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Hi Lionel,
This is my understanding of the January effect. Individuals that have
had some very good gains in the year plus have had a dog or two in their
portfolio. Now there is something to do with taxes here that I am not
sure of. I think it goes like this. If they sell to realize their gains
the tax man taketh away. So they sell their losers. So the tax man
taketh not as much. Now you have cash and you want to put it back into
the market since you didn't make as much as would of liked for the year.
Since you are a long term investor you go & buy a very good undervalued
stock to be on the safe side.
The other thing with respect to the January effect is that at one time
many funds were on a calendar year. So when they sold their dogs from
their portfolios and began the new year in January, there was new buying
in undervalued securities. But since firms have begun to move away from
a calendar to a fiscal year. The "January Effect" began to come earlier
& earlier. Or later in the year, depending on how you look at it.
Now this last explanation came from IBD sometime ago.
So the name has stuck but the time period has changed.
I hope this helps. I looked at WDC and from a technical point it doesn't
look good until a few days from now. It has a PE of 5.8 which I like.
Now Value line gives it a #1 rating, but that doesn't mean a thing to me
since I know little about Value Line. I so have a friend in town here
that does fundamental analysis. If he is back from vacation maybe he can
help me with a few things. My biggest concern is this.
Assuming that the market will correct lower or stay flat for some time
what will happen to WDC. More important what will happen to the disk
drive makers if the industry as a whole has earnings forecast lower. So
if WDC has a PE of 5.8 under the current earning forecast and if their
earning growth is slower than in the future. I don't see the downside
risk here due to the low PE. But the question then becomes what is the
upside & over how long?
If I can get some help from my friend in town I might nibble at WDC a
bit.
Harley
Lionel Issen wrote:
> Harley:
>
> Can I have a few more details.
>
> 1. Correlation with what?
>
> 2. Since the January effect has to do with stocks and market market
> indices, how does buying in November fit into this? Is this based on
> the
> beginning of the year January effect or on some other year January
> effect?
> Is this suggesting staying out of the market for 11 months?
>
> By the way I have come across a paper in some journal that purported
> to
> confirm the January effect.
>
> Regards
>
> Lionel
> At 10:29 PM 11/5/97 -0600, you wrote:
> >Well the long awaited January effect strategy was finally presented
> at
> >our Minneapolis MS meeting. Actually Stanley's wife isn't well, so
> >another person brought the info to our group.
> >
> >Stanley's criteria are very simple.
> >
> >The stock has had a correction of 30% or more in the past year.
> >The PE is 15 or less.
> >Value Line gives it a #1 rating.
> >Has had earnings growth over the last year or two of at least 20%.
> >
> >That's it. Stanley also noted that you can buy on two dates. November
>
> >1st or 15th. If you buy on the 1st you gain another 10%.
> >
> >By the way Stanley is a value investor & does very well in the
> market.
> >He is 80 something and has been doing this for years quite
> successfully.
> >
> >Last year he came up with 11 picks. This year he came up with only 2.
>
> >In January of 97, Stanley presented to the group his results. He had
> >20%+ gain for his picks. All were up, except 1 was down a small
> amount.
> >
> >Drum roll please.
> >
> >Western Digital (WDC) and Applied Material (APM).
> >
> >Harley Meyer
> >
> >
> >
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