In his latest column for Seeking Alpha, Validea CEO John Reese looks at two small-cap stocks that have strong fundamentals and which might benefit from the so-called January Effect, in which small stocks tend to perform well in the early part of the year.

“Behavioral finance pioneer Richard Thaler noted in a 1987 paper in Economic Perspectives (“Anomalies: The January Effect”) that the effect was observed not only in the U.S., but in many other countries as well,” writes Reese. “Part of the phenomenon seemed to be related to tax-loss selling — investors would sell losing positions in December as tax write-offs, artificially driving down prices of those shares; smaller stocks were less able to absorb the blows and thus hit harder. Then in the new year bargain hunters would pounce on them, resulting in bounce-back gains.
The effect appears to go beyond tax-loss selling, however, Thaler said, noting that the January Effect was observed in countries that had no income tax, or which had tax years that started in months other than January.”

Reese looks at what else may be behind the phenomenon, and talks about how investors should address the issue with regard to their portfolios. Among the stocks he examines: Employment company Dice Holdings.