Wednesday, October 1, 2008

Wait for Halloween?

In light of the recent volatility and the ongoing debate about the meltdown and proposed solutions, one important question comes to mind for investors. What do we do about equity positions?

While the VIX spiking up to 50 on the Monday sell-off has the classic signs of a capitulation bottom, near term movements are highly dependent on news flow. In the short term, investors aren’t bearish enough for the market to make an intermediate term bottom. Mark Hulbert's analysis shows that there is too much complacency out there.

Mebane Faber did an interesting study indicating that there is some potential for excess returns. After a really bad month (yes, September certainly qualifies), wait a month and buy the market for a two month hold (November and December), you can expect an average return of 3.1% for the S&P 500 and 3.8% for EAFE.

In light of the current market volatility and this study, perhaps it would be best to wait until Halloween (Oct 31) before buying again.


Autore del blog said...

always interesting and informative.

Are the figures for the strategy returns annualized or absolute? (3.1 and 3.8%)

Cam Hui, CFA said...

They appear to be absolute returns over the two months.