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Strategies & Market Trends : January Effect 2001
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To: LTK007 who wrote (92)12/25/2000 10:04:16 PM
From: Q.  Read Replies (2) of 289
 
LTK, the January effect is primarily a phenomenon wherein low priced stocks that had been beaten down by year-end tax selling are suddenly relieved of that selling. All that remains in January are the buyers. Anybody who had thought of selling was likely to have done so already in December. This results in a rebound in January, with a rise of 30% not being uncommon.

The shareholders who are motivated to sell at a loss at year-end are individuals, as their tax year ends on Dec. 31. Institutional shareholders generally do not share this incentive.

To maximize the likelihood of a significant January effect, you want a stock with:
* a low stock price
* a stock price that has declined hard during the year finished by with climactic selling in December
* ownership by a lot of small investors

I'm not saying that all such stocks represent good investments. In fact, a lot of them are flea-bitten dogs. You have to pick and choose the ones you like.
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