Thoughtfulness Beats Simplicity Every Time

Oct 2019

…just before September the popular media reminded everyone that “September is the weakest month of the year” for stock returns. While this is technically true—September’s average return over the last 90 years has been somewhat less than for any other month—trying to time investments based on monthly average returns is no way to manage a portfolio. This is because there is considerable variation in a given month’s returns, and because price changes in previous specific months won’t necessarily recur in the future during the same months. For example, there was a steep stock market drop in October of 1987 (mostly for geopolitical reasons), but the next similarly steep drop doesn’t need to happen in some future October. Just as it would be overly simplistic for a football team to always pass on first down and run on second down (even if that seemed to work in the past), focusing on specific months or on any arbitrary strategy is just too simplistic to produce successful investing results. It can be dangerous when simplicity overrides thoughtfulness. Everyone, from football coaches to Army generals to investors, needs to remember that the opposition always adapts.