The October Witch: Pain in the Short Term = Progress in the Long Term

The October Witch: Pain in the Short Term = Progress in the Long Term

Spooky season is upon us, even on Wall Street: October has seen 7 out of the 10 worst days in stock market history. The panic is historical; in the 1800s, October was the month that farmers sent their crops to market, draining their bank accounts to pay for the operation, and the ghost of panics past seems to always arise in October and haunt investors, contends an article from the Enterprising Investor blog in CFA Institute.

Investors tend to leave their gains alone during bull markets and then panic the moment the market turns bearish, failing to rebalance and damaging their long-term returns. Some of the blame can be placed on investment consultants who don’t have the authority to rebalance portfolios and fail to tell their clients to do it. Investors in such a situation need to take the initiative themselves and make sure they are rebalancing their portfolios to shift with the market’s volatility, the article advises.

However, investors need to reflect on their mistakes in order to not repeat, and the article cites Ray Dalio’s advice from his book Principles: “Pain + Reflection = Progress.” Though it’s likely that the market will bring more pain in the coming months, it’s not a foregone conclusion that investors must suffer. Mistakes of the past can be corrected, such as reducing inflation by re-establishing price stability. That might bring pain in the short-term, but in the long-run, it will bring progress. Indeed, after the 1981-82 recession, the U.S. economy rebounded mightily, entering a period of significant technological advancement and economic prosperity for the next two decades.

So while October, and the months ahead, may bring more of the financial spookiness that we’ve seen over the last couple of years, those that brave the darkness with steely nerves and rebalanced portfolios are likely to see much sunnier days ahead.


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