August is the Coolest Month

 Cool in the sense of excellent for stock investors, that is. Instead of fixating on the "January effect", Jason Zwieg's Intelligent Investor newsletter points out, we should focus on the "August effect."

According to Bill Schwert, emeritus professor of finance at the University of Rochester, August has averaged the highest returns of any month, at 1.45%, even better than January -- the month whose supposedly superior results have been touted for years in books, blogs and research papers. 

Zweig also reminds us of what happened 39 years ago on August 12, 1982. Without fanfare the most horrendous stock market decline since the Depression ended.  Investors contrarian enough to start buying equities would have prospered mightily. Stocks rose 229% before Wall Street had its 1987 panic attack. Thereafter stocks rose another 582% percent before the dot.com bubble burst. 

Inflation-adjusted DJIA Historical Chart

Trading as a Team Sport

The new sport of trading stocks has evolved much faster than expected. A legion of bored amateurs, some armed with government stimulus checks, has driven Gamestop and other stocks shorted by hedge funds to ridiculous highs. Trading, the novices have discovered, can be fun. When you get together and make it a team sport, you can batter hedge funds so badly they need financial transfusions.

Pundits are alarmed. If a financial advisor can ignite a flash mob to shake up Wall Street as easily as former president Trump inspired a crowd to storm the Capitol, who or what is safe? (Hey, are they attacking silver? Could they go after Bitcoin?)

History tells us that participants in speculative binges get their comeuppance. This time it may take a while. According to this Axios bulletin, the short sellers have a deep bench. “[B]ig bets are coming in from hedge funds and institutional investors, meaning that the short squeeze has not even begun."

Why Stocks Are Like Women

This ad ran in The New Yorker 60 years ago, a time when Wall Street men regarded women as a breed apart.

"Stocks are somewhat like women," Merrill Lynch's copywriter asserts. Like stocks, all women are not alike. "For instance, some women move in schools, like fish; others are strictly independent. Some women are busy as waltzing mice; others are languid and lackadaisical. Some are fickle; others are faithful. They come in all shapes, sizes, and temperaments . . . to suit the shapes, sizes and temperaments of men."

The good news: Male copywriters don't write this sort of stuff any more.

The bad news: Wall Street still views women as a breed apart. Women in the financial industry get promoted more slowly and rise to senior positions more rarely, a CNBC-Linkedin survey finds.

1932: A Bank Advertises Free Investment Adivice

From the January 20, 1932 issue of The New York Times:

The correct advice, of course, would have been "Don't buy, SELL!" After the Crash of '29, the Dow rebounded by 30% in 1930. Then stocks began to slide toward oblivion. By the summer of 1932 the Dow would be 89% below its pre-Crash high. To recover from such a loss, one would have to watch one's portfolio go up by 825%.