Fisher Investments Reviews if September is Bad for Stocks

Transcript

Ken Fisher:

As we approach September, one of the things people say a lot is that September is the worst month of the year for stocks; well, it is and it isn't. And let me try to take you through that. But there's a whole lot of little wrinkles here.

First, if you just take the average returns of the S&P 500 since accurate data began in 1925, it is true that on average, it is the worst month of the year and the only month of the year that's net negative. Since 1925, down 6/10 of 1%, on average. The fact of the matter is, if you throw out 6 of those 99 years, the rest of the time it's positive and it's not bad.

The issue is determining which are the ones that are going to go down and which are the ones that aren't, because the history of that, and I'm going to come back and ameliorate some of this. But the history of that is one where it has been, yes, positive, less months than any other calendar year or, excuse me, any other calendar month. The fact is that the market overall is positive about two-thirds of the time. 70% of the years have been positive, but some of the years have been sharply negative, and you know that. The fact, is September is positive over those 99 years 55% of the time, which is worse than average, but it's still more positive than flipping a coin. And in the negative category have been some of the bigger negatives.

Now, this is where we get really frisky; if we look at the last four years, September has been negative each one of them, four in a row, which is likely to create a skewed view that something new is going on as if something had changed in the celestial motion of the stars or something. And now it's negative every year. But literally 20, 21, 22, 23, all negative, and some of them bigger. Again, as I said earlier, if you take out six of the 99 years, the rest of it flips positive. But four of those six are the last four, which I think makes that feeling probably stronger in September than normal. But the flip side of the coin is, I'm just going to ask you how you think about this— if you just keep flipping coins, you'll eventually get to where you flip eight heads in a row, and you'll eventually get to where you flip eight tails in a row. And does any of that have to do with the nature of the coin or the nature of your flip?

No, it's got to do with the randomness of numbers. And the fact is, the way your psychology works, which is also not valid, is that if you got to that point where you got to eight heads in a row, most people would say, I bet we're about to come up to a tail. But in reality, each one of those flips is an independent activity that has nothing to do with the prior activities. It's not like eight in a row, meaning the next one is likely to be the reverse of what the eight were. The fact is, each one is its own thing, and each time the odds are 50/50.

The fact is, some month had to have the lowest returns. Some month had to have the lowest frequency of returns. It happens to be September, but that doesn't change the reality that you can't predict if this coming September, September now, in front of us, will be positive or negative. I would say you shouldn't trade on that, because it's no more consequential than a coin flip, and you wouldn't trade on a coin flip. And that's my flipping answer to the question. Thank you for listening to me.

Voice of Ken Fisher:

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