Hello, Someone on ET suggested this strategy for long term success. Buy strong companies after they have a dip because of bad earnings qt. I kind of like this idea. I would do it only with companies from sp500 that historically returned at least as much as sp500 just had a bad earnings. I would also look why the earnings were bad and consider buying it if the index, sector and the competition have good returns for that period. How would one test it this strategy. Do you think it might work long term? Thank you
Awful strategy IMO. Dead money for the next few qtrs while they sit in the penalty box. And if they happen to miss earnings again you could be looking at a declining business model and get stuck holding the bag as institutions unload. Better off buying companies that beat and raise. Sure you have to pay up for them but so does big money.
Someone on ET suggested this strategy for long term success. ________________________________________________ Q1. Is he a newbie investor? Q2. Did you verify whether it makes sense to buy after bad earnings? Q3. Or are you expecting us to verify it for you? Trading is hard work. So Be hard working
Q1. Is he a newbie investor? I can't remember who it was but i think he had a lot of posts. Q2. Did you verify whether it makes sense to buy after bad earnings? I didn't verify it because I don't know how to do it Q3. Or are you expecting us to verify it for you? No, I was just asking for your opinion. I always get great advice when I ask smt on ET so i tried it to see if it is a dumb idea or no .
Catching a falling knife is never a good idea. That is just a saying but, in the stockmarket, it is a valid saying. You never know how far a stock will go down until, it hits rock bottom. BAC during the mortgage meltdown in 2008 went all the way down to $5 per share. Now, I did not get it at that price if you were wondering. I can track only a limited number of stocks. I wish I saw it and had bought some shares at $5. You think it is a bargain? Of course, it was. What was your risk? Your risk is capped to $5 per share if your investment went down to zero. What about the upside? Upside is huge and unlimited. That is the smarter way to play beaten down stocks. Wait till it is dirt cheap. That way, you are only risking a very small amount while, your upside is several multiples of that. Odds are in your favor. And Bank of America being bankrupt, the chances of that is pretty slim to none.
I've been interested in backtesting this type of strategy (post earnings drift). I had backtested such things in past years when Yahoo made that available for free. I screen scraped and had a big database. But the quality was highly questionable. If anybody knows a reasonably priced historical earnings database I would be interested.
%% Good points. ''VALUE'' investing so seldom pays \ most should avoid it. Mr Goldblatt showed Jack Schwager[book] how to do it super well /////////so his super exception proves the rule/ its not for most................................................................................................
A guy could look at this using various parameters, one parameter could be - time from announcement until price recovered? - time from ancmt until price exceeded? - by how much? Is historical data the only missing piece holding back exploring this or are there other hurdles remaining before getting underway?
Very bad idea unless you think the miss was due to a one-off issue. But this requires qualitative analysis of the company.
The only way to know is to test it. You need all the historical earnings dates for the universe of stocks you're looking at. You will probably have to buy this data from a company like YCharts. Once you have the historical data you can set up a backtest where you're buying just after earnings with specific criteria. There are many backtest platforms out there. You would have to pick one that provides the flexibility you need. Also, using adjectives like "Strong" does not work well with systematic strategies since how do you define this? The key here is to have well defined, measurable conditions that can be modelled and tested. Many strategies can be counterintuitive so jumping to conclusions saying it will never work, it's dumb, etc. is counterproductive and not helpful. If the strategy provides an edge and produces a positive expectancy, it's worth looking at.