January does not deserve the special status that Wall Street gives it. In fact, January in most respects is statistically indistinguishable from the other 11 months of the year. Keep this in mind in coming days as you read the myriad variations of the “January is special” stock-investing theme.
January does carry special psychological significance, especially with 2020 being relegated to the history books. But psychological significance is different than statistical significance. Here’s what I found upon analyzing the several ways in which January is thought to be unusual:
1. January is a particularly good month for the stock market: While at first blush this notion appears to have some validity, there’s less here than meets the eye. The S&P 500’s SPX, +0.87%
average price-only return in all Januarys since the index was created in 1954 has been 1.05%, in contrast to 0.67% on average over the other 11 months. Nevertheless, given the wide variability in the monthly results, this difference is not significant at the 95% confidence level that statisticians often use when determining if a pattern is genuine. Four other months have higher average returns than January: March; April; November and December.
2. January foretells the market’s direction for the year: This belief is called the “January Barometer” or “January Predictor.” Once again, while this appears to have some historical support, in fact there’s nothing particularly special about January. As you can see from the chart below, while January has a two-out-of-three success rate in correctly foretelling the market’s direction over the subsequent 11 months, three other months — April, June, and November — have just as good or better records.
3. The first five trading days of January predict the market’s direction for the year: This indicator has a slightly lower success rate (64.1%) than the January Barometer (66.7%). As before, January is not unique in this regard: The first five trading days of July have just as good a track record as January in foretelling the market’s direction.
All of these indicators fall short of the simple prediction that the stock market will rise every year. Consider your success rate if, every Jan. 31, you predicted that the stock market would be higher on Dec. 31, regardless of how it had done in January. Your success rate, as judged by the S&P 500 since 1954, would be 75.8%. Those odds are hard to beat. But if you want to try, you will need to focus on indicators with more substance than ones based on how the stock market performs in January.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at firstname.lastname@example.org
Editor’s note: This article was first published in September 2019.
A school break changed 66-year-old Martin Farber’s life forever.
In 2007, his daughter — who at the time was attending Illinois State University — decided she wanted to spend a college holiday volunteering in Costa Rica and staying with a local family, he explains. She came home raving about the experience, so, in 2008, Farber — who at the time was living in Evanston, Ill., just outside Chicago, and selling cars — took his first trip there.
“It was a big surprise to me — bumpy roads, dogs barking in the streets,” he says. “I wasn’t enamored at first.”
But as his daughter began traveling there more and eventually moved there for a year, he took additional trips to Costa Rica. It quickly grew on him — in particular, the people. “The Costa Rican people are warm, open and friendly. I felt less invisible in a strange country in a strange town where I didn’t speak the language than I did in Evanston.”
And the more time he spent there, the more it impacted him: “On one of my trips there, I thought: My daughter’s life makes more sense than mine,” he says. “There was nothing wrong with my life, but I felt that my life was out of context with who I’d become. … I would have bills and make money to pay them, but that had ceased to be satisfying,” he recalls. “I knew I needed to change my life — there was no more joy in what I was doing.”
What’s more, when he’d return from his Costa Rica trips, people noticed. “I would come back, and my friends and therapist would say: You seem better after you go,” he says with a laugh.
Here’s what his life is like, from costs to health care to residency to everyday life:
The cost: While many expats spend way more living in Costa Rica, Farber says: “I could live on my Social Security and still save money.” He says “a person can live on $1,200 per month, two people on $2,000.” The key, he says, is to live more like he does and as the Costa Ricans do — in a modest home, eating local food and purchasing local goods.
Indeed, Farber himself spends just $300 a month for rent (he rents a home from a friend who moved recently and gave him a good deal), roughly $225 a month on groceries and just $50 a month total on water and electricity (the temperate climate in Orosi means you rarely need heat or air conditioning). The veteran Volkswagen VOW, +0.96%
salesman saves money by not owning a car (those over 65 ride municipal buses for free), which can be a significant expense in Costa Rica; for his cellphone, “I pay as I go … roughly $10 may last me a couple weeks or more,” he says, adding that “many people handle there their cellphones this way. You can get them recharged anywhere.”
His major expense is travel: He goes back to the U.S. to visit his mother in Florida several times a year and lately has spent part of the summer in Chicago helping out a friend with a dealership there. He also spends a good amount of money on health care. He says that while flights can be had for as little as $350 roundtrip during offseasons, the cost can be much higher the rest of the year.
When he developed a detached retina, though, he paid for the procedure out of pocket so that he didn’t have to wait for the required surgery, he says — adding that the entire procedure cost him about $5,000. “I would have had to have waited four days,” he says, if he had not paid to expedite matters. “That might have been fine, but it might not.” And he adds that the quality of care depends on where you get it in the country.
Lifestyle: Though Farber says that he “moved here with no goals and no agenda,” he’s found plenty to do. “I take Spanish lessons two days a week for two hours a day. It’s been great. I never thought I would acquire a usable language in my 60s,” he says. He also rides his bike all around the area, does some writing and belongs to a community group that undertakes projects to improve the area.
And he often simply takes in nature, which he says has been an essential part of why he feels calmer and more relaxed in Costa Rica than in the U.S. “I live at 3,000 feet but in a valley surrounded by coffee fields and lime trees and water. At night, if I open the windows, I can hear the river rushing by,” he says. “It is very calming … hundreds of trees everywhere … you know the Earth is alive.”
Cons: “I don’t want to overglorify. It’s not without its problems,” Farber says of Costa Rica. “There are social problems and downsides.” He notes that crime and petty theft can be a problem (“I am cautious,” he says of his approach) and seem to have increased since he moved there, and adds that he misses out on some cultural things because of where he lives. And, he says with a laugh, “I can’t order Thai food at 9 at night.” But, he adds: “These are trade-offs — in the afternoon, I get to walk in the coffee fields and see flocks of parrots.”
Residency: To qualify for Costa Rica’s pensionado visa, expats must prove that they have a pension of at least $1,000 coming in each month. (Here are the details of that program.) Once you have lived in Costa Rica for three years, you can apply for permanent residency. Farber used a lawyer to help him figure out the ins and outs of residency options; his entire path to permanent residency took about a year, he says.
The bottom line: “After five years I am still amazed and surprised that I made the decision to lead a life I never thought I would,” he says. And while he may not stay in Orosi forever — “the town doesn’t have an ambulance, [and] I don’t know what it will be like to be 80 there,” he says — he does plan to stay in Costa Rica in no small part because of the people and sense of community. “I have the feeling that life is good here,” he says. “It’s hard sometimes, but we are all in it together.”