In the average year

In the average year, there is a strong end-of-year rally in the stock market that continues into the first week of January. As most of the gains typically come in the days immediately before and after Christmas, this is also known as the Santa Claus rally.

In mid-December, I began loading up on stocks that showed promise of going up in price. The idea was that I would hold them until the first week of January and reap the profits. And, in fact, December played out right according to script.

portfolio value
Portfolio value for end and beginning of year

For the last three weeks of December 2004 my portfolio increased in value by 6%, far from shabby. At the end of the year I sold a couple of stocks that had increased so much that locking in the profit could not be resisted. I also dumped a couple of losing stocks to offset some capital gains for tax purposes.

On the first trading day of 2005 (Jan 3) the markets fell instead of rising. I rationalized: "It's just profit taking. The markets will go back up tomorrow. On average, they always go up the first week."

Uh huh! That's the kind of thinking that leads to snatching defeat from the jaws of victory. Indeed, instead of going up for the first five days, the markets went down. The new year just did not follow the script!

And neither did I, dammit. If I had just sold on Jan 3, I would have still come out way ahead. But by trying to will this into an "average year" I end up in the hole.

Damn. Damn. Damn.