By JLP | February 25, 2009
Remember the other day when I posted about Sam Stovall’s book, , and his 7 rules of investing? At the time I wrote that post, I had not yet seen his book. Well, yesterday I read browsed through the book at Barnes & Noble and got some clarification on his point number 2, which was “As goes January, so goes the year.”
I had originally assumed that Stovall meant the market’s January performance was a good barometer for the rest of the year. That doesn’t appear to be the case—at least not from my experience. Well, it turns out that Stovall does not say that in his book. Instead, he says that the performance of the sectors of the S&P 500 Index during the month of January is a good predictor for the year’s market performance. (NOTE: I did not purchase the book so I’m going from memory here.) He then went on to explain that purchasing exchange-traded funds of the three best-performing sectors of the S&P 500 during the month of January and holding them the rest of the year, the investor stands a good chance of beating the market.
That may be true, but…
It didn’t work last year. Check this out:
The three best-performing sectors of the S&P 500 Index during the month of January, 2008 were:
Now here’s how those same sectors performed the following eleven months ranked in order of performance (not including dividends):
Granted, Stovall does not claim that his strategy is guaranteed to work. Rather, he claims that it works more times than it does not work. Last year was just bad all around so I wouldn’t take those results too seriously. That said, I’m becoming skeptical of all these plans for “beating the market.” I write about them a lot because I like to research them and see how they work. However, even if a strategy works, once it is adopted by lots of people, it fails to work and we all start looking for the next big idea. Like Solomon says, it’s like chasing after the wind.
I plan on doing some follow-ups on the book. Even though I’m skeptical, there are some interesting things in it. I just haven’t purchased it yet and hate paying full price at the book store.
To be continued…