Stocks in this article include Apple (AAPL), Clearwire (CLWR), Coldwater (CWTR), OmniVision (OVTI), Reach Search In Motion (RIMM), and Sprint (S).
The January effect is a money making opportunity in the stock market. This effect tends to cause prices of some stocks to rise more than the averages in the month of January.
There are two explanations for this phenomenon. First, tax sensitive investors sell depressed stocks prior to the year-end to take capital losses on their tax returns. This tax related selling further depresses prices of the already depressed stocks. Second, Wall Street professionals get big bonuses in the month of January; these professionals hunt for bargain stocks in January and drive up the prices of previously depressed stocks.
When I started investing 30 years ago, an investor could take advantage of the January effect by buying depressed stocks in the last week of December. However, as this phenomenon got more and more well known, investors tended to buy the depressed stocks earlier and earlier. Over the last two years, the buying opportunities were in November.
In my experience over the last 30 years, I have made money from this effect about 75% of the time, lost money about 15% of the time, and the rest of the time broke even.
The traditional widely accepted way to benefit from this effect is to buy only small cap stocks before the year end and sell them in late January. In my experience, the effect is not limited to small stocks.
I have successfully increased the returns generally available from this effect by about 100% by proper stock…Read More
