Advisor Blog

Home
Categories
Tags
Bloggers
Search
Login

Username Password
Remember me

The January Barometer

Posted by Brent Everett on Friday, February 05, 2010 in Unconventional Wisdom

Most of us have heard, at one time or another, about how the direction of the stock market during the month of January can be predictive of the subsequent year's market performance. This is often referred to as the "January Barometer" or something similar. But, does the data support a belief in the predictive ability of the first month of the year?

The S&P 500 index had a negative return for January 2010, provoking all kinds of speculation about the future direction of the stock market. We took a look at the performance of the S&P 500 in January from 1927 through 2010. The monthly return was negative in 31 of those years. In 15 of the 31 years with a negative January return, the annual return was actually positive. In 16 of the 31 years, the return was negative. So, how did this work as a predictor of annual market performance? About as well as flipping a coin.

What we can learn from examining historical stock returns is that they are more volatile than many investors realize. As shown in our Talis Investment Philosophy presentation (page 30), we can use 1999 as a good example. In that year, the S&P 500 posted negative returns for 5 of the 12 months, yet the annual return was a very healthy 21.04%. April 1999, one of the months with a strong positive return, had a negative return in 10 of the 21 trading days. One of those days had a negative 2.24% return. Even though this is well understood and should be expected, it's why most investors can't tolerate an all equity portfolio and it drives behavior for those that overestimate their risk tolerance that undermines long-term success.

Tags: capital markets, dfa, s&p 500, stocks, talis

Gold - The Doomsday Asset »

Brent Everett

Brent Everett founded Profisys, LLC, a fee-only Registered Investment Advisor, in 1998. While acting as Managing Director of that firm, he developed the investment philosophy and the portfolio models currently used by Talis Advisors. He earned a B.S. in Computing and Information Sciences from Oklahoma State University. Mr. Everett’s background includes experience in strategic marketing, executive management and investor relations at Texas Instruments, Samsung Semiconductor, EDI, CSCI, and his own consulting practice. Brent served on the Board of Directors for CSCI, where he helped structure and negotiate management's successful purchase of the company.

Mr. Everett has been a member of the Financial Planning Association, where he was elected to the Board of Directors of the local chapter, the International Association of Financial Engineers, the Econometrics Society, the Association of Pension Professionals and Actuaries Benefits Council, the Estate Planning Council of North Texas and Mensa. He has discussed small cap stock investing on CNNfn and his views regarding investment advisor disclosure have been quoted by several major publications. Along with Scott Maxwell, Brent has been the cohost of The Peaceful Wealth Radio Hour on CNN. He was named as one of Texas Monthly magazine's "5 Star" wealth managers in 2010 and 2011 and one of D Magazine's top wealth managers in 2010.

Mr. Everett lives in Plano with his wife and their Labrador Retreiver. He has served as a member of the Business and Professional Leadership Committee of the Plano Symphony Orchestra, and enjoys reading, fly fishing, college sports, and Formula One racing.