Monday, December 26, 2011
"Window Dressing" by Mutual Fund Managers.
At the end of the year, some mutual fund managers sell stocks that have seriously underperformed during the year. Called "window dressing", this practice is meant to keep these stocks off of their year-end reports.
The theory behind buying window dressing stocks is that after a year of poor performance they may be reasonably priced; after being dumped in window dressing trades, their price may even be artificially low.
But sometimes, the stocks sold at the year end by Mutual Fund Managers do very well. For example, the stocks suggested as being likely candidates for window dressing by one expert gained an average of 15% between December 10th and January 15th - compared with the market's average performance of just 2.7%.