A Personal Finance and Investment Arm of The Business Times


The January Effect: Does the STI Always Rise in January?

The January Effect: Does the STI Always Rise in January?

The January effect is a hypothesis that the stock market tends to outperform in the first month of the year. The effect was first observed in 1942 by investment banker Sidney B. Wachtel and that small-cap stocks tend to perform better than the broader market in January.

There are a few reasons why stock prices tend to rise in January but I wanted to find out if the January effect holds true in Singapore as in the U.S.

Can investors simply ride the January effect and make decent gains simply by investing in the STI for the first month of every year?

I decided to do some research: I had a look at the STI chart and recorded how much the STI gained (or lost) from its opening price on Jan 1 to its opening price on Feb 1 from 1990 to 2015.

STI 1990-2015: Yahoo Finance

Does the STI rise every January and, if so, by how much? Here are the results:

Year 1 Jan Open 1 Feb Open % Change
1990 1449.5 1528.8 5.47
1991 1153.5 1267.7 9.90
1992 1479.4 1526 3.15
1993 1524.1 1620.4 6.32
1994 2427.4 2338.7 -3.65
1995 2339.6 2083.4 -10.95
1996 2266.5 2451.9 8.18
1997 2216.8 2214.9 -0.09
1998 1530.2 1264.7 -17.35
1999 1339.57 1427.35 6.55
2000 2502.28 2241.78 -10.41
2001 1922.81 1984.43 3.20
2002 1622.31 1804.96 11.26
2003 1338.02 1299.79 -2.86
2004 1768.78 1835.12 3.75
2005 2065.15 2097.66 1.57
2006 2354.59 2425.67 3.02
2007 3015.74 3151.27 4.49
2008 3462.69 3015.9 -12.90
2009 1761.56 1746.47 -0.86
2010 2897.62 2745.35 -5.26
2011 3190.04 3179.72 -0.32
2012 2646.35 2906.69 9.84
2013 3188.59 3286.65 3.08
2014 3179.67 3011.41 -5.29
2015 3364.08 3398.51 1.02

From the data over the last 26 years:

  • The STI made gains in the month of January for 15 out of 26 years
  • The STI remained flat in January for three of those years (1997, 2009, 2011)
  • The STI made losses for 11 out of 26 years

So it seems in the overall scheme of things, the STI does tend to rise in January. And in the years the STI posted gains in January, the average return was 5.39%. Pretty damn decent!

However, when you include all the flat/losing years, the overall average return is only 0.42%.

The reason for this? The STI suffered double-digit losses in 1995, 1998, 2000, and 2008 which pulled overall returns down. If you recall, we had Nick Leeson sending Barings Bank to oblivion and the Kobe earthquake in 1995, the Asian Financial Crisis in 1998, a prelude to the Dotcom Bubble in 2000, and Global Financial Crisis in 2008.

So what does this mean for investors like us?

Bottom line, the STI does tend to rise in January but the moment the bad news seems to be getting out of hand, it’s best that you get out!

In my next article, I’ll explore if the January Barometer also holds true for the STI. Stay tuned!

Are you looking for a formula that can consistently pick out the best companies to invest in and make you a LOT of money in the stock market? If you are, then this might finally be the answer you've been looking for. Because this is the same exact formula we used to create 7-figure results in a single stock portfolio - and we did it in just two years. Find out what this formula is right here.

Do you think that it's nearly impossible to double or triple your investment in blue-chip stocks? If you want the stability and security of a blue-chip company but are looking for the supercharged returns of smaller, high-growth stocks, then we want to tell you that it is possible. In fact, we want to show you how we uncovered one company that's a market leader in its industry... but was still growing its revenues by up to 20.4% a year and its net profits by up to 39.8% a year. Click here to find out which company and download a FREE report that shows you how we made 243.5% returns in this "super" investment.

If you enjoyed this article, get email updates (it's free).

This is neither a recommendation to purchase or sell any of the shares, securities or other instruments mentioned in this document or referred to; nor can this course material and/or document be treated as professional advice to buy, sell or take a position in any shares, securities or other instruments. The information contained herein is based on the study and research of the Fifth Person Pte Ltd (“the Authors”); and are merely the written opinions and ideas of the Authors, and is as such strictly for educational purposes and/or for study or research only. This information should not and cannot be construed as or relied on and (for all intents and purposes) does not constitute financial, investment or any other form of advice. Any investment involves the taking of substantial risks, including (but not limited to) complete loss of capital. Every investor has different strategies, risk tolerances and time frames. You are advised to perform your own independent checks, research or study; and you should contact a licensed professional before making any investment decisions. The Authors make it unequivocally clear that there are no warranties, express or implied, as to the accuracy, completeness, or results obtained from any statement, information and/or data set forth herein. The Authors, its related and affiliate companies and/or their directors, executives and employees shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.
Robin Han
Adam Wong

Adam Wong is the chief editor of The Fifth Person and was featured on 938LIVE as a guest expert on MoneyWise. He is also the author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller's List in 2009 and Value Investing Made Easy, which made the Kinokuniya Business Bestseller's List in 2013. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online. If you're interested to learn more about stock investing, you can join The Fifth Person Newsletter and receive free weekly insights on how you can generate higher returns and dividend income from the stock market.