Why Is September Bad for Stocks?

From Morningstar Advisor:

The answer to this question lies in Nassim Taleb’s bestseller Fooled by Randomness. If you haven’t read it (you should), let me sum up the book in one sentence: We humans have this amazing ability to see a pattern where there is none.

The three worst stock market crashes all happened in October. Do you see a pattern here? If you do, you are fooled by randomness. A sample size of three signifies nothing statistically. That does not prevent us from associating October with market crashes.

Now that this “pattern” is public knowledge, thanks to the financial media, guess what investors do in September? They sell. That’s why September is the worst month for stocks on average, even worse than the supposedly crash-prone October.