Disclaimer: proper diversification is critical. With this investment strategy, a few stocks may experience big losses. I lost over 77% from one stock in the portfolio, but still managed to get a 39% return. Also, if you don’t have the stomach to stay invested, this is not for you.
I started both portfolios at the beginning of November. My goal was to have at least ten stocks that met certain criteria to test.
Now, my worst performing portfolio was basically a jambalaya of 14 low P/E, P/B, P/S and PEG stocks. Very fundamentals focused… adding any more specifications would’ve yielded no stocks at all. This portfolio returned a whopping 2.17%. Wow!!! What a stinker. The S&P returned 4.39% in the same time period, so I didn’t even get half of what the market returned. A few bad performing stocks can sour your whole portfolio, which is the inherent risk with investing, unless you have a system to cut your losses. These two portfolios were just buying and holding, no matter what happened.
My best performing portfolio ended the trial period with a near-37% gain. Not too shabby. The crazy part is that I only used two rules to make this portfolio.
Rule number one: the stock had to be down 50% from its all-time high
I know, I know, don’t try to catch a falling knife… I figured that rule number two would compensate a little bit.
Rule number two: there had to be a large amount of recent insider buying
I basically looked for large amounts of stock being purchased by company insiders.
I threw these two rules together and found 11 stocks. I wish there could’ve been more but I stuck with my qualifications and made a portfolio of them. I was actually pretty shocked with the results. I thought that either A) the stocks would keep plummeting (like a falling knife) or B) there would be some gain but it either wouldn’t make up for the losers or the overall return wouldn’t be spectacular.
Instead, I got a big return for six months. Pretty cool!
I just wanted to take a few minutes and share my findings. However, in the investing world, there are not many rules set in stone. You have to continually adapt and change with your circumstances. Remember to test and test again!