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  • The October effect in investing – THIS IS WHAT YOU NEED TO KNOW!
  • The October effect in investing – THIS IS WHAT YOU NEED TO KNOW!

The October effect in investing – THIS IS WHAT YOU NEED TO KNOW!

What is the October Effect?

The October Effect . It is a concept that every experienced investor has heard of. For many, the term alone instills fear, while for others it was seen as an opportunity. But how much of it is true?

The October Effect is an observed anomaly in the market that stocks tend to decline in the month of October. The October Effect is mainly considered a psychological expectation rather than an actual phenomenon, as most statistics contradict the theory.

Some investors are nervous in October because the dates of several major historic market crashes occurred in this month.

  • The panic of 1907
  • Black Tuesday (1929)
  • Black Thursday (1929)
  • Black Monday (1929)
  • Black Monday (1987)

Black Monday, the great crash of 1987 that occurred on October 19th and saw the Dow plummet 22.6% in a single day, is perhaps the largest single-day drop. The other black days were of course part of the process leading up to the Great Depression – an economic disaster unparalleled until the mortgage crisis nearly wiped out the entire world economy.

Understanding the October Effect

Proponents of the October effect, one of the most popular so-called calendar effects, claim that October is the time of year when some of the largest crashes in stock market history occurred, including Black Tuesday, Black Thursday of 1929, and the stock market crash of 1987. While statistical evidence does not support the phenomenon that stocks trade lower in October, the psychological expectations of the October effect still exist.

However, the October effect is often overstated. Despite the dark headlines, this apparent concentration of days is not statistically significant. In fact, September has more historically down months than October (Read more about the  September effect ). Historically, October has marked the end of more  bear markets  than it has marked the beginning. This puts October in an interesting perspective for contrarian buying. If investors tend to view a month negatively, this will create opportunities to buy in that month. However, the end of the October effect, if it ever was a market force, is already near.

The disappearance of the October effect

So the numbers don’t support the October effect. If we look at all the monthly returns for October going back over a century, there is simply no data to support the claim that October is a losing month on average. There have indeed been some historical events in the month of October, but they have mostly stuck in the collective memory because Black Monday sounds ominous. Markets have crashed in months other than October too.

Furthermore, an ever-increasing pool of investors does not have the same historical perspective when it comes to the calendar. The end of the October effect was inevitable, as it was mostly a gut feeling mixed with a few random chances to create a myth. In a way, this is a shame, because it would be great for investors if financial disasters, panics and crashes chose to occur in only one month of the year.

Start investing in October

Starting to invest in October is therefore statistically possible. It is also possible to use derivatives to respond to price drops. Consider for yourself whether you would like to start investing in a certain period. Do you want to start investing?  Easily compare brokers !

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Following and spotting opportunities and possibilities is easier with just a few stocks . It has become increasingly common to trade in “fractional shares”, which are, as the name suggests, smaller parts of a single share. This allows you to specify that you want to use a specific, smaller amount to invest. This means that, for example, Apple shares are trading at $250 and you only want to buy $50 worth of Apple shares, many brokers now allow you to buy one-fifth of a share. Avoid Penny Stocks  You’re probably looking for deals and low prices. However, stay away from penny stocks . These are often illiquid stocks with very little chance of making a big profit. Stocks that are listed for less than $5 per share are delisted from major exchanges and are only available over-the-counter. Unless you see a real opportunity and have done your research, stay away from these securities. 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Expensive VS Cheap Stocks – THIS IS WHAT YOU NEED TO KNOW!

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