October's'Peculiar
Danger'Investors tend to be - ----- -----------------------.----..--..---~-

particularly wary
this time of year,
Colin Bloodworth
explains
ust a few days to go and w e will
be clear ofthe month that every
investo r dreads - October. Whyis this so? His tory provid es theanswer. It is the month whenthings often go badly wrong.
Could it be due to the onset ofwinterin the northern hemisphere, with theprospect of months ofdreary days andcold, dark nights ahead? Maybe the psych olo gists have an answer, but here are
the facts. October was the month ofthefirs t major US banking crisis in 1907.It isalso the ann iversary ofthe 1929 crash thatbrought about the Great Depres sion andthe 25th anniversary of1987's "Black
Monda y,"when global stocks were decimated. Still fresh in our minds is thecred it crunch and banking meltdown that
was at its zenith in October 2008.
But the markets don't crash every
October, so why should we be worried
this year? Well, there are a few worrying
factors. Firstly, the markets have been
creeping u p nicely since their summer
lows and without terribly good reason.
Such rallies are often followed by corrections. Secondly,the big problems dogging
the world's economies have not goneaway. US debt is increasin g, the euro debt
crisis is far from resolved an d the powerhouses ofChi na and India are both slowing down . The United States is printing
money at a frightening rate an d othercountries are likely to follow suit.
Although interest rates are at re cord lows,
inflation is creeping ba ck.

JSo shouldwesell upand nmforthehills?
Pan ic is never the bes t solution. The markets are still driven by sentiment and if
people have reason to feel optimistic,
stocks can go up whatever the fundamen tals. While you can gain or lose money inthe short term, the real success stories arethose of people who take a long-term view.
A further consideration is that thestock markets still represent the core of
the capitalist system and should pr otect

your wealth in the long term, provided
you hold a diversified range ofstocks.
Focusing on just one or two stocks ishighly dangerous. Even focusing on justone market can be risky.

Diversification Isthe best protection
While we tend to think in terms ofstocks
when we talk about investing, there is awhole world ofasset classes and productsthat are uncorrelated or only slightly correlated with stock markets. A soundinvestment portfolio may contain lessthan 50 percent in stocks, with theremainder invested in bonds, gold andprecious metals, natural resources includingoil arid water, forestry, asset-backed
lending, hedge funds and a host ofotheralte rn ative strategies. Such inve stments50%

the proportion of asound investment
portfoliothatis .
made up of stocks,
according to Colin
Bloodworth

do req ui re care and proper advice though.
With such a portfolio, a 20 percent crashin the stock markets would likely result ina portfolio hit of only 10 percent and probably less as some assets su ch as gold oft en
rise in value when stock markets fall.

How to avofd losing sleep

The first rul e is th at you do no t invest in
any product unle ss you are prepared toaccept th at there m ight be short-termlosses, in which case you calmly remain
invested until it recovers. Seco ndly, ifyou
are going to invest in any speculative
stocks or other investments that offer highreturns, you do so only with money you
can afford to lose in the worst case scenario. Despite th e mise rable current interest rates, you must always maintain a highlevel ofli quidity so th at you never have tosell an investment to raise emergency
cash. Ifyou do , it will almost certainly be ata time w hen m arkets are also in distress.
Final ly,if you are still worried about
th e remaining days ofOctober, the follow ing quote from Mark Twain should
put things in to perspective:"October. This is one ofthe peculiarly
dangerous m onth s to speculate in stocks.
The others are July, January, September,April , Nove mber, May, March, June,December, August and February."
Colin Bloodworth. di recto r of PPllndooesia.
has spent over 20 years in Indonesia. If you
have any que stion s on this or a related
subj ect. you can contact the write r atindo nesia@ppi-advisory.com