Independent Investor: Myths of the Market

By Bill SchmickiBerkshires Columnist
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Bill Schmick
Whether you are a tinker, tailor, soldier or candlestick maker, each profession has its own myths and legends.  Wall Street is no different. Underneath our pinstripes and silk ties, the financial community is a superstitious lot who have divined the market's direction by using indicators as diverse as the time of the year, sports events or the length of women's skirts.

This year, I admit to paying rapt attention to one of the more popular seasonal indicators: January's "first five days." 

The legend states that whatever direction the market takes in the year's first week so goes the market. Evidence indicates that this is not a very reliable indicator and yet I fell for it and have been bearish ever since.  Statistically, it works best when the market is up on the first five days of any year.

"Sell in May and Go Away," is one often quoted saying that implies stock market returns are higher in the November-April period than in the May-October months. After 27 years experience in global markets, I tend to agree. My belief is backed up by multiple studies that indicate that in 36 out of 37 developed and emerging markets this indicator works the majority of the time.

skirtAlthough no one can provide one single cause for this, I believe it has something to do with summer vacations, especially in Europe where the effect has been noticeable since 1694.

Investors are also wary of the "October Effect" since throughout history the month has not been kind to capitalists - starting as far back as 1917, when the Russian Bolsheviks ushered in the era of Communism. October also witnessed the onset in 1929 of the Great Depression, when U.S. markets lost 30 percent of their value in three days.

In October 1987, I lived through the Black Monday Crash, experienced the Asian Currency Crisis of October 1997 from abroad and a year later (again in that dubious month) I was back in Manhattan for the Russian Loan Crisis which erupted at the same time as the near-collapse of the Connecticut hedge fund, Long Term Capital. Since then there have been several more mishaps including last year's 10 percent correction.

In the sports area, there is the Super Bowl Indicator, which has correctly indicated the direction of the stock market 76 percent of the time. A win by an old National Football League team means an up market for the year while a win by an AFL team indicates a losing year for the markets. 
 
This year, the 17-14 upset victory by the New York Giants (NFL) over the New England Patriots (AFL) should indicate an up year. In addition to football, we also have horse racing and baseball indicators. A Triple Crown winner in racing will be bad news for the averages, and expect down markets whenever the New York Mets are in the World Series.

superbowlThe presidential election cycle theory holds that the first two years after an election are down or at least unstable while the last two are up years for the market. This theory hasn't held water in recent years.

During George H.W. Bush's first year in office the market gained 25 percent while in both terms of Bill Clinton's presidency stocks were up 19.9 percent and 35.9 percent in his first years.

Other more chauvinistic indicators include: rising hemline fashions (indicating more confidence and excitement in the economy) equal up markets while an increase in lipstick purchases mean the opposite. Women, according to legend, tend to penny pinch in tough times and buy cheaper personal items like lipstick. If you believe that, I've got a bridge to sell you.

Like myths everywhere, Wall Street's indicators are more amusing than factual but when the markets are volatile and the future is unknown, what's the harm in a little card reading?

Bill Schmick is a licensed investment adviser representative and portfolio strategist with Berkshire-based Dion Money Management, managing more than $800 million for middle-class Americans from coast to coast. Direct your inquiries to Bill at 1-877-850-7942, Ext. 146, (toll free) or e-mail him at wschmick@dionmm.com. You can also visit www.afewdollarsmore.com for more of Bill's insight.
If you would like to contribute information on this article, contact us at info@iberkshires.com.

State Fire Marshal Offers Cold Snap Heating Safety Tips

STOW, Mass. —With temperatures expected to dip into the teens overnight this week, Massachusetts State Fire Marshal Jon M. Davine is reminding residents to stay warm safely and protect their loved ones from some of the most common home heating fires.

"We're expecting very cold weather in the nights ahead, and home heating appliances will be working overtime," said State Fire Marshal Jon M. Davine. "Heating equipment is the leading cause of carbon monoxide at home and the second leading cause of residential fires. Whether you're using gas, oil, solid fuel, or space heaters to keep warm, be sure you keep safe, too."

State Fire Marshal Davine said there were nearly 6,000 heating fires in Massachusetts from 2019 to 2023. These fires claimed eight lives, caused 139 injuries to firefighters and residents, and contributed to over $42 million in damage. And in 2023 alone, Massachusetts fire departments reported finding carbon monoxide at nearly 5,000 non-fire incidents.

Smoke and Carbon Monoxide Alarms

Every household needs working smoke and carbon monoxide alarms on every level of their home. Check the manufacturing date on the back of your alarms so you know when to replace them: smoke alarms should be replaced after 10 years, and carbon monoxide alarms should be replaced after 5 to 10 years depending on the model. If your alarms take alkaline batteries, put in fresh batteries twice a year when you change your clocks. If it's time to replace your alarms, choose new ones from a well-known, national brand. Select smoke alarms with a sealed, long-life battery and a hush feature.

Natural Gas and Oil Heat

If you have a furnace, water heater, or oil burner, have it professionally checked and serviced each year. This will help it run more efficiently, which will save you money and could save your life. Always keep a three-foot "circle of safety" around the appliance clear of anything that could catch fire. Never store painting supplies, aerosol cans, or other flammable items near these appliances. If you smell gas, don't use any electrical switches or devices: get out, stay out, and call 9-1-1 right away.

Residents struggling to pay for heating bills or maintenance may be eligible for assistance through the Massachusetts home energy assistance program (HEAP). No matter what type of heating equipment you use, HEAP may be able to help you pay your winter heating bills or maintain your heating system. All Massachusetts residents are encouraged to explore eligibility for this free program and apply for assistance.

Solid Fuel Heating

If you use a fireplace or a stove that burns wood, pellets, or coal, always keep the area around it clear for three feet in all directions. This circle of safety should be free of furniture, drapery, rugs, books and papers, fuel, and any other flammable items. To prevent sparks and embers from escaping, use a fireplace screen or keep the stove door closed while burning. Use only dry, seasoned hardwood and don't use flammable liquids to start the fire. To dispose of ashes, wait until they are cool and shovel them into a metal bucket with a lid and place it outside at least 10 feet away from the building.

Have your chimney and flue professionally inspected and cleaned each year. Most chimney fires are caused by burning creosote, a tarry substance that builds up as the fireplace, wood stove, or pellet stove is used. If burning creosote, sparks, embers, or hot gases escape through cracks in the flue or chimney, they can cause a fire that spreads to the rest of the structure. Annual cleaning and inspection can minimize this risk. Contact the Massachusetts Chimney Sweep Guild or Chimney Safety Institute of America to identify reputable local companies.

Space Heaters

Keep space heaters at least three feet from curtains, bedding, and anything else that can burn. Plug them directly into a wall socket, not an extension cord or a power strip, and remember that they're for temporary use. Always turn a space heater off when you leave the room or go to sleep.

When purchasing a space heater, select one that's been tested and labeled by a nationally recognized testing company, such as Underwriters Laboratories (UL) or Intertek (ETL). Newer space heaters should have an automatic shut-off switch that turns the device off if it tips over. Unvented kerosene space heaters and portable propane space heaters are not permitted for residential use in Massachusetts, State Fire Marshal Davine said: the risk of fire and carbon monoxide poisoning that they pose is too great.

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