, standing in front of a salad asking it to be a donut.”
I ran the Morristown Halloween Half Marathon the other weekend, and at every mile marker they had Halloween candy. Now I was able to fend off the sugary treats during the race, but afterward I let myself indulge a little. I had a piece (or 3) of candy for each mile I ran. I think I read somewhere that the amount of calories you burn during a half marathon is the equivalent of 7 donuts (or maybe it was for a full marathon). After eating all that unnecessary processed sugar, I felt awful and kept asking, why I always do this to myself. I just ran 13.1 miles only to overeat bags and bags of candy. I guess I’m a glutton for punishment. Then I realized it isn't just with chocolate and ice cream. Our society, me included, seem to go from one extreme to the next. It can be from binging on a shopping spree only to be terrified of the credit card bill. We become greedy and overextend our budget to buy a more expensive house. Then we are scared we won't be able to save enough for retirement. The concept of going from one extreme to the next is how the stock markets sometimes work as well; going from one irrational behavior to the next. Sounds like we may need a Xanax for this post or maybe the markets could use one (and I’m not talking about the Fed’s monthly dose of Xanax to the markets).
As people become greedy and greedier and buying more stock, the stock markets usually make a top. Then the pendulum swings ever so irrationally from greed to fear. As the market starts to go down or pull back, investors become fearful so they withdraw their money. The pendulum is in a constant swing from greed to fear to greed. Investors tend to think they are most at risk when the markets go down, but it is usually the opposite. They have the most to lose when markets are up and creating a top. When markets are going down or at the bottom of a trading cycle, there is less of a risk or chance that they will go down further.
Many investment managers will look at when retail investors, which is you, are buying stocks, and they will sell. Then when you are selling, they will buy. The pendulum goes from greed, when the retail investors start plowing money into the markets, to fear, when the retail investors are exiting in a mass selloff. The managers are there to buy what you are selling, and then you buy what they are selling. They have the advantage of knowing investors can become emotional when they invest, especially with the nest egg they worked so hard to create. As Warren Buffet says, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” So maybe we can be greedy when others are fearful, which is what many successful people do. When others are too scared to write a book or create a start-up, the prosperous person is grasping at the opportunity before you can even scratch your head.
Another stock market phenomenon is the Halloween theory, to bring it back to Halloween. This is a Halloween post after all. Or you may have heard of Sell in May and Go Away. The idea behind it is that the majority of stock market corrections occur during the summer months. Historically the worst four months in the stock market are July through October. So this Halloween strategy or Sell in May and Go Away strategy is when you sell your stock positions on May 1st and reinvest into the market on October 31st. To give you an idea of this strategy, CNBC put out an article showing the historical returns of being invested in stocks both May through October and November through April. The May to October time frame returned .95% on average from 1998-2012 versus the November to April period returned an average of 10.69% during the same 14 year period. You can see based on these historical returns the Halloween effect can be beneficial. Now it doesn’t work every year, like most strategies. If they always worked, we would all be rich, and where is the fun in that? In 2014, the S&P 500 indexed starting May 1st at 1923 and ending at 2067 on November 1st, which would have resulted in a return of 7.5%. And to think, you probably thought the Halloween effect was buying candy in September, thinking it will still be there for the trick or treaters next month. There are numerous other phenomenons, such as the Santa Claus rally, which year of the Presidential cycle we’re in, what the Institutional Investors are selling/buying, and so many more…but those are for another day.
I wish you have a very Greedy and Happy Halloween with an overindulgence of candy and fun. That is what Halloween is for after all. And thank goodness we are entering the historically better time in the markets! As always, Happy Investing!
Jessica Weaver, CFP®, CDFA™, CFS®
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Jessica Weaver and not necessarily those of Raymond James
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® in the U.S.
Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S> stock market. Keep in mind that indexes are unmanaged and individuals cannot invest directly in any index. Index performance doe s not include transaction costs or other fees which will affect the actual investment performance. Past performance does not guarantee future results.
 “It sounds crazy, but 'sell in May and go away' is good advice.” By Alex Rosenberg, 29th April, 2016 CNBC