Rational Advisor

September has a historically bad record.

In the past 50 years, the Dow has fallen on average 1.2% in September, making it the worst month for the Dow Jones Average.

One of the reasons for this historical record is that institutions and fund companies close their books in October, sell stocks for tax loss purposes. It allows them to do some window dressing before Q4 starts, after all they don’t want to be caught with all the bad stocks on their lists.

But, why do I think this is good news.

Firstly, we have had some excellent earnings come out of corporations. In the 3Q, most of the companies try to put out all of their bad news, so that they can have a bang up end of the year - after all the executives want to get their bonuses - and bonuses are built on earnings and profitability.

So we have excellent earnings, going into Q4, and all the bad news being put out in Q3. What this means is more voltility, but an excellent time to add into companies that can offer good earnings.

Because around November and December, when these companies do announce their earnings, a lot of the institutions and fund companies will want to buy into them, they want ot chase the performers - and you will get a decent return to normality.

This depression will not last, and this confusion is actually good, because the markets are returning back to fundamentals - that is stocks are based on their earnings, dividends and profits - not on some takeover probability, or some expectations of increases/decreases in interest rates, or in commodities.

Be prepared to add into positions before November comes along, because the earnings in good companies have been solid - a lot of companies have announced increases in dividends - why would they do that, if they didn’t think they could sustain the dividend payout! I mean, if the environment for achieving earnings and profits was so tough, why woudl I increase my obligation to pay more out to shareholders - think about it, godd businesses are telling you that it ain’t so bad.

A bad September maybe actually good news, if you are an acquirer of these good businesses. Think about doing your RRSPs sooner rather than in February/March - I know I will be.

It is not as dismal as it seems.

Be prepared.

Next week, I am going to be out at our Niagara conference, talking about some of the stuff I am working on, and some of my concerns and non-concerns. The week after that I am out on the beautiful East coast - Halifax and beyond, doing some presentations to advisors and their clients. I really enjoy these trips it gets me to meet the public and the advisors, and understand their concerns a lot better. The more I do these, the greater my confidence comes, in that we are doing the right things. It is so easy to be led into the pit of human emotions and destroy excellent investment programs.

Rational

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