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URL:  http://boards.fool.com/fwiw-heres-an-article-about-quotshould-you-30568877.aspx

Subject:  Re: Bear catchers Date:  3/1/2013  12:28 PM
Author:  mungofitch Number:  241946 of 254104

FWIW, here's an article about "Should You Buy at New Lows? Or New Highs?" (Found via Faber's blog.)
http://www.stansberryresearch.com/dailywealth/2337/buy-stock...
Conclusion: History's verdict is clear... You're much better off buying at new highs than at new lows.


Interesting article.
I thought I'd check their figures. I'm glad I did.

In short, my figures show the reverse effect.
Well, yes, buying at fresh highs is often better than a random purchase date,
but buying at fresh lows is better still, and reliably better.

My study is weekly (as was theirs), from Jan 1931 to date.
A new high was defined as the highest nominal index daily close (Saturday trading removed)
on the S&P 500 and its predecessors. This is a weekly study, so if
a fresh index high or low was hit during a week you'd buy at the end of
that week and hold for exactly one year (not 52 weeks).
Though the highs and lows were determined based on the nominal index level,
the returns are calculated after adjustments for dividends and inflation.

Average 1-year forward real total return on S&P in the study period: 8.52%.
Buy at a fresh 1 year nominal index high, average 1-year forward real total return 9.28% (better)
Buy at a fresh 1 year nominal index low, average 1-year forward real total return 11.31% (better still)

Of course there is nothing magic about one year as the lookback or the look-forward, so for a bit of variety:

Average 3-year forward real total return on S&P in the study period: 8.30%/yr.
Buy at a fresh 1 year nominal index high, average 3-year forward real total return 7.67%/yr (worse)
Buy at a fresh 1 year nominal index low, average 3-year forward real total return 10.02%/yr (better)

Average 1-year forward real total return on S&P in the study period: 8.52%.
Buy at a fresh 2 year nominal index high, average 1-year forward real total return 8.70% (better)
Buy at a fresh 2 year nominal index low, average 1-year forward real total return 17.81% (better still)

Average 3-year forward real total return on S&P in the study period: 8.30%/yr.
Buy at a fresh 2 year nominal index high, average 3-year forward real total return 7.40%/yr (worse)
Buy at a fresh 2 year nominal index low, average 3-year forward real total return 11.14%/yr (better)

My own conclusion:
History's verdict is clear. Though you might or might not do better than
average buying at a fresh index high, buying at fresh lows is much better and more reliable.

Jim
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