After all that you have learned about Supply demand, EPS and PE Ratio most of us simplify stock markets into a block of science models.However there are a lot of events that question and dispute these mathematical models. One of them is popularly called the January effect. The January effect (also known as the turn-of-the-year effect or the January anomaly) is the most important calendar anomaly. The returns on common stocks in January are much higher than in other months. There is no cause and effect to this anomaly. Share prices simply go up during this month and there is no plausible explanation for this behaviour. According to a study by Marc Reinganum "Small firms experience large returns in January and exceptionally large returns during the first few trading days of January." I believe this is more accurate for emerging markets like India where speculation is the order of the day. Take advantage of this anomaly because stock market is simply about "Buy low sell high and play golf ! "
One vital thing we need to take cognizance of when we invest in the market is that, market and people who determine the market movements are often not analytical and scientific. The experts, whom I am always sceptical about, try to simplify the market in reverse format of effect and cause. That is once an event happens they retro fit the explanation. This leads to a dissonance and inefficiency and thats where all the money could be made. I think the under lying moral to these anomalies is that there is often no right or wrong way to invest in a market. If there was one, Warren Bufett would have been cloned all over the world.
However it is important to understand the fundamentals of the market and then use your own gut feel to decipher the future value of each stock. Warren Bufett likened the market to a psychotic drunk. Warren Bufett said "Companies don't change every day but market prices do. This volatility makes the market the greatest game there is. We should bask in the current turbulence as it creates countless opportunities. " Ultimately only two things make a difference : how to value a business and how to think about the market."
One vital thing we need to take cognizance of when we invest in the market is that, market and people who determine the market movements are often not analytical and scientific. The experts, whom I am always sceptical about, try to simplify the market in reverse format of effect and cause. That is once an event happens they retro fit the explanation. This leads to a dissonance and inefficiency and thats where all the money could be made. I think the under lying moral to these anomalies is that there is often no right or wrong way to invest in a market. If there was one, Warren Bufett would have been cloned all over the world.
However it is important to understand the fundamentals of the market and then use your own gut feel to decipher the future value of each stock. Warren Bufett likened the market to a psychotic drunk. Warren Bufett said "Companies don't change every day but market prices do. This volatility makes the market the greatest game there is. We should bask in the current turbulence as it creates countless opportunities. " Ultimately only two things make a difference : how to value a business and how to think about the market."
2 comments:
December 15, 2007 at 7:27 PM
thank you very much for this beginning .. please do sustain it
January 13, 2008 at 9:22 AM
The January effect is said to affect small caps more than
mid/large caps. This historical trend, however, has been less
pronounced in recent years because the markets have adjusted
for it.
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