There was a January Effect After All...

The S&P 500 from December bottom-February 1st Source: Google Finance

By Dan Gonzales                                                                                                                                        February 13, 2018

The S&P 500 from December bottom-February 1st Source: Google Finance

By Dan Gonzales                           February 15, 2018                                                

The S&P and Dow Indices all received a facelifts after Dec. 24 of last year. Was it the "January Effect?"

The S&P and Dow Indices all received a facelifts after Dec. 24 of last year. Was it the "January Effect?"

The S&P and Dow Indices received a facelift after Dec. 24 of last year. Was it the "January Effect?"

If you owned stocks on Christmas Eve last year, chances are you were a little nervous with how the three major indices were performing. I know I was, my portfolio dropped 25% and the stock market's volatility had wakened up after having a rosy 2017 through most of 2018 until October erased the year's gains. The stock market felt like it was going to fall off of a cliff quite frankly. Speculation around the yield curve between the 2 and 10-year treasuries, coupled with trade talks all pushed shares south showing that the market was not invincible.

It's happened for the past two January's that I have been an investor, January seems to throw a party for stocks. If you simply bought Netflix in the third week of December in 2017 or 2018 the next month you would have witnessed your shares rise by a minimum of 30%. When the market officially became bear on December 24th last year, I knew a buying opportunity had presented itself. I was mainly interested in buying Visa stock after weeks of diligent research and financial analysis.

I find it a bit perplexing how the market dip into bear territory and only a few days later shares were rebounding gradually. I came across an interesting statement during late December from Christopher Ailman, chief investment officer at CalSTRS with over $200B in AUM. "Eighty percent of daily volume in the U.S. is done by machines, so what you get is a lack of focus on earnings, a lack of focus on outlooks and you just get short-term movements based on very specific data that is released every day and that creates noise."

The next trading day, which came after Christmas, the Dow jumped 1,000 points, logging its biggest single-day point gain in history. I was certainly startled by this but greeted the news with open arms as exiting the bear market could never be a bad thing for me other than losing the opportunity to purchase some shares of leading corporations! But talk about not having any time to buy the bottom dip. That just goes to prove The Intelligent Investors point that the market (future) will always surprise us. In fact, I think the best strategy is not to look at your portfolio everyday and instead do every now and then check ups. Investing is about controlling your behavior and the biggest obstacle to that can be financial news organizations and the STOCK Price. So let's practice patience but at the same time do our due diligence.

Now, let's bring what The Intelligent Investor teaches and talks about the "January effect," the tendency of small stocks to produce big gains around the turn of the year

What causes a "January effect?"

  1. Many investors sell their crummiest stocks late in the year to lock in losses that can cut their tax bills. 
  2. Professional money managers grow more cautious as the year draws to a close, seeking to preserve their outperformance (or minimize their underperformance).

All these factors turn small stocks into momentary bargains; when the tax-driven selling ceases in January, they typically bounce back, producing a robust and rapid gain. My point of view on this is it requires COURAGE, something Ben Graham had when he bought GEICO. In 1948, Graham-Newman Corporation bought 50% of GEICO for $712,000 and secured the Chairman of the Board position for Graham. It's these moments whether you consider it a risk or not that will make or break you. Playing it safe would have been a considerably smaller stake. But in knowing the value of a company one can deter all apprehensions and become motivated.

A risky but worth trying thesis I had from this was buying a call option on the SPY ETF. I came up with the idea in mid-November when a colleague of mine told me he profited greatly by running a call on the SPY ETF after the midterm elections. "Stocks always sell off prior to the election and then rebound up after." He told me. He was right as his option landed him a nice $2,000 profit.  

I too knew there were bargains. Check out my comment on a private investment slack channel:

If you owned stocks on Christmas Eve last year, chances are you were a little nervous with how the three major indices were performing. I know I was, my portfolio dropped 25% and the stock market's volatility had wakened up after having a rosy 2017 through most of 2018 until October erased the year's gains. The stock market felt like it was going to fall off of a cliff quite frankly. Speculation around the yield curve between the 2 and 10-year treasuries, coupled with trade talks all pushed shares south showing that the market was not invincible.

It's happened for the past two January's that I have been an investor, January seems to throw a party for stocks. If you simply bought Netflix in the third week of December in 2017 or 2018 the next month you would have witnessed your shares rise by a minimum of 30%. When the market officially became bear on December 24th last year, I knew a buying opportunity had presented itself. I was mainly interested in buying Visa stock after weeks of diligent research and financial analysis. I also liked the companies mentioned above, Lululemon, Square, and Intuit. 

I find it a bit perplexing how the market dip into bear territory and only a few days later shares were rebounding gradually. I came across an interesting statement during late December from Christopher Ailman, cheif investment officer at California State Teachers Retirement System, with over $200B in AUM. "Eighty percent of daily volume in the U.S. is done by machines, so what you get is a lack of focus on earnings, a lack of focus on outlooks and you just get short-term movements based on very specific data that is released every day and that creates noise,

The next trading day, which came after Christmas, the Dow jumped 1,000 points, logging its biggest single-day point gain in history. I was certainly startled by this but greeted the news with open arms as exiting the bear market could never be a bad thing for me other than losing the opportunity to purchase some shares of leading corporations! But talk about not having any time to buy the bottom dip. That just goes to prove The Intelligent Investors point that the market (future) will always surprise us. In fact, I think the best strategy is not to look at your portfolio everyday and instead do every now and then check ups. Investing is about controlling your behavior and the biggest obstacle to that can be financial news organizations and the STOCK Price. So let's practice patience but at the same time do our due diligence.

Now, let's bring what The Intelligent Investor teaches and talks about the "January effect," the tendency of small stocks to produce big gains around the turn of the year

What causes a "January effect?"

  1. Many investors sell their crummiest stocks late in the year to lock in losses that can cut their tax bills. 
  2. Professional money managers grow more cautious as the year draws to a close, seeking to preserve their outperformance (or minimize their underperformance).

All these factors turn small stocks into momentary bargains; when the tax-driven selling ceases in January, they typically bounce back, producing a robust and rapid gain. My point of view on this is it requires COURAGE, something Ben Graham had when he bought GEICO. In 1948, Graham-Newman Corporation, bought 50% of GEICO for $712,000 and secured the Chairman of the Board position for Graham. It's these moments whether you consider it a risk or not that will make or break you. Playing it safe would have been a considerably smaller stake. But in knowing the value of a company can deter all apprehensions and become motivation.  

A risky but worth trying thesis I had from this was buying a call option on the SPY ETF. I came up with the idea in mid November when a colleague of mine told me he profited greatly by running a call on the SPY ETF after the midterm elections. "Stocks always sell off prior to the election and then rebound up after." He told me. He was right as his option landed him a nice $2,000 profit.  

I too, knew there were bargains. Check out my comment on a private investment slack channel:

 

-"Be on the verge."- Dan of Bahia Verge

           

           

           


 

If you owned stocks on Christmas Eve last year, chances are you were a little nervous with how the three major indices were performing. I know I was, my portfolio dropped 25% and the stock market's volatility had wakened up after having a rosy 2017 through most of 2018 until October erased the year's gains. The stock market felt like it was going to fall off of a cliff quite frankly. Speculation around the yield curve between the 2 and 10-year treasuries, coupled with trade talks all pushed shares south showing that the market was not invincible.

It's happened for the past two January's that I have been an investor, January seems to throw a party for stocks. If you simply bought Netflix in the third week of December in 2017 or 2018 the next month you would have witnessed your shares rise by a minimum of 30%. When the market officially became bear on December 24th last year, I knew a buying opportunity had presented itself. I was mainly interested in buying Visa stock after weeks of diligent research and financial analysis.

I find it a bit perplexing how the market dip into bear territory and only a few days later shares were rebounding gradually. I came across an interesting statement during late December from Christopher Ailman, chief investment officer at CalSTRS with over $200B in AUM. "Eighty percent of daily volume in the U.S. is done by machines, so what you get is a lack of focus on earnings, a lack of focus on outlooks and you just get short-term movements based on very specific data that is released every day and that creates noise."

The next trading day, which came after Christmas, the Dow jumped 1,000 points, logging its biggest single-day point gain in history. I was certainly startled by this but greeted the news with open arms as exiting the bear market could never be a bad thing for me other than losing the opportunity to purchase some shares of leading corporations! But talk about not having any time to buy the bottom dip. That just goes to prove The Intelligent Investors point that the market (future) will always surprise us. In fact, I think the best strategy is not to look at your portfolio every day and instead do every now and then check-ups. Investing is about controlling your behavior and the biggest obstacle to that can be financial news organizations and the STOCK Price. So let's practice patience but at the same time do our due diligence.

Now, let's bring what The Intelligent Investor teaches and talks about the "January effect," the tendency of small stocks to produce big gains around the turn of the year

What causes a "January effect?"

  1. Many investors sell their crummiest stocks late in the year to lock in losses that can cut their tax bills. 
  2. Professional money managers grow more cautious as the year draws to a close, seeking to preserve their outperformance (or minimize their underperformance).

All these factors turn small stocks into momentary bargains; when the tax-driven selling ceases in January, they typically bounce back, producing a robust and rapid gain. My point of view on this is it requires COURAGE, something Ben Graham had when he bought GEICO. In 1948, Graham-Newman Corporation bought 50% of GEICO for $712,000 and secured the Chairman of the Board position for Graham. It's these moments whether you consider it a risk or not that will make or break you. Playing it safe would have been a considerably smaller stake. But in knowing the value of a company one can deter all apprehensions and become motivated.

I too knew there were bargains. Check out my comment on a private investment slack channel: 

Screen Shot 2019-02-15 at 2.57.06 PM

Facebook now trades upwards of $160. Despite what analysts may say about the struggles they have faced as of late, I still find unbelievable upside in owning the company. Facebook's assets to liabilities ratio is 10:1. That means the company has a strong and stable financial position. I own 10 shares of the company.

A risky but worth trying thesis I had from this was buying a call option on the SPY ETF based on the January effect. In late December, SPY traded in the $250 range and I expected the S&P to gain decent forward momentum. Nevertheless, I felt it was too risky of a move and I had other plans with the $2,000 of dry powder I had. In hindsight, a call on the SPY with an expiration in mid-late January would have been a good move. Since then I have allocated part of the money to Intuit and added to my position in Turtle Beach. 

I think the key takeaway from October through the end of the year landslide is how much volatility and risk can investors handle? Rosy futures and happy endings are notorious in Disney movies and fiction, but the asset management world requires no emotion and distinct clarity of thought. Only time will tell.

Where do you think markets are headed in 2019?

-"Be on the verge."- Dan of Bahia Verge

Facebook now trades upwards of $160. Despite what analysts may say about the struggles they have faced as of late, I still find unbelievable upside in owning the company. Facebook's assets to liabilities ratio is 10:1. That means the company has a strong and stable financial position. I own 10 shares of the company.

A risky but worth trying thesis I had from this was buying a call option on the SPY ETF based on the January effect. In late December, SPY traded in the $250 range and I expected the S&P to gain decent forward momentum. Nevertheless, I felt it was too risky of a move and I had other plans with the $2,000 of dry powder I had. In hindsight, a call on the SPY with an expiration in mid-late January would have been a good move. Since then I have allocated part of the money to Intuit and added to my position in Turtle Beach. 

I think the key takeaway from October through the end of the year landslide is how much volatility and risk can investors handle? Rosy futures and happy endings are notorious in Disney movies and fiction, but the asset management world requires no emotion and distinct clarity of thought. Only time will tell.

Where do you think markets are headed in 2019?

-"Be on the verge."- Dan of Bahia Verge