Squirrelers

When we’re in the midst of a bull market, there tends to be less stress over stock prices.  As opposed to times when the market goes down to lows and some people panic and sell in haste, bull markets tend to bring exuberance over stocks.  Irrational exuberance, perhaps?

I’ve been noticing the market creep upward lately, and it’s been a steady climb.  A little over a month ago I posted about stocks in February, and how it was worth thinking about how stocks had gone up lately.  Additionally, when looking at historical stock returns by month, February wasn’t the best month.

Well, stocks didn’t follow that long-term trend.  The S&P 500 went up 1.1% in February, continuing its trend of positive monthly gains.  This was the 8 month out of the last 9 where stocks increased.  The trend has thus far been continuing into March, with prices approaching record highs.  The Dow has actually hit the record.

Anyway, back to the S&P.  Take a look at the following graph of the S&P 500 over the last 10 years:

Look at where the market is now, on the far right.  Consider how the market is reaching a second “peak” in the last decade.  Things have been great with stocks over the last few years.  However,  do we think this will last forever?  No, but do we think that prices will continue to steadily increase for an extended period of time?

Hard to say.  I’m not a professional advisor, so I’m making a call.  That being said, bull markets don’t last forever – just like market troughs don’t last forever either.  Things seem to go in cycles, and there are many factors that come into play.  Unemployment rates recently fell to a point where recent averages are at low point over the last 5 years.  That might seem like a good sign that could boost investor confidence.

With such positive vibes all over, one should be happy.  After all, most of us who have investments have seen them go up in value in recent years.  After seeing declines back in 2008, this is really nice to see.

Is it good to think like a contrarian, and remember that things go in cycles? This cycle has been on the upswing for a quite a long time.  It gets me wondering just how much this market has room to grow.

My Questions for You

What do you think of the shelf life of this bull market?

Do you often think that when things are going well for an extended period of time, it’s time to start wondering when the proverbial other shoe will drop? 

Do you think about asset allocation, and possibly reducing exposure to stocks at times like this?

Do you know someone that is constantly checking stock prices?

I’ve known a few over the years. These are people whose line of work doesn’t involve the markets, but they are checking stocks daily. Often multiple times a day, through the day, on their phones.  It’s usually the market overall, but it could be individual stocks as well. Bottom line is that they like to stay on top of the stock activity every trading day.

Oh, and they might like to comment about the market too, if not every day then a few times per week.

Do you check stock prices, or check on your portfolio, that often?

Personally, I don’t.  I would say that a monthly assessment of a portfolio should be enough.  It’s good to look at where you currently are with your investments and your overall financial position, and do so each month.  This doesn’t mean do a deep dive analysis on the performance of everything you’re involved in. Rather, just look to see how your portfolio is doing, and if any changes or rebalancing need to happen.  This is separate from budgeting-related exercises.

This also applies to checking on the market.  I keep tabs on it, maybe going out of my way to spend a minute or two checking once a month.  Now, admittedly, sometimes I might come across such information on the radio, online, etc – without really going out of my way to find it.  So, that’s another way to track what’s going on.

But checking every day?  No, I don’t see the purpose.  The average everyday guy or gal doesn’t really need to know the daily ups and downs of the market.  Day trading isn’t a hobby for the middle class, and just might be a waste of effort considering the costs in terms of time and trading fees, and the net benefit – if any. It can be distracting, and to some degree nothing more than dignified speculating for some folks.

I think it’s better to focus on making money – and to a degree on saving – and then less time on investing.  That’s not to say that investing isn’t important, as of course it is. I write about it frequently here, as the importance of rate of return as well as asset allocation needs to be recognized.  I do think that it’s VERY important to allocate time to your investments.  Just not every day!

My Questions for You

How often do you check on the markets, or your portfolio?

While acknowledging that it’s important, do you agree though that it’s something that doesn’t require constant monitoring?

Do you know any people who are obsessed with the daily movements of the stock market?

When looking at stock market performance, it’s often said that one shouldn’t time the market.  Simply invest as you go, one line of thinking holds, and over the long term you’ll be better off.

I don’t necessarily disagree with that.  Nevertheless, it can be interesting to see what we can find in looking at historical stock trends, as this might uncover some learnings that could help us be better informed.  One way to look at this, as we’ve done before here, is took at performance by month.

If you’ve been a long-time reader, perhaps you recall the post on the September Effect, where we looked at how the market has performed in the month of September.  At the time, a retrospective analysis was done. It clearly showed that the numbers in the 9th month of the year are, on average, not that good.  September is the worst month for stocks, based on taking monthly S&P 500 averages of the 40 years from 1971 to 2010.

It can be seen that over that time frame, there were only 2 months that showed an average market decline: February and September.  February’s performance resulted in an average drop of 0.19%, while September was a much bigger decline of 0.77%.  Think about it, that’s just for one month of the year, and it’s based on a sample size of 40 years.

As I presented the analysis of September stock performance in August 2011, I did note that this didn’t mean that it was a sure thing that the performance in each upcoming September would be bad.  Rather, as I mentioned, that this trend was enough to at least make me take notice.

Well, in the month following that post, how did the stock market do? Looking back to last year, it’s revealed that the S&P 500 dropped 7.2% in September.

Was this a prescient post, or just a random, unexplainable occurrence?

Hard to say, as I didn’t predict that it would happen. But, as I again say, it was (and is again) enough to at least take notice.

Will this year be different? Will an election year bring on a more positive result? I’m not giving advice (see a pro for that) or making a prediction, so we’ll just have to find out.  Again though, we do have this bit of knowledge of historical performance in the back of our minds.

My Questions for You

Do you like to utilize such historical data to help make decisions, or do you prefer to ingore and just invest on your own schedule?

What do you think about the September Effect?

Why do you think the market, over the last 41 years, has so clearly performed worse in this month than in any other month?

Most of us fondly remember summer vacation from our days in school.  For those still in school, or even for some working in education, summer might still be a time that’s marked by many weeks off.  Actually, it’s a popular season for most of us to consider taking some time off.

This might also apply to your stock investments.  That’s right, based on historical data, it seems as if they like to take summer break too.  This is why there’s a saying called “Sell in May and stay away”, referring to the concept of a summer swoon in stock prices.

The idea of sell in May and go away is based on the reality that over time, for whatever reason, stock prices have simply not performed well in the warm weather months here in the Northern Hemisphere.  A look at historical stock returns indicates that when looking at monthly performance for 40 years – from 1971 to 2010 – there are clear trends as follows:

As can be seen, beginning in May, market returns tend to slide into a period of poor performance historically.  Rates of return have been low in June, and trend lower each month until reaching a nadir in September. Ever heard of the September Effect?

Does this mean that every year stocks perform this way? No. Does this mean that I’m specifically recommending that anyone makes specific buy/sell decisions based on this data? No.

That being said, I think it’s good to be informed, and its food for thought when data reveals some interesting historical stock patterns.  Those returns in the colder weather months, from November through April, look pretty good when you remind yourself that these are simply monthly returns.  Who knows, maybe people have less recreational options and more time to spend focusing on business and investing during those cold months:)

What Do You Think?

Have you heard of the concept of sell in May and go away?

Why do you suspect that stocks have fared better in other months versus the summer months?

Do you think we can learn from historical trends and patterns in stock prices?