It's Not Too Early for Investors to Get Ready for the January Effect

by Richard Evans

It's Not Too Early For Investors To Get Ready For The January Effect Splash image

“The January effect?” a skeptical reader might question. “I know what the January effect is all about, and besides, it happens in January, not October, so why write about it now?”

While most investors are aware of a January effect, what is not always as well known is that the true January effect is a low-price stock phenomenon. A typically bullish January for the S&P 500 index attests that most stocks benefit to an extent from a January effect—for instance, due to new monies entering the market after the beginning of the year. However, the S&P Low-Priced Stock index’s January gain of four times the S&P 500 index gain attests that the January effect is indeed most pronounced among stocks that are lowest-priced, and usually the most depressed, since the stocks that have sold off the most via tax-selling have the greatest potential for rebound.

While there have been a number of studies that have validated the fact that the January effect is primarily a low-priced, depressed stock effect (and not, incidentally, a small-cap effect), it also makes common sense.

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Discussion

David E from Washington posted about 1 year ago:

If the time to get positioned is October, then this article isn't very timely.
How about running the article again next September?


Robert Haft from Florida posted about 1 year ago:

So, now it is December and investers are selling to avoid the proposed tax hikes.
Do we buy now to gain the January possible rise ?


Winthrop Harewood from Illinois posted about 1 year ago:

An interesting & informative article.
However, the comment from David E from Washington re the timing of this article is spot on! So is his suggestion for a re-run of the article in September 2013!


James G from Texas posted about 1 year ago:

David E is correct. Where is the answer AAII?


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