January Effect

See: Santa Claus Rally.

Late in December, when many of us are running around returning gifts and eating the last of the cookies, some investors use that time to sell off a bunch of stock to help offset any capital gains taxes they might have to pay the following year.

Hey, we all celebrate the year’s end in different ways.

Anyway, come January, those same investors might decide to start buying stock again; if enough of them do it in a short enough period of time, the market can see a little bounce right there in the beginning of the year. This is what’s called the “January effect,” and though we’ve actually seen it happen many times throughout history, it’s still considered hypothetical, since some argue that what we’ve seen can be explained by other factors.

For example, some say investors get kind of a “New Year, New Me” mentality in January, and get all amped to start their year off financially strong. Others say that the bounce can be attributed to people investing year-end bonuses. But regardless, most experts agree that the January effect, if it exists, happens sporadically at best, and is more common in some markets than others.

Long story short: it’s an interesting idea, but it should in no way, shape, or form be considered a reliable investment strategy.