Market Timing: October Sucked

Now that October is over the media is going nuts over how bad the markets have been for that one month. I won't bore you with the details, though they are spectacular, since it has been covered and summarized so well elsewhere. The more important question is, does it matter?

In my previous post I made a statement about market timing that is equally applicable here:

You are only impacted by short-term volatility if you are investing with money you can't afford to lose. You will therefore find yourself compelled to sell at prices the market chooses rather than at the prices you choose. No matter how you cut it, that is the essence of bad timing.

My point, again, is that it doesn't matter how bad October was unless you have to sell to raise cash to run your life.

It does make great headlines though. The media frequently tend toward emphasizing the extremes. Like in politics, fear, uncertainty and doubt (FUD) guarantees attention. For example, let's look at our precious loonie. Here is an article in the Globe that talks ad nauseum about how much the dollar fell during October, and at the right is a chart (from Google) of the loonie versus the US dollar during the month.

Well fine; it did drop a lot. But why focus on this particular set of start and end dates. Why not compare against a start date when the loonie was at $1.10 or $0.63? Why October 1, 2008? Further, notice how the trend line is increasingly looking as if it is turning back up, promising further gains in November. Is that not worthy of consideration? So why an end date of October 31?

These choices of start and end dates by media and market commentators are entirely arbitrary. The only start and end dates that truly matter are those on which you buy and sell. Or, if you can, you may defer purchasing goods and services priced in US dollars to a later date. Or as one businessman I know is doing, hold on to a US dollar cheque from a customer to cash it when the loonie is lower.

The one element of arbitrariness in this matter that is pertinent is another with similar arbitrary timing - investment statements. Investors who receive monthly statements from their brokers or funds see the market value of their holdings pegged to month or quarter end. This is purely a paper exercise except if it should sway the investor's confidence enough to sell or, less likely, buy. It is one reason markets swoon after a poor month, thus extending the pain for everyone. The same happens in bull markets, compelling these same folks to hold or buy rather than sell to lock in profits.

However if you are not in this boat the value of these scary headlines is merely entertaining. So read it all if you must, and enjoy it if you can. Like a bad ice storm, despite the damage caused it does sustain a lot of enjoyable conversations and a kind of self-affirmation as in "I lived through October 2008" emblazoned on a t-shirt.