What Works in the Stock Market

This is going to be another ongoing post that I will add to…

What Has Worked in Investing

I came across a couple of articles on what has historically worked when it comes to investing in the stock market…which investment methods generated the highest returns.  It’s pretty well known that smaller companies (ie small capitalization (small cap) companies) tend to outperform larger companies.  That makes sense.  But here’s some concrete evidence from Tweedy, Browne to support this:

What Has Worked in Investing by Tweedy, Browne Company LLC
What Has Worked in Investing is an attempt to share with you our knowledge of historically successful investment characteristics and approaches. Included in this booklet are descriptions of over 50 studies, approximately half of which relate to non-U.S. stocks.  Our choice of studies has not been selective; we merely included most of the major studies we have seen through the years.”

Catching Fall Knives

Another article I came across is a study done by The Brandes Institute that looks at the 3-year returns from an investing strategy centered around catching falling knives.  Falling knives, in this case, are stocks that have dropped 60% or more from high to low.  This article looks at a few things: domestic (U.S.) vs international falling knives; falling knives by sector.

Falling Knives Around the World by The Brandes Institute

“In “Buying the Wrong Stock for the Right Reason”, we examined the performance of falling knives in the U.S. stock market from 1986 through 2002. While the falling knives we identified did post a relatively high bankruptcy rate over the three-year period following their initial drop, they also outperformed the S&P 500 by wide margins.”…


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