WEDNESDAY SEPTEMBER 2, 2009

September Blues

September lived up to its reputation, starting off with a 185 point decline on the Dow Industrials. While October gets the headlines for its famous crashes of 1929 and 1987, September is statistically the worst month for investing. It doesn’t help that all the media can talk about is how bad the month is. And the airwaves will be filled with 1 year anniversary shows of last year’s market crisis. So, it seems that the market psychologically has gone from economic recovery to correction mode with a flip of a calendar page.


Statistics are dangerous and can lead to investment mistakes. For example, the statistics for a time period, say a month, may show that 6 out of 10 times returns are negative. Certainly, a 60% chance of a loss is a high probability. However, there is a 40% chance for a positive return. The trouble is we never know until after the month is over whether it was the 60% or the 40%. Should investors take action on this statistic? Investors must keep in mind that there are costs to act on these statistics. Transaction costs and capital gains taxation more often than not eat up any benefit of trading on these types of statistics.

 

Will there be a correction in September? Maybe. Despite recent, stronger economic news, it is not unreasonable to expect a correction of 10-20% after the 50% run-up from the lows of March 6th. I would encourage investors to stick to their long-term asset allocations and ignore all the scary statistics about September and October.

 

POSTED AT 1899-12-30 09:34:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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The opinions expressed here do not represent the views of Alliance Financial Corporation and Alliance Bank, N.A. This communication is not an offer or solicitation for the purchase or sale of any security, is for general informational purposes only and does not provide personalized investment advice. When making personal investment decisions you should consult your investment adviser or rely on your own research. Copyright 2008.