One of my favorite book is One Up on Wall Street by Peter Lynch. He is America’s number one money manager and he believes that average investors (like us) can become experts in their own field and can pick winning stocks as effectively as Wall Street Professionals by doing just a little research. Are you interested to know it? Well, you can search the book by clicking the Amazon Book Link (on the right block) and try to find one….
On his book, he mentioned about January Effect that investors must know and understand. January effect is a general increase in stock prices during the month of January. This rally is generally attributed to an increase in buying by bargain hunters, which follows the drop in price that typically happens in December when investors, seeking to create tax losses to offset capital gains, prompt a sell-off.
The January effect is said to affect small caps more than mid/large caps. This historical trend, however, has been less pronounced in recent years because the markets have adjusted for it. Another reason the January effect is now considered less important is that more people are using tax-sheltered retirement plans and therefore have no reason to sell at the end of the year for a tax loss.
What we should do with this January Effect? I believe just to see and prove it during end of this December. If the Small and Mid Cap stock price is falling based on this prophecy, well, there will be opportunities. Check on Russel 2000 index (RUT) to see the whole effect.
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