Ghosts and goblins and stock market bears — oh my! Investors should be aware of October’s dark forces. It isn’t the worst month historically for the stock market (that honour belongs to September), but it is the month of the most memorable stock market drops (see the table above).
One October market stumble that didn’t make the list is what is sometimes referred to as the Asian Flu of 1997, which pulled the market into a crevasse on October 27th, 1997.
It was a stomach churning 508 point, one-day drop of over seven per cent.
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Another market crash is the dot-com collapse between early 2000 and late 2002. The overall market decline didn’t match that of the previous Black Octobers, but the technology laden NASDAQ was hammered, losing nearly 80 percent over 20 months.
By the time the lengthy technology unwinding officially ended early in October, countless portfolios had been shattered by Nortel, JDS Uniphase, Cisco, WorldCom and on and on.
Another October that doesn’t rank in the top eight in terms of declines was in 2007. But it fits with other deadly Octobers since that month was the beginning of the U.S. real estate bubble popping. Pulled down by the housing implosion, the S&P 500 dropped steadily before it came to rest at bottom in March 2009.
What lessons can we learn from the past? There’s one that pops to mind. Dollar cost averaging is your best friend. This is the practice of buying regularly over time rather than in lump sums here and there. Don’t guess which way the market is going. Don’t try to time the market and jump in and out of investments.
If you are happy with the quality of your investments (stocks, exchange traded funds, mutual funds or bonds) then buy them regularly over time and you will smooth out the impact of all those nasty Octobers.