Why October is a good time to sell

Is October a good or a bad month to buy shares? The answer, it seems, is both. Statistically, you would have done pretty well buying in October and selling in April over the last 22 years. But only if you’d done it every year. Because while October is often kind to investors, it is also often ‘crash month’. When the market really tanks, it likes to do it in October. Nobody quite knows why, and the best I can come up with is that it is in October that everyone in the market finally stops comparing tans and starts concentrating on the jobs they’re actually paid to do. Then, as they start to focus, they notice the nasties.

If that’s the case, and they do the same this year, they’ll find a lot to notice. Consider the FTSE index. It is right on its five-year resistance line, so unless there’s about to be some kind of massive breakout from the trend, any sensible investor would assume that this year October is a good time to sell, not buy. If there is a breakout that will be another story altogether, but I can’t really see what might drive it. Given the fragility of the US economy, the uncertainty about our own, and the ongoing volatility in the currency markets, we might be wise to take our unexpectedly large summer gains (selling in April wouldn’t have worked in 2003) and move on. 

For me, this means finally selling most of my Mothercare shares. I bought them back in March for a mere 97p each, but today, after an encouraging trading statement (first-half results are expected to come in “ahead of market expectations”), they closed at 279p, giving me too healthy a profit to leave on the table. I still see an excellent recovery story underway at Mothercare (and not before time), but at this price the shares are trading on a p/e of around 30 times forecast 2004 earnings, and that’s too expensive for me. Having said that, I am still going to succumb to one of the classic mistakes of the private investor - fear of missing out - and hang on to some shares. Just in case that rumoured takeover bid ever actually happens.

My proceeds from the Mothercare sale will be going into a natural resources fund of some kind. In investment briefing, we look at the state of the mining industry, and it seems pretty clear that the sector is a buy. Years of falling prices have led to low levels of exploration and production. Inventories in many metals have been run down as a result, and now prices are soaring across the board. A nice, simple story of tight supply and rising demand that is well worth buying into.