In Focus

Trick or Treat: 'Tis the Season

Trick or Treat,
Money or Eat;

October is a scary month

Especially on Wall Street.

What is up with October? It's eerie. It's spooky. It haunts me for months. And no, I'm not talking about the ghosts and goblins running through my neighborhood on the 31st. Nor am I talking about the horror I experience when I have to rummage up a Halloween costume for yet another party. I'm talking about the stock market. I would rather sit through a Scream 1, 2, and 3 marathon than try and live through another market in October. I don't know if you have read any of my market reports this past month, but they were frightful! The worst part about it, I was actually walking around on pins and needles afraid of what was going to happen the next day! A Chick. a Chicken? But after some very Henny Penny research, I realized this October wasn't out of the ordinary. This has been happening for years.

Do you remember the market crash of 1929? (Okay, so you weren't around, but you have heard of it.) It was Thursday, October 24, 1929 to be exact. The market lost 5 billion dollars in one day, which today would be equivalent to, I don't know. a gazillion. (Anyway, it's a lot.) It was called Black Thursday and the start of the Great Depression. People won't forget it, and the fear of that one day will be talked about forever.

How about the stock market crash in 1973, which continued through to 1974? Yep, started in October. Or the crash of 1987. the largest Dow point drop in history. October 19th. Then there was this past October 12th. the Dow fell 378 points! Half of the largest point drops in market history have happened in October. As Chicks, I think we should find out why October is so volatile, and then figure out what we're gonna do about it. Let's put on our feather costume and get our beaks wet.

First, October is when the majority of corporations report their third quarter earnings. This is when things get scary for investors. If their earnings have been slack for the past two quarters, investors are hoping that the third will pick up and things will be back to normal by the fourth. But, if earnings taper off again in the third quarter, there's no recouping it in the fourth. Investors bail. This reminds me of the Chicks and our Gap holding. We were thinking that Back-to-School sales would really boost Gaps third quarter revenues, and when they didn't, the stock fell even further. Is it possible that this upcoming fourth quarter and Christmas can make up for the past nine months? I doubt it. When you're three for four, you're pretty much out. (But I am still going to secretly pray for a miracle.)

Secondly, it's an election year and October is the heated debate month. Everyone is walking around on his or her tiptoes wondering who the next President is going to be. What will a new administration do for the stability of the economy? Everyone gets a little queasy, pulls their money out of the market or just plain stops buying. They prefer to just sit and wait until the election is over. (Of course, if you are over on our Chick board you may just be too busy researching the candidates to even have time for the market.)

Third, it's a tax thing. If you are invested in mutual funds (which are made up of mostly stocks), October is the cut-off for capital gains tax. This makes investors leery of any new purchases until after that month to avoid an unexpected tax hit. They start re-investing in November.

Another factor, and this is especially true with investors who don't believe in the long-term buy and hold approach to the stock market, is fear. They know the terrifying month of October is coming, and then, if there is any uncertainty in the world, whether it is an oil crisis, interest rates increasing, tension in Third Worlds, or the Mets losing the World Series, they panic. (Can you imagine living like this? Talk about high blood pressure.)

Now, if you're Chicky. flip this whole situation around. We KNOW that the market has returned an overall average of 11% throughout its history. But year in and year out, the month of October looks like it's going to return an average of -385%. A Chick will see this as a major mark-down sale! This is the best time in the world to look for great companies to buy!! For an interesting look at some October sales, venture on over to the Motley Fool's Tricks and Treats, you might find something worth dressing up for.

In a week when we are focusing on Market Volatility in the Chick's Eye View, we need to view October a little differently. It's always volatile, and we shouldn't be petrified. I realized this halfway through reporting the October Chicks Weekly Wrap and am embarrassed to say it had me scared to death. That is stupid way to live. Octobers are meant to be scary, but not because of the stock market. We need to save our energy in case something really frightening comes along. like what am I going to wear to my Halloween party tonight?

AAAAaaaaHHHhhhhh!!!