Ah, my favorite month is approaching. October might be the craziest month of the twelve in terms of investing. I should probably do a study to see if the suicide rate is highest in October. Why is it that October is so nutty for the market? No idea, it could be Halloween or it could be the start of the holiday shopping season. Last October, we saw the Dow drop about 1500 points, although it was just after Lehman went belly up. I'm not saying the market will have a huge pull back during October, but we typically see the biggest swings on a daily basis during that month. I'm going to throw a date out there for you.....October 16th. Why that day? It is the third Friday of the month, so that means that option contracts come due on that day, so the volatility tends to be large, particularly if the market has performed well, because if the market has done well, then people tend to exercise their call contracts and you see a bunch of stock dumped into the market and then picked up at reduced prices.
Anyway, what does this mean for the us? Me in particular feels the Dow is about 800-1000 points overvalued. And what do we do when we feel the market is overvalued? That's right, reduce your positions, sell your losers and stock up the cash so you are ready for the pull back. I have three sample portfolios that I started between Feb. 2008 and Nov. 2008. Each portfolio is valued at 1.5-1.8 million (each started at 1 million and dividends are not factored in). I'm currently carrying about 50-60 percent cash in each porfolio. That indicates how bearish I'm am currently. I'm very bullish, however, with alternative energy companies, oil and emerging country (mainly China and India) markets. Stay cool and devise a plan that eliminates the emotion of investing. Stick to the plan and you'll save yourself a lot of pain.
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