Editor’s note: This article was first published in October 2012. Its comment that “in recent years August hasn’t been bearish” refers to the market patterns of that time.
Why stocks go up and down is sometimes a mystery. In fact, it’s often said that markets tend to behave irrationally. In the end, though, almost all the mystery of investing comes down to mathematics and statistics.
Practically all of us investors know that, statistically, there are specific moments, dates and particular days when the market goes up or down. Some of these dates may have a very logical explanation, while others may be mere coincidences that happen year after year, although, as the saying goes, when something keeps repeating itself, it stops being a coincidence. Here are some striking facts, to say the least, about how markets behave on certain dates.
1. Buy on the first day of the month (the market rises)
Statistically, if you buy shares on the first day of the month, within about 3 or 4 days you’ll have made money. There may be some logic to this. I remember that when I started investing I didn’t have much money, so when I got paid I’d invest it in the stock market before my monthly bills came due, which was usually between the 5th and the 10th. It didn’t work every month, but as we said, it’s a statistical thing, so by the end of the year this system gave me a positive return. Needless to say, though, if you don’t pick the right stock, it doesn’t matter whether it’s the 5th or the 25th: if you buy into a stock that’s collapsing, the day of the month makes no difference. Likewise, if one of those macroeconomic news items that send markets tumbling comes out right on the 1st, there’s little you can do. Basically, many small investors today do exactly what I used to do years ago, and that’s why the market tends to rise at the start of the month.
2. November and December are bullish months.
We don’t know why. It could be the cheer of the approaching holidays, the extra Christmas pay packet (in Spain many workers receive an additional month’s salary in December) or the run-up to fourth-quarter results, which are expected to beat expectations. Whatever the reason, statistically they are bullish months.
3. March and September are bearish months.
March is a mystery, while September may have a bit more logic to it: the return from holidays, holiday spending, or being more focused on getting reorganized at work after the break. While March has had more exceptions, the truth is that September is the month in which the bearish statistic has held most often.
4. If you like a stock, buy it in the second half of the month.
For some reason, rising stocks tend to correct before resuming their upward trend from the 15th, 16th or 17th of the month (we’re always talking statistically).
5. Buy on Christmas Eve and sell before Three Kings’ Day.
Between 24 December and 5 January there are capital gains, and investing during this period rarely fails. Why? I can’t tell why people buy on 24 or 25 December, but I have an idea why they might sell before Three Kings’ Day (6 January, when gifts are traditionally exchanged in Spain).
6. August: the most dangerous month.
Until recently, people used to say that August was a bearish month, although in recent years that hasn’t been the case. The danger in August is the low trading volume in the market, which can send prices shooting up or down, creating a very volatile situation and therefore a risky one for more cautious investors.
These aren’t facts on which to base 100% of a decision, although if market conditions are favorable, having them as statistics can be a plus. Rather than for making decisions, we’ve published them as a curiosity.
Further reading
- What’s a reasonable average annual return for a stock market investor?
- 3 strange but profitable investments
- Big investors’ 10 favorite stocks for 2013
Featured image: Billie Grace Ward from New York, USA, CC0 1.0, via Wikimedia Commons.
.jpg){kind=link}