The January barometer says that "as January goes, so does the year" for stocks, and at the beginning of the year, all the prognosticators come out to gaze upon the market's fortunes for the remaining 11 months. They are a bit like groundhogs trying to predict the length of winter.
If economists are considered good at their game if they are correct 30% of the time, then any market adage that is right 50%-60% of the time, should be really good, right? How will anything so generic tell you when to buy or sell BHP Billiton Limited (ASX: BHP)? Would a strong January reveal that Commonwealth Bank of Australia (ASX: CBA) is going to add another 10% to profits by December, so you should lock in your position now?
Over the long term, earnings and earnings growth are 100% correlated to stock price. In the short term, market forces create premiums and discounts according to quarterly and half-year reports. Accordingly, value investors pick up bargains when good stories go a little sour for a while.
Foolish takeaway
We like to be Foolish here in our investments and short-term setbacks will come. That is when the trivia has to go away and the real thinking must start. Is a setback temporary, or is it a fundamental structural problem? In the end, you must decide.
