January effect

[Totoro]

Anyone here ever tried to exploit the alleged january effect?

Talking about the one where small cap stocks supposedly outperform large cap stocks on a structural basis, but only in a time window between roughly Dec. 20 and Jan. 09 or so.

Thinking about running an experiment this year ($1000 usd or so), but if anyone already tried it be curious to know the outcomes and learnings.

Would execute through a combination (equal dollars at risk) of put options on IVV and call options on IJR, or similar.

 

[dunkelblau]

I think the idea is to buy low market-cap thinly traded stocks at a time when tax-loss harvesting adds to selling pressure. To me it's sort of like fishing, put in some limit buys at very conservative prices and see what fills. Then wait for the wash sale rule to time out and hopefully add a bump to whatever mean reversion takes place at the new year. I remember this scheme seemed to work well during the bubble years, but it's been less productive recently. Over the past couple of years all I found were some fairly good deals on small banks. Due diligence is an absolute must because this corner of the market is rife with adverse selection; if you don't know what to look for in a financial statement, this is probably not a game for you. One thing I've found to help narrow the field-- I tend to follow DFA (Dimensional) around.

 

[Totoro]

Not looking to buy shares of individual companies, would do it via indexes (long small-cap, short big-cap).

Am familiar with financial statements and annual reports, but for this it wouldn't be required.

 

[LOL!]

Sure, it works only when there has been a significant drop due to Fiscal Cliff or things like that. Made big bucks that time.

Just sign up for "LOL's Market Timing Newsletter" and you will get all the moves needed.

 

[Totoro]

Am following your thread, no worries If you want me to cross-post this over there, let me know, I'll shut down this thread then.

Can you point me to the post where you detail the trades? How did you implement it?

Thanks

 

[LOL!]

The trades? I just held through and made money. Very simple. Here's the link:
http://www.early-retirement.org/forums/f44/lol-s-market-timing-newsletter-57042-5.html#post1255112

Also in early 2014, did you see what happened? It's all in the thread.

 

[Rick_Head]

Try it and report back.

 

[Totoro]

Thought about it some more and explored the options (literally). Seems puts & calls are too expensive to execute on this. There basically has to be a 4% difference or more between small cap and large cap before I turn a profit.

Instead I'll just expand and continue my magic formula experiment. I am buying small caps there anyway.