On New Year’s Day 2025, a friend messaged me in a state of lamentation, exclaiming, “The calendar effect is utterly unreliable; I’ve lost everything!” He had entered the market confidently, relying on what is popularly termed the “calendar effect,” but was hit by devastating losses on the last trading day of 2024. This was not just a case of bad luck; it raised profound questions about the beliefs we hold regarding investment strategies.

We've previously discussed a modified version of the "calendar effect" as it applies to the A-share market. This strategy involves holding onto stocks during the last trading day of the month and the first five trading days of the next month. Historical data suggested that this period usually offers strong market performance. Such a strategy not only mitigates the risks during bear markets but also enhances returns during sideways movements, indicating a high probability of long-term success.

After experiencing small profits in late November 2024, my friend was filled with self-assurance, becoming what can be described as overly excited. He increased his investments significantly during December, only to encounter a drastic market plunge on the last trading day of 2024, with the WanDe All A-share Index dropping by 2.23%. The anticipated “year-end bonus” turned into an unexpected financial blow.

This incident did more than shake his confidence in the “calendar effect”; it made me reflect on a deeper issue—how could a single loss outweigh a history of statistical advantage? The salient point here is that a high winning percentage does not equate to zero risk.

Let’s engage in a thought exercise: if you were presented with a strategy boasting a 70% probability of success, would you take the chance?

For many, the answer would be an emphatic yes, potentially even calculating the profits in their heads. However, if you were reminded that the remaining 30% could lead to significant financial drawdowns or even complete losses of principal, would your confidence waver? This is a fundamental truth in investment—the illusion of high probabilities can lead one to overlook lurking risks.

Taking my friend's situation as a case study, he was blind to a crucial fact behind probability: short-term market fluctuations can render seemingly robust statistical patterns unreliable. This pitfall is one of the greatest traps for short-term investors.

For example, consider the “year-end effect” associated with the monthly calendar effect. From 2016 to 2023, the WanDe All A-share Index consistently experienced gains on the last trading day of each year. Over eight years, this pattern established a fine reputation as the year-end approached. However, this “pattern” conceals a subtle risk: it reflects a probability distribution over several years rather than an infallible result for each year. In layman’s terms, there is no guarantee that the ninth year will adhere to that same trend. This reality struck home when the market plummeted by 2.2% on the last trading day of 2024, shattering the illusion built by eight consecutive years of gains, leaving many high-stakes investors in despair.

Humor even surfaced in conversations as some joked, “The A-shares had been rigged for eight years, just to trip you up this time.” This incident serves as a reminder that while statistical patterns give us insights into probabilities, the market's transient volatility thrives as a ghost, capable of shattering the aspirations and psychological resilience of even the most ardent investors.

My friend’s pain stemmed not only from the market’s decline but also from poor position management. He had not capitalized enough on market highs but had been heavily impacted when he decided to leverage his position, which led to significant losses. This scenario of “winning small, losing large” is a phenomenon influenced by common psychological traps among investors.

Every investor has a duality within them—one half echoes memories of previous successes, fostering an unwarranted sense of confidence; the other half whispers about risk but often retreats when the market shows promise. After observing the effectiveness of the calendar effect in November, my friend couldn’t resist the urge to increase his exposure, believing that the same principles would hold roost in December. But the market, in its unpredictable character, had other plans. This greed feeds on a “recent return fallacy”; when investors glimpse immediate successes, they often ignore the underlying uncertainties and impulsively ramp up their investments, leading to a single loss erasing multiple gains.

Reflecting on the rush of ordinary investors in late 2020 during the “core asset” craze is telling. Many blindly participated in the upward trends, even employing a “reverse pyramid” method of investment—buying more the higher prices rose—only to suffer severe declines in early 2021, learning a bitter lesson from that experience. A famous saying in investing succinctly encapsulates the dilemma: “A correct idea paired with excessive leverage is often worse than a wrong idea.”

To truly harness the potential of strategies like the calendar effect, it is crucial to prioritize position management and adherence to discipline. Investing should be viewed as a marathon, not a sprint. If risk cannot be managed, even the most scientifically sound models can devolve into instruments that rob investors of their confidence.

There are two strategies that may offer guidance to those who pursue similar tactics:

1. Fixed Position Management: Stay Grounded
   This is the simplest yet most reliable approach to investing. Regardless of the outcome, each investment should involve proportionate amounts of capital. The primary advantage of maintaining a fixed position is that it liberates you from the haze of short-term emotions, helping you avoid the trap of increasing stakes after a win or exiting hastily after a loss, thus preserving the long-term statistical edge.
2. Progressive Investment: Defend Before You Expand
   For those seeking incremental gains but hesitant about making large initial investments, two progressive accumulation methods may be effective:
   
   • Gradual Increase Method: Each investment could be slightly higher than the previous, for instance, investing 1.1 times the last amount. Given the modest increments, potential losses remain manageable even in fluctuating markets.
   • Counter-Cyclical Investment: This approach suggests progressively increasing holdings in adverse conditions. If the calendar effect holds statistical merit, the more consecutive losses you encounter could suggest the imminent rebound could be closer than expected.

Both of these position management techniques can effectively minimize the risk of one large scale investment blunder, helping investors maintain resilience through market fluctuations.

Ultimately, the calendar effect encapsulates a variety of market statistical norms, resembling a puzzle where the pieces offer probabilistic advantages, rather than absolute certainties. However, for those fixated on short-term market movements, such strategies may appear fragile, as sudden downfalls can mercilessly unravel their tenuous confidence.

Examining the growth path of seasoned investors reveals a compelling truth: true longevity in the market is not reserved for those who claim to have a finger on the pulse of every trend, but rather for those who adapt to the inherent volatility rather than resist it. While the timing of increases or decreases may remain elusive, one can always opt to control risk and be proactive.

Thus, next time you engage in strategies akin to the calendar effect, pause to reflect: what you’re betting on isn’t a rare event that guarantees predictability, but rather a consistent edge over the long term. Whether the anticipated returns materialize rests not only on discipline but also on a profound understanding of human psychology and its inherent vulnerabilities.