It sure would be nice to know if 2014 were going to be an up year or a down year. It would make your 2014 Asset Allocation decision easier and better. What about the January Effect? The old axe is, “As goes January, so goes the year.” Then there was the newer take on it, “As goes the first five days of January, so goes the year.” Well, most professional traders scoff at it. But what if there was a better mousetrap?
As Goes January, So Goes The Year
Well, on the positive side, this actually works pretty well, being true over 92% of the time. On the negative side, not so much, true only about 54% of the time.
As Goes The First Week of January, So Goes The Year
Once again, on the positive side, it has been true about 90% of the time. However, on the negative side you’d do just as well flipping a coin, only being accurate about 50% of the time.
But what if you combined the two??? Well, the predictive value improves. On the positive side the number goes up to over 93% of the time. And on the negative side the numbers improve even better, being predictive over 73% of the time. Not real great, I certainly wouldn’t bet the house on it, but it certainly adds some value to the asset allocation decision.
Of course, we are talking probability, not absolutes. I’ve been doing this for over 30 years. I can tell you that my experience with these investing axioms is about as good as my experience with betting on the Saints and LSU. And I never bet on the Saints or LSU anymore. Like investing axioms, I’ve lost too many times.
“My reality check bounced.” ~ Jason Ryan Dorsey
Assistant State Treasurer
Chief Investment Officer
State of Louisiana
Department of the Treasury