Follow the Bouncing Market
Paul Sturm produced this interesting article in the Stockscreen column of SmartMoney's December issue. Basically he discussed two statistical anomalies of the general stock market:
December Effect: Stocks that have done well during the year, do even better in December (averaging two percent gain in the last few trading days of the year).
The hypothesis is that people tend to dump losers to create tax losses in December, and will usually keep winners to the next year to delay capital gain tax. Thus in December there will be less sellers than usual, which explains the effect.
January Effect: Stocks that have underperformed during the previous year tend to show unusual gains (averaging almost 10 percent over the past 40 years) in the first five days of January trading.
The hypothesis is that as people rush to sell losers in December, those stocks get pushed down to levels where they become cheap at the beginning of the year. Thus the gain.
To me, these two effects are good to know, but I seriously doubt that they can be applied to product real profit. Paul claimed some people had profit from it. He also went further and provided a list of eight stocks that may gain early 2004. I'm not going to try it.
Forbes announced its annual Love-Only-One stock-picking list: Read
In this Forbes article Noble economics laureate Vernon Smith argued that another stock market crash is not imminent because "the memories of the 2000 debacle are too fresh for investors to spin out of control this time." Read
Barron has a comprehensive story about Warren Buffett during the weekend. Good to learn Buffett thinks the market is overvalued too. Read
SmartMoney has an interesting story in its Price Check column about Amazon. It explores value of Amazon in four valuation methods: Read
