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August can be the cruelest month known to stock market investors. It has brought mostly misery, devastation and the harshest of capital punishments. In the 25 years since the local market’s revival in 1987, following the ouster of the Marcos regime, equities investing in August had a positive monthly return in only eight years. That translates to a very low 31 percent probability that an investor would have a positive monthly return in August.
The average return in August over the past 25 years is -3.4 percent, with an overall return of -99.2 percent. In practical terms, an investor who trades only during this month would have lost almost every peso of capital they put in. The expected return for the month, based on median returns and probability, would be -1.0 percent.
To underscore the point, August is the unkindest month to equities investors. The only other month that comes close would be September, with an average monthly return of -1.6 percent, a probability of 48 percent or less than even odds that returns would be positive, and an expected return of -0.8 percent.
The question is why. What is with this month, which arrives eighth in the annual line-up, and which leads the market to head south almost every year? This piece will attempt to solve the mystery for the last time.
Part of the answer may be found by going back in time, to when the Julian calendar was first developed, 1,600 years later to be modified by the Gregorian calendar, the latter still very much in use today, 430 years later.
In honor of reforming the calendar, the month of July, was named after Julius Caesar, who lived to enjoy his newly named month only once before falling to assassins’ knives in the ides of March.
The creation of August came later, when Julius’ adopted son, Octavian, achieved a number of victories during the said month. Among his victories, Octavian put an end to the civil war, and defeated Marc Antony and Cleopatra, annexing Egypt in the process, and becoming the first emperor of Rome with the name of Augustus. Rather than being captured, Cleopatra famously had two poisonous asps bite her, thereby becoming the first victim of the universal doctor’s advice: “take two asps and call me in the morning.”
The Roman senate resolved to name the month of his victories – the “most fortunate to this empire” – Augustus, giving him the same honor as his foster father, Julius. But since July had 31 days and the following month, which was Augustus, only had 30 at the time, some adjustment had to be made. The first Roman emperor cannot have fewer days in his month than his famous father. So the senate decided, according to accounts, to add one day to August, reducing February to its modern-day 28 days (29 in a leap year).
That would be the first original sin of August, stealing one day from humble February, which already had the least number of days among the months to start with.
The next reason for August’s negative investment vibes would have to come from eastern culture, including the Japanese and Chinese, which view August, which falls on the seventh month of the lunar calendar, as the “hungry ghost month.” This is the month when, once a year, the gates of hell swing wide open and the spooks, specters and evil angry ghosts – and those are just people’s dearly departed relatives – enter the world of mortals. It is a very evil time, like those occasions when one’s mother-in-law comes to visit for an extended period, according to old eastern tradition.
Released from their afterlife shackles, the dead demand to be fed, wreaks havoc on mortals’ lives, and cause all kinds of harm while seeking appeasement from relatives. Apparently, one of the main things they do upon returning to the mortal realm is to day-trade in the market, short-selling all types of stock for no apparent reason and, the scariest part of all, without owning or borrowing the underlying shares.
There are three important days during Ghost Month. On the first day of the month, when the portals between the living and the dead open wide, ancestors are honored with offerings of food, incense, and ghost money – paper money that is burned so the spirits can use it. Alternatively, one may choose to burn money by investing in the stock market.
The 15th day of the month is Hungry Ghost Festival, when the spirits go in to high gear. For luck and appeasement, it is important to provide the spirits with a sumptuous feast. Invest more money in the stock market to create more ghost money.
The last day of the month is when the gates close up again. Informed by chanting Taoist priests that they have overstayed their welcome, the spirits wail one last market order: Sell at the close!
Needless to say, the ghost month is a well-known inauspicious time to do any worthwhile activities, such as juggling, dancing the night away, binge drinking, and taking over listed companies through reverse takeover.
To ward off hungry ghosts from invading one’s abode, spirit advisers recommend to put a hole medal, a straw cross or a “holy blessed medal” over one’s front door. Putting a special sign that says “exit” on the front door might also work wonders, according to some quarters.
Based on the lunar calendar, the Ghost Month this year falls on August 17 to September 15, with the Ghost Festival on August 30.
The third reason for a bad-investment-hair-day in August would be the perennial mass exodus of Wall Street traders to their summer getaways. It appears that, for reasons scientists have yet to discover (after they take their vacation), people in Wall Street during this month suddenly go down with a debilitating case of cabin fever, whose only surefire therapeutic treatment can be found only along the faraway resorts and beaches of the world. In their absence, only the unlucky stiffs remain to man the trading desks and, as a logical outcome, the market sinks into the doldrums.
This would sound plausible -- might even be true to the extent that Wall Street regularly hires beach bums -- except for the fact that the Philippine Stock Exchange index (PSEi) so far this century has had a very low correlation with the developed markets. Since the year 2000, the PSEi had a correlation of 0.47 with the United States’ S&P 500, 0.38 with the United Kingdom’s FTSE 100, and 0.39 with Japan’s Nikkei 225. Correlations range from zero (no correlation) to +1 (perfect positive correlation) or -1 (perfect negative correlation).
Furthermore, it would be hard to accept, even humiliating, for the Philippine equity market to be correlated with someone else’s vacation time. Well, come on, what would happen to the local market when it is time for these people to go to the comfort room – a momentary trickle down?
At any rate, it is not all bad for August. It cannot be very terrible when August is the month for celebrating “Go Topless Day,” an annual event held to support the right of women to go topless in public to celebrate gender equality. This year’s Go Topless Day rallies are scheduled on August 26 in the United States, Canada, the Netherlands, Switzerland, and France.
What a month!
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