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The January Effect

Posted on 01/25/2013 6:09:33 AM PST by ExxonPatrolUs

IN the first three weeks or so of trading this year, the Standard & Poor's 500-stock index, a measure of the broad market, has climbed more than 4 percent - and on Jan. 18, in fact, closed at its highest level since December 2007. Last January, the S.&P. 500 rose 4.4 percent - a blistering pace that, if kept up for the rest of 2012, would have translated into a compound annual return of nearly 67 percent. (Alas, it did not.) January 2011 was also a hot one for stocks, its monthly return translating into an annualized gain of 31 percent.

Mention such returns to the average Wall Street type and you're likely to get a yawn. Going back to the 1920s,after all, the first month of the year has, with striking regularity, been a great time to invest - a phenomenon known, fittingly, as "the January Effect."

First discussed in a 1942 article by the investment banker Sidney B. Wachtel, this celebrated winter anomaly has two components: the stock market tends to do well over all in January, and small-company shares typically outperform large stocks. For the rest of the year, the latter trend often reverses, and big stocks beat the small fry.

Some believe the phenomenon is a result of tax-loss selling: investors dump their loser stocks in December to recognize a capital loss and then buy them back in January, pushing up share prices. Others say it's because of institutional money managers, who shed their weakest-performing or riskiest-looking small stocks before Dec. 31 so that their reported year-end holdings look better to clients. Like the tax-loss sellers, these "window dressers" return to buying when the calendar turns anew.

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TOPICS: Chit/Chat

1 posted on 01/25/2013 6:09:34 AM PST by ExxonPatrolUs
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To: ExxonPatrolUs
Sidney B. Wachtel; Investment Banker I think Sidney saw what was coming January 2009... Friday, October 3, 2008 Sidney B. Wachtel, 90, an economist, investment banker and founder of Wachtel & Co., a Washington-based investment and brokerage firm, died Sept. 26 of cardiac arrest at his home in Washington. Mr. Wachtel studied seasonal movements in the stock market and coined the investment term "the January effect," the theory that American stock prices rise more in January than any other month. This idea was expanded on in his 1942 paper, "Certain Observations on Seasonal Movements in Stock Prices," which appeared in the Journal of Business published by the University of Chicago Press. From 1948 to 1959, he worked as an international financial economist for the Treasury Department. He operated investment clubs in Northern Virginia before starting Wachtel & Co. in 1961 with his wife, Irma Schocken. Wachtel & Co., which is operated today by Mr. Wachtel's two daughters, acts as an investment banker and financial adviser to small emerging companies. Mr. Wachtel helped finance local companies such as Radiation Systems, Waxie Maxie Music Stores and Data Measurement Corp. "Our business is very risky," Mr. Wachtel told The Washington Post in 1980. "We don't get paid off for years. Most of the time, there is no payoff. But when there is a payoff, it's a big one." Sidney Barnett Wachtel was born in New York City. He studied economics and statistics, receiving a bachelor's degree in 1939 and a master's degree in 1941, both from New York University. His 32 year marriage to Schoken ended in divorce in 1980. She died in 2007. Survivors include his companion of more than 10 years, Susan Maloney of Washington, and two daughters from his marriage, Wendie and Bonnie Wachtel, both of Washington. -- Lauren Wiseman
2 posted on 01/25/2013 6:29:05 AM PST by ExxonPatrolUs (The Ameritopian Motto: Gov The Sheeple, Buy The Sheeple, Bore The Sheeple)
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