Praveen's Information Attic (Obervations, Lessons, Thoughts)

Folks
Ran a small and easy experiment
Hypothesis: Does stock with underperformance in short to medium term tend to outperform in future ?

To check this hypothesis I’ve used a simple screener with just 1 condition. The results below

Screen No, of stocks Returns after the underperformance
Market Cap 1 years ago < Market cap 3 years ago 3619 37.21 ← return over last 1 years
Market Cap 1 years ago > Market cap 3 years ago 172 3.48 ← return over last 1 years
Market Cap 3 years ago < Market cap 5 years ago 2911 39.06 ← return over last 3 years
Market Cap 3 years ago > Market cap 5 years ago 599 29.06 ← return over last 3 years
market cap 5 years ago < market cap 10 years ago 624 25.77 ← return over last 5 years
market cap 5 years ago > market cap 10 years ago 2082 18.12 ← return over last 5 years

Remarks: The screening is for all available stocks in screener as of 19 Jan 2024. No other filter other than what’s mentioined. Median is considered instead of mean to remove bias caused by outliers

Conclusion:

  1. The data shows that the chances are outperformance is better when the stock didn’t give any returns in recent past
  2. This tend to work better when the looked at a smaller timeframe. May not work so well for longer time frame. Outperformance for 1, 3, 5 years periods are 34%, 10%, 7%
  3. The possible reason for underperformance could be cyclical downturn for a co in earning and valuation. The trend reverses and leads to outperformance in earnings and/or valuations. This can’t be inferred directly from the data but a possibility

Disc: Just sharing my conclusion. Not a reco to take any action based on this

2 Likes

Based on the above post I’ve filtered stock that gave negative returns over 1 and 3 years timeframe.
The screen is as below

I’ve inserted all the 21 filtered stock in a Googlsheet and would be tracking the performance
Link to the Googlesheet

Disc: Not a reco to buy or sell

3 Likes