Just when you thought it was safe to come out from under the covers, with some trepidation, we turn the calendar
Welcome to October, gang. Trick-or-treat month for little kids. Trick month for big kids. Wall Street’s month of hell. Remember the Crash of ’29? The Crash of ’87?
Even if the stock market were to enjoy a rare October rise, it doesn’t matter. You’ll still be scared out of your wits before it’s done.
The scare-mongers and historians will be out in full force.
You will be bombarded in the coming weeks by haunting stories about the spectacular stock market crashes that always occur in October.
But you’ll survive, because the bear market has conditioned you for the worst. Your skin is thicker. And you’re sporting a flak jacket, crash helmet and an Alan Greenspan Halloween mask.
Although you may not know it by listening to the pundits who are paid to spread sunshine on Bay Street and Wall Street, we’ve already had our crash, thank you.
The punishment has been slow and tortuous, but it sure has felt like a crash, even if it hasn’t grabbed the headlines of the most celebrated crashes.
The granddaddy of all crashes was Black Monday, Oct. 19, 1987, when one trillion dollars was chopped off the Dow in a 508-point (22.6 per cent) blood-letting.
In the Crash of ’29, the Dow plunged 25 per cent in two days in October.
But this crash has been run in slow motion with the pain being inflicted in subtle 100-point fender benders.
Since early 2000, the Dow has lost more ground than it did in the two greatest panic-driven crashes of ’29 and ’87.
The Dow has lost 32 per cent during that time while the TSX composite has been pounded down 45 per cent from its peak in July 2000.
The Nasdaq composite has been the hardest hit of the major exchanges, losing 76 per cent.
As we write this, the Dow, short-circuited by General Electric (GE-NYSE), is in a last-Friday-in-September 300-point freefall that could prove to be another ominous sign as we head into October.
Of course, there is always a silver lining – yes, even in October.
While it’s the worst month for the markets, it also has a history of being the catalyst that puts bear markets out of their misery.
October swoons on the market have set the stage for sustained bullish turnaround rallies on nine occasions – 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990 and 1998.
If October does have another historic one-day crash in store for investors, what do you do?
Most importantly, don’t let your fund manager go on vacation.
The day all hell broke loose on Black Monday, with a trillion dollars vanishing from the Dow in a single day, legendary fund manager Peter Lynch was golfing in Ireland.
Lynch drives home the point, in his book One Up On Wall Street, that timing the market is a fool’s game.
The Fidelity Magellan fund that Lynch managed lost 18 per cent, or $2 billion in assets, on Black Monday, the day after then-president Ronald Reagan gave the U.S. economy a thumbs up, proclaiming “there is nothing wrong with the economy.”
Lynch emphasizes that shareholders who didn’t succumb to panic selling had recovered most of their losses within 18 months.
Lynch cautions that “when you sell in desperation, you always sell cheap.”
But there’s no need to fret.
We will go out on a limb here and guarantee there will be no stock market crash on Oct. 19, 2002.
It’s a Saturday.
* STRAIGHT TALK: “If you’re investing in a company or you’re running a company that’s counting on a recovery in the second half of the year, or counting on a robust economy in 2003 to make your numbers, I’d redo the plan.”
– Jeffrey Immelt,
CEO, General Electric.
* STREET TALK: Until analysts have the guts to say ‘sell’ on stocks in a freefall without parachutes, how can they expect to regain a shred of respect from investors?
Still, sell remains a dirty word in analyst land.
While companies such as Nortel Networks (NT-TSX) and Shaw Communications (SJR.B-TSX) continued to tank, neither company carries a single sell recommendation. Nortel had a buy and three holds as it sunk to 70 cents and Shaw had two buys and two sells as it toyed with a 12-month low, ending the week at $13.25.
Scotia Capital, for example, issued a report on the day Nortel hit 70 cents with a hold recommendation and 12-month target of $1, reducing the 2003 forecast to a loss of 10 cents per share from a profit of five cents per share.
“Given the challenges and risks, we believe that investors should hold their shares but strongly discourage accumulation of additional shares at this time,” Scotia wrote in its report. “We believe Nortel has sufficient liquidity to make it through the end of 2003.”
Easier for them to say.
* SAGE WORDS: “To the daring belongs the future.”
– Emma Goldman,
The Blast, Jan. 15, 1916.
HOT ALBERTA STOCK: Baytex Energy
Up $1.20 (+17.4%) on 3,099,700 shares (for week ending Sept. 27).
A powerful one-day spike on 2.2 million shares had the rumour mill working overtime with speculation of a juicy takeover of the Calgary-based oil and gas player or a reorganization into an income trust. C’mon, Baytex, spill the beans!
COLD ALBERTA STOCK: Hardwood Properties
HWP-TSX Venture 6 cents,
Down 27 cents (-81.8%) on 92,000 shares (for week ending Sept. 27)/
When Hardwood hit the market a few years back, its connections to a major Calgary real-estate success story had shareholders comparing it to Boardwalk. Turns out it’s not even the next Baltic. Hardwood has been rendered an “inactive issuer” by the TSX Venture exchange and said it may seek to voluntarily delist its common shares, subsequent to the company's 30-cent-per-share cash distribution to shareholders.