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Category: Investment


Miami, FL - December 18, 2012 ( newswire), a leading digital financial media company, Reports on The January Effect the biggest losers to benefit from it including Long Pine Resources (NYSE: LPR), GEVO Inc. (NASDAQ: GEVO), Supervalu, Inc. (NYSE: SVU) and others.

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With the New Year only weeks away, investors are eagerly awaiting a yearly anticipated phenomenon known as the January Effect. The January Effect is simply a run on stocks, often following a poor December. Investors rush to buy securities prior the end of the year for a lower price, betting that the price will go up in January, and then dumping the stocks for a profit. A January Effect is often led by small-caps. According to Barron's, since 1926, small-cap stocks have beaten large caps 76% of the time in January. The best explanation offered for the January Effect is tax-related; that is, investors with portfolios that are weighted with small stocks sell off securities en bloc to claim venture losses and straight away reinvest after the New Year.

According to Jeffrey Hirsch of The Stock Trader's Almanac the January Effect is “Wall Street's only free lunch.” Free lunch or not, the January Effect can have multiple causes depending on the years market performance as a whole. Tax-loss selling that takes place in December is, more often than not, limited to individual investors. The average investor often concentrates his trading on low priced, higher-volatility small-cap stocks. As a result, it makes sense that some tax-loss selling in December focuses on small-cap names. Another cause is attributed to institutional investors. Many want to dump losing propositions from their portfolios before their end- of-year annual reports. And finally, some investors postpone of the sale of profitable stocks that achieved capital gains until January in order to defer taxes until following year.

So who were the biggest losers of 2012 and most likely to benefit from the January effect in 2013? Lone Pine Resources Inc. (NASDAQ: LPR) at -85.31% performance for the year is at the top of the list. It is currently trading at $1.01 and has a market cap of $86 million. Gevo Inc. (NASDAQ:GEVO) with a market cap of $58.91 million had a dismal performance of -77.58% in 2012. Shares are trading at $1.50. SUPERVALU Inc. (NYSE: SVU) stands at -65.95% for the year and is trading at $2.70. Groupon (NASDAQ: GRPN), one of the most highly touted IPOs of last year, came in at number five on the list with a per year performance at -76.73%. They should have taken Google (NASDAQ: GOOG) up on it's off to buy at $6 billion prior to going public in November of last year.

A final thought on strategy. It looks like the time frame for the January Effect is shifting forward a few weeks. If you are unsure of how to get your ‘free lunch' from the January Effect, try this alternative: purchase an S&P 600 small-cap exchange traded fund during mid December and sell it at the end of January. Such a strategy has yielded a 0.2% return over the past 10 years, compared with -0.9% loss in the S&P 1500. It has been successful in seven of those 10 years. Also you might be able to enhance performance by purchasing small-caps in mid-November, avoiding the worst of the underperformers, and in turn, selling in mid-January, to dodge the rush of sellers. Good luck!


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