Tuesday, January 02, 2007

The January Effect

The article linked below is a good overall look at the "January effect", one way of looking at the small-cap effect (broad market-beating nice returns in other words,) but with a substantially flawed conclusion -- that it is real, but that you cannot exploit it. You can. Several good vehicles exist, in exchange-traded funds and in open-end mutual funds, the best couple of which aim to replicate the returns of the entire U.S. micro-cap stocks "universe". My critique of the author's conclusion (and the research he is working from) is that he is thinking in terms of single-stock ownership, using some sort of short-term trading in conjunction with some sort of active management to try to capture the "effect". The solution, I would argue, is in a carefully-weighted inclusion of these stocks as a group using a suitable low-cost vehicle, and as part of an overall long-term portfolio strategy. In all honesty this is certainly not an approach unique to my advisory practice. It's not as exciting as some approaches, but some kinds of investment 'excitement" you really can do just fine, better really, without.

Stocks: Why you can't cash in on the 'January effect' - Dec. 18, 2006

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