Simple Success Podcast - The January Effect
What is the January effect?
The “facts”, and I use that term quite loosely here are:
It’s a perceived seasonal increase in stock price in the stock market during the month of January.
The common theory is this is because of an increase in buying after people sold off stuff in December for tax reasons.
Other people use year-end cash bonuses as their reason.
There are other good reasons, too. Specific ones, like the so-called Santa Rally.
And basic ones, like social proof and peer pressure.
The quick explanation is that January effect is a calendar anomaly like many other calendar theories that pervade the investing world.
And when I say this I mean, people take it and use it as a reason to not take action.
For example, let's say it's January, and you, an enterprising investor, have decided to invest.
A potential explanation you give yourself is , “No, I'm not gonna do that. There's this thing called the January effect. That means it's bad to invest in stocks during the month of January, so I'm not going to do it.”
Now listen for a second. According to that person, there's no reason to check out the truth of the detail or to put their own efforts into action to prove it true or not true for themselves.
The better approach is to see if the story, whatever it is, gets in the way of you getting started.
If you don’t, you can just easily extend that logic from “What if it's January?” to “What if it's February?” or “What if it’s March?”, or any other calendar effects!
I’m pretty sure I speak for you when I say that I don't want my entire future determined by something that I don't yet understand.
It's a real thing. But it doesn't mean that it has to have a real impact on you.
Mostly you don’t have to worry because I’m going to keep coming back to the basic themes of happiness and success over and over and over again. It’s called repetition and it works.
This is one of the many things we use to divert our attention.
Attention from what? Attention from the real reason that we need to be investing.
It can divert our attention from the actual simplicity of success.
I often say I’m not picking on the financial industry right before I do exactly that, and I want to take that head on.
The reason I’m not picking on the financial industry is because the financial industry is not the only guilty party.
Almost every business does it. Don’t whine about it. Just be aware and stay focused.
Be prepared and pay attention.
Take the mental leap to focus on the result, and not on the distraction that's being put up, to take brain power away from what you need to do for you. That's principal number one.
Once upon a time, there was a heroic investor who climbed high, high enough to see through the hype, and that investor was you.
It was a beautiful day, when he realized that he could control what was going on in his life.
He had an epiphany that it was possible to succeed, that it wasn't a matter of a fixed mindset where one group succeeded at the expense of another.
No, this was a world where wins can be had by all sides.
I'm not saying that they are all the time.
I'm not being naive here. I tell you how things really are.
Simple success is how things can be when you decide to make them your way.
That's the epiphany that our investor had.
And that's the epiphany that I had.
And that's the epiphany that you're gonna have.
That can’t possibly apply to investing, can it?
Yes, it can. It does. Psychology is in everything.
And that’s a big part of Simple Success.
How we make a difference within the rules
How do we overcome the January effect?
What is our call to action?
You've heard me say this before AND it's still true.
It’s so true, we're going to provide an exercise to make sure that you actually learn by doing.
Step one, set a goal.
Set A Goal (How To #1)
The best way, without rival, to not get distracted from your goal is to NOT HAVE ONE.
But there’s something else to be aware of, and that is the possibility of being distracted from
EVEN SETTING A GOAL.
And that is what manipulation is all about, getting you to do something or to NOT do something, and making rational choices.
Don’t worry though, we're going to counteract that with these steps, starting with that goal.
It can be a timeframe, it can be dollar figure, it can be a way…oh wait, there’s lots of different possibilities.
The specifics of your goal matter to you.
You having a goal is what matters to me.
Support Your Goal with Systems (How To #2)
If it's something that can be measured, decide how you're going to measure it. Not too rarely, but also not too often.
Decide in advance, don’t surprise yourself. Don’t fall into that common trap where we measure too fast and decide with way too little information, choose to use use long-term data.
We could think, “That didn’t work today, so it won’t ever work.” It’s a common trap.
Don't decide things on the spot. Decide well in advance.
Be sure you have a system. It’s one thing to have a goal. That’s important.
It’s just as important to have a good way to get there – good meaning a way which keeps you feeling comfortable while also reaching your goal.
Without that system, that way of “getting there”, we can make reaching goals a whole lot harder than it should be.
Stick to The Plan (How To #3)
Then comes patience. I like the quote I heard recently which goes like this:
“Patience is like underwear. It’s important to have, but it’s not always necessary to show it off.”
Even if the plan, the goal with the system, doesn’t work the first time, we're gonna be patient and stick to the plan.
Even if you’re reaching your goal TOO QUICKLY, you don’t stop.
Why?
Because you have a plan, and your plan accommodates such a thing.
Make your choices consistent and stick to them, it'll pay off in the long run.
Patiently Repeat (How To #4)
And then we're going to repeat the plan.
And then we're going to repeat it again.
I've been doing this for about six months, and it has been immensely helpful in avoiding repeating decision points. I don’t have to worry about things like, is this the AIRQUOTES “Right Friday” to invest.
I do it every Friday. The decision has already been made independent of market conditions and I can focus on other things.
That’s what Albert Einstein did, and you can ask me about that later.
We’re changing the way we look at things, and
Remember, “THAT’S GOOD”.
Also remember, this is Financial Life Coaching from A Happiness Perspective! Coaching Happiness.
“What Is The January Effect?” becomes “I Invest Every Month No Matter What!”
It’s flipping the script, and if I don’t, you can call me on it. If you want more information, you can call me on that too!