Final results for January Effect 2002 picks
This was the first year that my picks under-performed the Russell 2000.
The ending period was Feb. 1, because it was the first Friday in Feb. I show results below for two different starting dates: my actual picks were announced Dec. 28, which was the day I bought the stocks in my real money portfolio. For comparison I also show results since Dec. 31, which was the last day of trading (in my previous years, I used the last day of trading as the start date, but after last year I've become convinced it's necessary to choose January Effect stocks at least a day before then). I also show results for the three categories of picks in my port, according to quality of issue:
since Dec. 28 since Dec. 31
Russell 2000 -2.7% -1.7%
Portfolio (all) -4.2% -12.7%
performance relative -1.5% -11.0%
to Russell 2000
breaking my portfolio into its three components:
low-quality * +3.5%
very-low-quality ** -2.2%
BB & POS *** -16.4%
* Low quality, but unlikely to go BK in the next 12 months: EAG KPT CTT NCEH SNDT VLCT NEXM
** Very low quality, might fail in next 12 months:
STHK DCH HEC IRSN MLRC ATMS UFAB VRTL MFNX CIO
*** POS, might go BK anytime:
LSATA.ob SBAS MCLD IMDS.ob ISCO.ob OPWR.ob
Obviously my worst performers were the stocks in the category I've never bought before now, the POS / BB category. Indeed one of them did go BK: MCLD. It stopped trading Jan. 31. I'm using the closing quote for the last trade for that stock; if I instead gave MCLD a value of zero, that would trim an additional 2% from my results.
Overall the January Effect this year seemed to be closer to average, and maybe weaker than average. I didn't see much tax-loss selling happening in December this year, in comparison to previous years. Certainly this year was very weak in comparison to the anomolaously spectacular January effect of 2001, which was unique because it came after the monumental collapse of the nasdaq bubble, which peaked in March 2000.
Looking for lessons in my experience this year, I certainly won't buy any POS stocks in the future. These included BB's, stocks that might go BK at any time, and stocks with toxic convertibles. I'd never bought these before, but since Midland found such good results the previous year with stocks of lower quality than mine, I thought I would give it a try. Well, it didn't work for me. I would have broken even if I hadn't included these 6 picks.
The worst was MCLD, which was a big stock on the threshold of BK -- it was a much more famous stock than most of mine, and it had a larger market cap than most stocks I pick, so I should use an upper limit on market cap in the future. An upper limit of about $150 M would have avoided that one.
Another thing to consider next year is selling earlier: if I had sold after about one or two weeks in January, I would have outperformed the RUT easily.
I will start a similar thread next December. |
