For Immediate Release
Chicago, IL – 11/15/2011 – Zacks highlights commentary from People and Picks Trader “JohntheWizard”.
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What is your most reliable Indicator?
Is it your set of entry and exit criteria giving steady gains over prolonged periods of time?
If that time did span 30 years, yes you got a reliable indicator.
Is Zacks #1 ranking reliable in that sense? No. During the past 12 years these stocks compounded 28%/year, equally weighted, 10% of which appeared to be generated by stocks "too small to buy". The remaining 18.6%/year had drawdowns in excess of -50%, hence very risky.
Since the onset of the credit crisis, October 12, 2007, these 190 Zacks Rank #1 stocks compounded -2.1% according to the latest dbcmhist of Research Wizard versus -12.4% for the S&P 500. Over 100 stocks were changed in the S&P 500 since that time. The Zacks #1 Rank had many more stock changes. Maximum drawdowns (risks) of both sets were about the same.
I haven’t discovered any set of entry and exit criteria from Technical or Fundamental analysis that consistently gave steady gains in combination with contained risks over prolonged periods of time. I use fixed watch lists that I described earlier. One of those contained the 85 stocks found by a suggestion of Mo and JaiH, the 12 best of which consistently generated 35%/year with a maximum risk of -27% over the past 32 years with stocks having minimum daily dollar volumes in excess of $2.5 mil. There are ways to significantly improve on that first shot.
However, when you let Research Wizard back test the 160 Zacks Rank #1 stocks with that kind of Money Flow over the past 12 years, you compounded 13%/year with a maximum drawdown of -57%, indeed a highly risky strategy. The 12 best of those 160 stocks compounded 27%/year with a maximum drawdown of -60%, again a risky investment strategy.
I am interested in competing ideas.
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