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 INSIDE
FINANCE
The January Effect: Part Deux?
By Robert M. Jaffe, MBA, AAMS
January 27, 2006
Perhaps it was an omen that my last
"January Effect" column appeared in the Friday the 13th
issue of the Clifton Insider. Just two days before going to press,
January 11th, the S&P 500 Index closed at 1,294.18, the Dow
Jones Industrial Average peaked at 11,043.440, the NASDAQ Composite
Index ended the day at 2,331.360 and the Russell200 Stock Index
closed at 711.19 (MSN Money). This surely was a January effect that
filled investors' hearts with a sense of optimism.
Yet a mere week later blazing financial headlines
buried that joy with "Stocks take plunge…Disappointing
profits, soaring oil prices spur sell-off" (The Record, North
Jersey Media Group Jan. 21, 2006). "Stocks Slide 2% Driven
by Worries on Oil, Earnings…Worst drop since May 2003…"
(The Wall Street Journal, Jan. 21-22, 2006). And not to be outdone,
The New York Times…. "Stocks Tumble on Disappointing
Earnings." On Friday, January 20, The Dow closed at 10,667.39,
the S&P 500 - 1,261.49, the Russell 2000 - 704.60 and the NASDAQ
- 2,247.70 (Bloomberg). Oh how the media loves to stir the pot!
It doesn't take a mathematical genius to figure out the percentages.
From their high points, the indices have lost respectively S&P
-2.53%, the Dow -3.41%, the NASDAQ -3.59% and the Russell 2000 -0.93%.
This is not Armageddon! Year to date, only the
Dow (representing, mind you, 30 stocks) is in negative territory,
down 0.47%. The S&P 500 is ahead 1.06%, the NASDAQ +1.92% and
the Russell 2000 +4.66%. So what's a "fella" (not P.C.,
but eant to include both sexes) to do? My opinion….nothing,
at this point. The market goes down on emotion and up on emotion,
as well as upon sound fundamentals. Pundits, and not a few brokers,
will advise you otherwise. Market moves are the stuff of news, or
noise, as we in the profession refer to it. After all, how else
are those highly paid, 24/7 financial news types going to fill their
time slots?
Over the years investors have underperformed the
markets by selling on bad news and buying on good. The
illustration above should give you the picture. I'm
no artist, but you get the idea.
As the curve descends, investors lose heart and
sell at a low point. Then the market rebounds and it's time to buy,
at a high point, and so it goes. This is not the way to beat the
market or even keep up with it. My advice….try to be intellectual
instead of emotional when it comes to your portfolio. If it was
well conceived in the first place and continues to point toward
achieving your objectives, stick with it. If, on the other hand,
you and your financial advisor are monitoring your results, and
see that you're falling out of synch with your goals, then, consider
making changes.
By the time this goes to press, the indices, and
your portfolio, may have jumped ahead or fallen further behind.
Not having a crystal ball, I'm not in a position to predict, nor
do regulations permit me to do so. What I can predict is that markets
will continue to fluctuate and whether it is January or any other
month in any other year, if you heed Rudyard Kipling's suggestion
to "Keep your head when all about you are losing theirs",
you should succeed in your financial quest.
Please Email bob@cfsias.com
with your questions.
Other Finance
Archive Articles
INSIDE FINANCE
will appear regularly, addressing financial matters of interest
to our readers. Any questions? Email bob@cfsias.com
Registered Representative,
Securities offered through Cambridge Investment Research, Inc.,
a Broker/Dealer, Member NASD/SIPC. Cambridge and CFS are not affiliated.
The preceding article
is for informational purposes only and should not be used as the
primary basis for an investment decision. Indices mentioned are
unmanaged and cannot be invested into directly. Past performance
does not guarantee future results. All examples given are hypothetical
and do not reflect actual investments. The views expressed in this
article are those of the author and are not necessarily those of
Cambridge. Bob Jaffe is Managing Director of CFS Investment Advisory
Services, LLC in Totowa and has been a Clifton resident since 1984.
Active in community affairs, Bob is Past Board Chairman of the North
Jersey Regional Chamber of Commerce and president of its foundation
board. He serves as a commissioner on the Clifton Rent Leveling
Board and is Vice President of the Clifton Rotary Club. Representatives
of Cambridge do not offer tax or legal advice. Consult a professional
for your personal situation.
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