If an investor believes in the ability of the January barometer to predict the equity market's performance, he or she will only invest in the market in the years when the barometer predicts the market will rise, and stay out of the market when it forecasts a market pullback.
While the January barometer has been seen to produce better than 50% accuracy rates during 20-year periods, it is difficult to produce excess returns by using it because the improved performance by staying out of the market during bad times can be more than offset by larger losses incurred when the barometer incorrectly predicts a bull market.
Investment dictionary. Academic. 2012.
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