Among many of the great mysteries in the world, I believe that the “September Effect” ranks rather high on the list – especially for investors.
Since 1897, the first full year of the Dow Jones Industrial Average’s existence, the U.S. market benchmark has produced an average loss of 1.13% in September. Doesn’t sound too bad right? But compare that to an average gain of 0.77% across the other 11 months – it certainly seems like no other month comes close to being as bad as September.
Some analysts consider that the negative effect on markets can be attributed to a “seasonal behavioral bias” as investors calibrate their portfolios along with the end of summer, to cash in on profits. Another plausible factor is that most mutual funds cash in their holdings to harvest tax losses; a strategy to lower current taxes paid to the U.S. Federal government by deliberately selling an investment at a loss. In turn, that capital loss is used to offset taxes owed on an investment sold at a profit, or even to lower taxes owed on personal income.2
There have been many explanations to get to the bottom of the September slump, with just as many to debunk them as hearsay. For me, I believe that at the end of the day, a truly savvy and serious investor should be looking at the fundamentals to discern the true market value. Many investors are only concerned about what price a stock is currently trading at and what it has traded at before; instead of delving into what lies behind the stock. That, to me, is an investing approach that spells “trouble” – no matter what month of the year it is!
Past performance does not always dictate future results. After all, it is not a game of luck that you are trying to ace in one shot, but rather, a long-term strategy where you review and recalibrate regularly so that you can hit all your bigger life goals. Connect with me today, and let’s talk about where you want to go next in your investment journey.