Big Bet Stocks 2009 Trend Following Performance
"Trends develop because there's an accumulating consensus on future prices, consequently there's an evolution to the believed true price value over time.
Because investors are human and they make mistakes, they're never 100 percent sure of their vision and whether or not their view is correct.
So price adjustments take time as they fluctuate and a new consensus is formed in the face of changing market conditions and new facts.
For some changes, this consensus is easy to reach, but there are others events that take time to formulate a market view. It's those events that take time that form the basis of our profits."
Quote attributed to John W. Henry, from Michael W. Covel's
The 2009 performance data reveals that price trends often follow the discovery of Institutional Investor (II) Signals (Big Bets). Let's first take a quick step back.
When we identify an II Signal all Members are notified, usually that day. To measure performance we assume that an investment is made at the current market price when the II Signals have been identified.
Therefore, if any II Signal is generated and the current market value is $15.00, that's the basis for measuring that stock's performance. If it closes the year at $30.00, that would represent a 100% gain for that stock.
Here is some relevant data for the performance of II Signals during 2009:
· The S&P 500 gained 23.5%.
· 481 II Signals were generated during the year.
· 55.1% of all II Signals beat the performance of the S&P 500.
· 3 of every 10 II Signals (30.4%) gained 50% or better.
· 1 of every 10 II Signals (11.0%) more than doubled.
All of that represents hindsight and, as such, is of little value to investors except that the presence of trends is clearly documented.
Why are the percentage changes in prices important? Stocks don't double or triple from one day to the next or from one week to the next. Advances are usually made incrementally. If a stock is going to double or triple it must first gain 5%, then 10%, etc. By identifying those incremental gains we will enhance the probability of buying stocks that are trending to higher prices.
These systematic screens probably will not enable investors to capture all of the potential profit from a stock's rising or declining prices. However, they do enhance the probability that upward or downward price trends will ensue.