Every year as the month of August comes, people in the stock market become fearful of the ghost month. Many advise to avoid investing during this time, as it is considered bad luck.
According to Chinese tradition, particularly Buddhists and Taoists, the Festival of the Hungry Ghost is when the gates of hell are opened and spirits from there go out and roam the earth.
Ghost Month 2016 falls on August 3 to August 31. According to superstition, one must focus on honoring the spirits that are visiting earth during this time.
That’s why buying a house, opening a business, getting married, big financial decisions, and similar important life events are normally avoided.
Which leads us to the question, what happens in the stock market during ghost month? Does it really go down or is it just a perception? What’s the best strategy for traders and investors during this period?
I hope to answer these questions below, along with snapshots of the Philippine Stock Market Index (PSEi) from July 1 until September 30 of specific years, so that we can observe what really happens during the ghost month to the stock market.
Ghost Month 2006: went DOWN in August, ends HIGHER than July in Sept.
Ghost Month 2007: went DOWN in August, ends LOWER than July in Sept.
Ghost Month 2008: went UP in August, ends HIGHER than July in Sept.
Ghost Month 2009: went UP in August, ends HIGHER than July in Sept.
Ghost Month 2010: went UP in August, ends HIGHER than July in Sept.
Did you know that most American and European global fund managers take their annual vacation during this time?
When wealthy Chinese investors are busy with their tradition and institutional funds become less active in the market, stock prices will have the tendency to have a sideways or downward movement.
For traders, this is a time to be cautious. But for long-term investors, it’s definitely a good time to buy, especially blue chips stocks that went down due to this temporary weakness in the market.
Ghost Month 2011: went DOWN in August, ends LOWER than July in Sept.
Ghost Month 2012: went DOWN in August, ends LOWER than July in Sept.
Ghost Month 2013: went DOWN in August, ends LOWER than July in Sept.
Ghost Month 2014: went UP in August, ends HIGHER than July in Sept.
Ghost Month 2015: went DOWN in August, ends LOWER than July in Sept.
If you’re studying the charts posted along this article, you would’ve observed that the market went up 50% of the time between July and September. Furthermore, prices went down 60% of the time during the month of August.
However, historical data since 1999 will show that the market went up 67% of the time between July and September. And even if you bought during the years when the market went down, your paper loss would be gone within 5 years or less.
Please note though that these statistics only refer to the performance of the index. Your individual stock performance could be better or much worse. But I’m sure it would be similar if you’re only buying blue chip companies.
What to do during Ghost Month
If you’re a long-term investor in the stock market, particularly those doing Peso Cost Averaging, then you don’t really have anything to fear or worry about. Just continue investing and buying your stocks as normal.
If you’re a medium-term investor in the stock market, particularly those doing Strategic Averaging Method (popular among members of Truly Rich Club), then there’s also little need to worry about the ghost month. Continue buying your choice stocks, just be cautious when prices go near your support level.
If you’re a short-term trader in the stock market, then looking for good companies to trade might be a challenge during this time. There’s still opportunity to make money, but be more cautious than usual.
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