Originally created 10/25/98

Nervous investors likely create October slumps



While the ghosts and ghouls of Halloween may start appearing on your street, the nightmares of past October stock market crashes are haunting Wall Street. October, it seems, is an especially scary month for investors.

Maybe it's the fateful cries of the shareholders who lost fortunes in 1929 or the sobs of speculators who were wiped out in 1987 that haunt stock market players the most. Maybe it's the specter of Halloween.

Whatever the reason, this month historically tends to be bad for the market, said Wheat First Union stockbroker Dudley Baird Jr.

October frightens nervous investors, Mr. Baird said. Some of them called him earlier this year, shortly after the market began to fall, and said they were concerned that October was coming.

"I don't really know why October is that way," he said.

Is the month just cursed?

Some of the biggest dips in the Dow have occurred in October. Of the 25 worst single-day point drops, October dates show up six times -- more than any other month. And one of those drops -- a 210.09-point plunge and the six worst in history -- just happened, on Oct. 1.

Since that day, stockbrokers say, the Dow has been looking better. It rebounded and gained more than 330 points Oct. 15. But with the recent market ups and downs, some investors aren't taking chances. No one is sure what will happen -- especially in the face of other countries' falling economies.

Mr. Baird's father, Dudley Sr., said he doesn't believe in an October curse.

He acknowledges he's read about the "October thing," but in his mind, the stock market is governed more by scientific principles, such as the laws of gravity -- what goes up must come down -- than superstition.

But Mr. Dudley Sr. a stockbroker of more than 30 years, keeps reminders of what October stock market disasters have brought -- they're hanging on his office wall.

They are conversation pieces mainly, but they also provide powerful images to remind him of what can happen.

"This isn't a game," he said. "Money's not a plaything."

Mr. Dudley has an Oct. 20, 1987, issue of The Augusta Chronicle on his wall. In bold headlines, it proclaims: "Dow spins out of control, crashing 508.32 in Wall Street's darkest day." He also keeps a framed 1929 report about another impending October disaster: the great stock market crash.

And to really make the point, he has a picture of a terrible train wreck.

"I've seen some train wrecks in the stock market," he said.

Are we headed for one this year?

"I don't have a clue," he said.

Barry Wheeler, of Wheeler Securities, has a theory why October has a tendency to spell disaster for investors. He said he believes that the dips tend to occur in the latter half of the year rather than the first because investors get nervous.

They make money on the stock market during the first six months, and then pull out, he said. And if the market starts to tumble, investors cut their losses and take their money with them.

There are some statistics that back this up. Of the Dow's 25 worst point drops, 18 of them, about 72 percent, have been in the last six months of the year; 15 of them have been in August, September or October.

October marks the first month of the last quarter and is usually when third-quarter earnings reports come out. If they don't look good, that's when there's trouble.

"It's like Halloween -- it scares them," Mr. Wheeler said.

This year, the big drops seem to have came a little early.

The stock market hit an all-time high in July, then dropped -- almost 17 percent. As a result, the Fed cut interest rates. And now, the market is slowly climbing, again. This October may turn out to be OK, brokers say.

The worst single-day point drop in history was Oct. 27, 1997.

But this needs to be put into perspective because the stock market has changed dramatically since the 1920s, brokers say. Until the early 1980's the Dow rarely hit 1,000. Now, some experts speculate that it may push past 10,000.

That means that a 554.26-point drop today, like the one in October 1997, would not be as dramatic or disastrous as it would have been in the 1970s or '80s.

A 508-point plunge in 1987 sent the world reeling.

Back then, the Dow was edging toward 3,000. Five hundred points was a big drop -- about 22.6 percent -- and many investors suffered.

"There were people who lost all their money," Mr. Wheeler recalled.

But some people also saw the drop as a buying opportunity, he said. And they were the investors who made money.

Jack O. Garber was one of them.

A 77-year-old retired teacher and commercial pilot, Mr. Garber started investing in stocks when he was in his 30s. He and his wife have a diversified portfolio and invest with Edward Jones broker Chuck Smith.

Mr. Garber learned how to save money at a young age. His dad would give him 10 cents -- a nickel and five pennies. He'd spend some of the money and save the rest. He's been saving ever since.

The depression years were hard times, he said. He was 8 years old when the stock market crashed.

But a lot has changed since then, and he said he doesn't believe it will ever happen again.

Investors now have insurance, savings and more wisdom than they did in the 1920s, he said.

October does tend to be when the market heads south, he said. Some of his fiends get nervous when it does, but he sees it as a buying opportunity.

Buy low, sell high is his investing strategy. That's what he did in 1987 and he'd do it again if it happened this October, he said.

"You don't want to sell out of fear," he admonished. "Sell out of confidence."

Frank Witsil is a reporter for The Augusta Chronicle. He can be reached at (706) 823-3352.