with Raziah Ahmed
January effect is a tendency for the returns on
small-company stocks to be higher in the month of January
than in other months.
In a study of returns since 1926, two trends were noted: small
companies out-performed larger companies in terms of returns
to the investor in 90 per cent of the years, and some 40 per
cent of the average total return each year for small company
stock occurs in January.
The best quality stocks on the market are what are called
blue chip stocks. These have long records of earnings
and dividend payout, and represent equity in mainly large,
well-established companies. How, then, do you determine just
where to get in on the stock market? And which stocks do you
First you will need to establish what portion of your savings
can be placed in a high-risk investment, and what portion
must remain in low-risk vehicles. Next you must establish
your strategy. Two well-known strategies are day trading,
and buy and hold.
Day traders follow the market every day, and buy and sell
on the basis of stock market indicators, and government or
institutional policy decisions. This is a fast-paced, dynamic
place to be, which requires spur of the moment decision-making,
based on real-time access to a multitude of data and information,
as well as a high tolerance to loss. This is really for the
experts or the happy-go-lucky.
The preferred strategy is to buy and hold. This requires initial
study and estimations on future growth and expansion in terms
of stated corporate objectives, quality of management, and
economic outlook for country. For example, for people who
bought certain bank shares when Barclays Bank sailed out bought
at $2-3 per share, the share price now is phenomenal! You
may check the daily listing of stock market prices in the
There are other shares whose values have not increased over
the years, or which have lost value over the years. In general,
an organisation sells shares to the public when it needs to
raise money for its operations. It does not issue and sell
shares to the public just because it wants the public to share
in its profits.
There are other ways to raise money, available to the organisation.
For example, the organisation can to go to a bank and borrow
the money. It is an astute business decision, based on many
The investor must be on the lookout for what appear to be
There is also something called market efficiency. This implies
that good prospects, or good opportunities for investors to
make a mint are grabbed up very quickly, and are off the market
before the rest of the investors even realise what happened.
Recently, I found in the business literature an interesting
way to better explain market efficiency. When you go to check
out at a supermarket you tend to choose the shortest line.
You estimate the number of people in line and the items in
their shopping carts and may make an intelligent guess about
whether they will pay by cheque, card, or cash, and estimate
how long they may take to complete their transactions, etc.
When a space opens up in another line, only one or two people
will move fast enough to get ahead into that line, while all
the lines stay more or less the same length. So too with excellent
stocks coming available on the market!