In an interview with Business News Network of Canada, Validea CEO John Reese recently discussed the “January Effect”, and how investors should position themselves in light of the seasonal trend. Reese notes that historically, January has been by far the best month for stocks, and that the strength has largely been due to very big gains for small stocks, a phenomenon that many attribute to tax-loss selling. At the close of one year, Reese says, investors dump losing positions for capital gains tax write-offs, and smaller stocks are less able to absorb the blows than their larger peers. Then when January rolls around, investors jump back into those beaten down small-caps. But, Reese adds, that doesn’t mean you should go out and indiscriminately buy small stocks right now. He says to focus on fundamentally sound plays, and highlights a couple North American small-caps his Guru Strategies are high on right now.
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