It Is Where You Start

There’s a famous song with the lyric, “it’s not where you start, it’s where you finish.” Well, in the world of finance and stock markets, at least in the United States, where you start does matter. Yale Hirsch, a noted researcher, put out some stats back in the early 80’s that demonstrated that when the stock market had a decent January, 91% of the time, the market was up for the year. Some call this the January effect. I don’t care what you call it; I am not one to argue with 91%. That’s pretty compelling. There is also a school of thought that says whatever January does, you ought to be out by May. While the stats are not nearly as compelling as the January evidence, there is some merit to that argument as well. Since most analysts are predicting that the economy starts to recover in the second half of the year, and since stock markets are generally about 6 months ahead of the game given its predictive bent, the logic would appear to make sense.

Anybody who reads me or watches me on television or listens on the radio knows that I abhor market timing. I don’t think it serves the general investing public well. I call it, “getting Kramerized.” By that I mean, the television guys, like Jim Kramer of CNBC, make short term predictions that are entertaining but fraught with peril. Remember it was Kramer who said two weeks before Bear Stearns went belly up that they were solid. This doesn’t make Kramer a bad guy. The advice was bad in hindsight, and I would submit that any advice given by a trader or a market timer (and that is television guys and gals) is dangerous.

I believe in time in the market and not timing the market. For me, it mitigates the systemic risk of owning stocks. I can make the case that if my time frame is ten years or longer, my chances of losing money in a well diversified, asset allocated portfolio are slim to none. I, nor anyone else, can do that in the shorter time frames. So, January is important. We got off to a good start on Friday and on Fox Business Friday afternoon, I told the Bulls and Bears panel that I felt like calling the waiter and asking for the check. A 3% positive return for the year coming off of the 33% decline from last year any way you look at it is a 36% turnaround. Is it any wonder, I was screaming, “waiter; check please. It is now the third day of trading and while we were down yesterday a bit, we are up today a bit still some 3% ahead for the year, and that whipping sound you hear is me beating the heck out of the stock market January horse. We need January to be solid. I think it will be; I hope it will be; if it’s not...

 I will deal with that in February. Ciao.

 

 

 

 

 

 

 

 

Commentary by  Danny Fontana