Market Anomalies – a Fallacy?

There are many market anomalies that the press loves to talk about. Following those anomalies, however, sometimes can be hazardous to your investment health. Analysts are always looking for ways to outperform the market and will test almost anything against stock market returns. In many cases, the anomalies are only coincidences and have no rational reason to impact stock prices. However, once an anomaly is found, it usually ceases to be as effective as it was in the past. Such anomalies include:

• The January Effect – Buy stocks in December because the stock market is up in January (especially small company stocks).
• Monday Effect – Buy stocks on Monday because Monday’s are down days for the market.
• Super Bowl Effect – Buy stocks when an old National Football League Team wins the Super Bowl. This indicator has been correct more than 80% of the time over the past 42 years.
• Hemline Indicator – Buy stocks if the hemlines of women’s skirts rise (bare knees = bull market) and sell stocks if it falls.

Newspaper articles in August talked about how September has historically been a bad month for investing. Many read these articles and sold stocks in August in anticipation of the market following its historical pattern. What happened? These investors missed out on the best stock market returns for the month of September since 1939 (over 70 years!!) with the Dow Industrials being up 8.2% through September 29.

Moral of the Story: Don’t rely on market anomalies when making investment decisions.

Sincerely,

Your THOR Team