Microcap Seasonality Could Weigh on Smaller Stocks

It's that time of year again. The leaves are turning, football fills our Sunday afternoons, and microcaps face their strongest seasonal headwinds.

Nobel prize winner Eugene Fama and Kenneth French measured the annualized microcap returns by month from July 1926 to December 2004:

January………159.82%
February………25.10%
March……………1.21%
April…………….12.86%
May……………….6.85%
June………………6.57%
July……………..22.64%
August………….8.16%
September…….-7.75%
October……….-14.60%
November……….7.97%
December………-1.94%

The data is a little old, and a case can be made that the environment this year is so different that historical tendencies will have little effect.

While I hear that argument, I don’t buy it. The French/Fama data incorporates all kinds of environment and uses the broadest data set I know of. In my view, it should be considered valid until proved otherwise.

Comments

[YoYoMama:]

Ah, but look at January / February. Unless the market crashes first (and it might), there's a case to be made for holding until then.

Sep 16 10:05 AM

[Senan:]

If the market continues to roar ahead, does that mean we flip the assumptions and sell in January!!? Past performance no guide...and all that...have never been so true as this year.

Sep 23 03:46 AM