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Chip....
Dave gave a pretty good explanation of the "January Effect" in his posting.
The year's non-performers are under heavy tax loss selling at year end
(actually now days starting in mid-October or so, to avoid the wash sale rule)
and a purchase of a package of such stocks tends to out perform in January.
Usually these stocks are in the small cap arena but not 100% so.
The "January Barometer" is....as January goes, so goes the year. It also
includes.... as goes the first week of January, so goes January. But none of
this refers to the "January Effect." The latter deals with the recovery from
tax loss selling.
My reference to small cap/large cap stocks was general in nature, as is the
"January Effect" as it is discussed in various books and studies. In my
experience, just about all books discussing the markets define it this way.
For our purposes, I will reference "Investing in Small-Cap Stocks" by
Christopher Graja and Elizabeth Ungar. This book is part of the Bloomberg
Personal Bookshelf. I quote from pages 172-4:
....."For the past couple of decades, stocks have generated the lion's share
of their annual returns in one month: January. The best explanation for this
"January Effect" is taxes........This pattern, which has been confirmed by
various researchers, is particularly marked among small caps. In fact, a
large percentage of the returns that have made the smallest stocks the best
long-term performers have come in January.......According to NatWest
Securities' Coker, since 1926 microcaps have returned 8.7 percent on average
during January, compared with 1.4 percent for all months. Merrill Lynch's
Pradhuman adds that small value stocks have been the biggest gainers.
Connected to this is the fact, also cited by Pradhuman, that the effect has
been most pronounced in January following years of poor small cap
performance"........
I posted my comments because small caps last year were crappy performers yet
we did not have a pronounced "January Effect." I think the "Asian Flu" upset
the apple cart and delayed the "January Effect." Coupled with the fact that
the Asian Emerging Markets are so oversold, I just have to believe that we
will have, at the very least, a respectable small cap bounce.
By the way, for novices as well as seasoned investors, the book I mentioned
above is just great. Yell if you want to pursue this further....
Jerry
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