Newspaper article Sarasota Herald Tribune

Of Corrections, Cockroaches and October Massacre Stories

Newspaper article Sarasota Herald Tribune

Of Corrections, Cockroaches and October Massacre Stories

Article excerpt

The financial markets are buffeted by events in much the same way that a sailboat finds itself at the mercy of the wind. And the waves of volatility often reach dramatic proportions. Such is the nature of the beast.

So it is not surprising that the oscillation between anticipation and disappointment over the current economic outlook, both domestically and globally, is roiling the investment waters.

Adding to the concern is the rising clamor that a correction is coming. The logic is simple: We have not had one for a while, so one must be coming. From there it is only a small leap to the idea that we will face a scenario similar to that of 2008. Nonsense, but let's move ahead.

Although the probability is extremely low, what if we did have such a correction? Wall Street would still offer ongoing potential for accumulating wealth. Consider the gains realized by Warren Buffett as he took advantage of the 2008 financial crisis by tossing lifelines to a handful of blue-chip companies. His reward -- a 40 percent pretax profit.

While Buffett is certainly a prescient investor with considerable resources, he has said repeatedly that, "In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period."

And if a potential slide is not worrisome enough, many investors find their fears compounded by the fact that the calendar says October, the most dreaded month in the annals of investing, the month of black Mondays.

Does October really deserve its rotten reputation? There is some justification, when you consider the debacle of October 1929. More recent is Oct. 19, 1987, when the Dow Jones Industrial Average fell 23 percent. And we cannot forget the relatively minor "October massacres" in 1978, 1979, 1989, 1997 and 2008.

But if Wall Street is anything, it is fickle, and sentiment on the Street can reverse without warning. With the S&P 500 index up about 6 percent this year and the global news anything but good, some will find it tempting to spend the rest of the year on the sidelines. That is a bad idea.

Since 2009, the S&P 500 index has gained an average of 9 percent in the last three months of the year. …

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