It's October. It's the month when market commentators start comparing everything about this year's October with all the Octobers past, especially the Octobers of 1929 (the Big Crash) and 1987 (the Baby Crash). Various articles conclude at the top that "it might happen again," and somewhere toward the bottom that it might not.

Even the boss of the Big Board, Richard Grasso, got into the act when he came for lunch at The Post last week and started talking about how we're going to have one of these 2,500-point dives one of these days--he didn't say which one of these days--and spoke about how unprepared Americans are for the sort of "nuclear winter" bear market we experienced in the late 1960s and early '70s. Very reassuring.

Speaking just three working days after one of the Dow's worst single-week drops ever (4.9 percent), the New York Stock Exchange chairman was trying to tell us, in effect, "you ain't seen nothing yet."

The context for his comments was his concern--shared by plenty of market veterans--that the post-1987 breed of stock investor, accustomed to annual portfolio growth of 15 to 20 percent, is unprepared for the jolt the market is capable of delivering.

More about our preparation later, but first let me remind you that writing and commenting about the market is like writing about the Mafia. You can say anything. Nobody calls up and says, "This is the Mafia speaking," and refutes you. Similarly, there is no official spokesman for the markets, so you can have them swooning, plunging, teetering, whatever you like, and who is to quarrel?

Grasso's partly right about our not being prepared, but only partly.

It is true that I remember friends of mine wandering around dazed with their 401(k) statements after last year's August-September dip--associated with the Russian loan-default crisis and the collapse of the hedge fund Long-Term Capital Management. It seemed they didn't quite make the connection between the Russian crisis, the hedge fund's collapse, the 512-point drop in the Dow on Aug. 31, 1998, and their own mutual funds. They acted surprised--and angry. Some actually spoke of looking for someone to sue.

Many people were furious that they had been unable to get through to their various funds or brokers--online and offline--to bail out, though in hindsight, considering the market's recovery, that saved us all from some potentially serious losses. I have to admit that I was one of those people trying to log on to my online brokerage during that period. I was sitting there dying, dying--at the thought of all my capital gains becoming losses. I failed--preventing me from selling a stock that recovered and then doubled.

Thank you, E-Trade.

We want to panic, whether we succeed or not.

But the notion of some professionals that we are lambs, sitting around pathetically while the abattoir trucks are warming up, is wrong.

Indeed, some investment professionals who administer 401(k) plans think most of us are too conservative, with too much of our money in low-yielding fixed-income investments.

Also, there are signs that today's individual stock investors are becoming more and more sophisticated generally in watching the markets--meaning they are reacting to market activity in ways that suggest they've made the connection that my friends had not between their personal fortunes and the dynamics of the markets. In reacting to market dynamics, individuals may not always do the smartest thing, but they do not necessarily freak out, faint, swoon, stash money in mattresses, smash computers or sue their plan administrators.

After all, we had a virtual "correction" last week--the Dow was down 9.8 percent from its peak on Aug. 25, close enough to the 10 percent benchmark--and so far we're still standing.

More quantitatively, 401(k) fund tracking by the defined-contribution consulting firm Hewitt Associates suggests increasing attentiveness on the part of that huge class of investors. Increasing numbers of fund participants are switching from equities to other investments, for example, just like the pros, in anticipation of interest-rate hikes by the Federal Reserve.

Similarly, Investment Company Institute data from August on the cash flow into stock funds show decreased flows to aggressive-growth and growth funds as the stocks of that type became more and more volatile. And net new cash flow to stock mutual funds as a group was much lower in August ($9.21 billion) than in July ($12.4 billion).

In fact, if you examine Hewitt's figures from last Oct. 27, despite the puzzlement of my friends, there is no doubt that many 401(k) investors understood what was going on: Trading activity among participants was four times the daily average, Hewitt reported, with assets moving from equity investments into fixed-income investments. But the daily average isn't all that heavy anyway, and there is no doubt that the real panic sellers were institutions--not individuals, who simply didn't have the numbers to crash the market.

Dallas L. Salisbury, president of the Employee Benefit Research Institute, noted that while we haven't really been severely tested in a prolonged downturn, "the movements by most [401(k) plan] participants are very slow and methodical so it appears that most will stay the course."

Most important, looking at the Investment Company Institute's August figures, mutual fund money in total is actually fairly well spread, with roughly half in something other than stock funds, such as taxable bond funds, municipal bond funds, taxable money-market funds, tax-free money-market funds and hybrid funds.

Diversification of investments--a proper balance among stocks, bonds, money-market funds and cash--is the key to surviving a prolonged market downturn. So is careful asset allocation according to when you believe you might need the money you've invested. (If you need the cash in three years, don't put it in the stock market.)

On that score, the Employee Benefit Research Institute reports good news as well. While individuals in their twenties invested roughly 77 percent of their assets in equities, those in their sixties invested 53 percent in stocks and the rest in fixed-income investments.

None of this is intended to minimize the potential impact of Grasso's grim scenario. The potential for a financial-psycho-political shock from a prolonged downturn is mind-boggling, if only because so many more people are invested now than in 1987.

In 1987, about $180 billion was invested in about 800 stock mutual funds. Today, the investment is $3.3 trillion in about 4,000 funds.

Roughly 25 percent of household assets, or about $11 trillion, are invested in stocks directly or indirectly now, vs. about 10 percent in 1987.

So a 20 percent slide would represent a $2 trillion decline in household net worth.

But this month is not intrinsically dangerous. They're all dangerous. Be prepared. And don't let October madness get to you.

Fred Barbash ( is the Post's business editor.