Where do you see this?

In stock analysts' reports.

What does it mean?

The Capricorn or January effect refers to the tendency for stock prices to rise in the month of January. This rally has been observed over many years.

It is the result of investors opting to sell their stocks before the year-end in order to claim capital loss for tax purposes. This happens in countries such as the United States where individuals are taxed for capital gains.

Once the tax year passes, they will reinvest their money in the stock market again.

The Capricorn effect is also attributed to individuals investing their year-end bonuses in stocks in January.

Why is it important?

Investors used to take advantage of this trend to profit from the stock market. It is said to affect small caps more than mid or large caps. However, the effect has been less pronounced in recent years because everyone prices this factor in.

So you want to use the term. Just say...

'I've been so busy playing the stock market since the new year because I want to take full advantage of the Capricorn effect.'

Lorna Tan

This article was first published in The Straits Times.