Best September since 1939


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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.

By Mark Hulbert, MarketWatch

CHAPEL HILL, NC (MarketWatch) — What a September it’s turning out to be! With only two trading sessions left, the Dow is up 8.4% for the month.

Assuming that the market remains this high at month end, it will go down in the record books as the best September in more than 70 years. You have to go back to 1939 to find a September with a bigger percentage increase: In September of that year, the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 10,835, -22.86, -0.21%)   produced a 13.5% return.

Given September’s reputation as being by far the worst for the stock market, there are any of a number of important investment lessons to draw from the stock market’s surprising strength this month.

The first: Averages are not guarantees, even when those averages are as statistically significant as September’s has been. This might strike you as utterly obvious, but it’s worth repeating nonetheless. That’s because it’s all too easy when focusing on averages to gloss over the large variance in the individual results.

For example, even though September has been an awful month on average for the stock market, the month has nevertheless produced a gain 42% of the time since the Dow was created in 1896 (in contrast to a 59% gain rate for all other months). Despite being on average a loser, in other words, the stock market in the past has still risen in more than 4 out of every 10 Septembers.

This leads to a corollary: In order to get your odds of winning as close as possible to 100%, you need to bet on a pattern many times.

Imagine being a card counter in blackjack. If you’re a good one, the odds of your beating the casino eventually become tilted in your favor. But, no matter how good you are, you still have no guarantee of winning any given round. The only way to get any reasonable assurance of winning is to play many rounds.

How many? The rule of thumb I remember from Statistics 101 is 30.

What this means in the case of September: Assuming the future is like the past, you have good odds of being a winner only if you were to bet that the stock market will on average be a loser during the next 30 Septembers.

That’s an awfully long time to wait if you’re interested in instant gratification. But what we want, and what the odds are objectively, are two very different things.

This leads to yet another corollary as well: One data point, even an outlier as impressive as the stock market’s gain this September, does not make a pattern. Nor can it reverse a long-standing trend.

Another important lesson has to do with how past success can sabotage a stock market pattern. If enough investors know about a pattern, they will try to get a jump-start on it and, in the process, cause the pattern to disappear.

This may be one of the reasons why August produced a loss for the stock market, despite historically being one of the better months. It’s entirely possible that many traders sold stocks in August in order to sidestep September, thereby transferring September’s loss into August.

The bottom line? Extrapolating the stock market’s past into the future is tricky at best: Even when a previously very strong pattern hasn’t been discounted away by shrewd investors, there is no guarantee that it will work the next time around. And when it doesn’t work, there is no way in the moment to know if the pattern has permanently stopped working.

In the meantime, though, we can all celebrate the unexpectedly good news that the stock market has brought us this September.

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