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Mark Twain thinks stocks are in for a rough ride

In addition to being a best selling author and a humorist, Mark Twain apparently doled out financial advice long before celebrity investment tips were a trendy thing.

Nicholas Colas, chief market strategist at ConvergEx Group, expects market volatility to pick up next month and cited Twain in his report because the American icon had once written, “October: This is one of the peculiarly dangerous months to speculate in stocks.”

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The death of volatility has been greatly exaggerated.

Fortunately, Colas also did a bit of empirical work to back up his forecast and noted that the CBOE Market Volatility Index VIX +9.06%, the so-called fear gauge, has a tendency to peak in October.

The fear index, since its introduction in 1990, peaked in October in 1992, 1995, 1997, and 1998 but has never bottomed, according Colas. The only other month when VIX behaved similarly is January but that month also claims several low points for the index.

“We pulled apart the daily history of the VIX since 1990 and identified the low and high point for each year. Our logic: if the VIX is a kind of a ‘fear indicator,’ measuring the options market’s appetite for protection against sudden drops, then perhaps that sentiment indicator will follow Twain’s admonition about putting money to work in October,” said Colas.

The VIX surged 13% to 14.28 Tuesday as stocks traded lower on a combination of weak economic data out of Europe and China on top of geopolitical worries.

At the other end of the spectrum is December during which the VIX bottomed seven times in a 24-year span.

What this all suggests, according to Colas, is that the market is likely to become choppier in the next five weeks, providing an ample opportunity for bargain hunters.

Incidentally, Twain thought all the other months weren’t great times to invest either.

“The others are July, January, September, April, November, May, March, June, December, August, and February,” Twain quipped.

http://blogs.marketwatch.com/thetell/2014/09/23/mark-twain-t...