Saturday, February 10, 2007

You Pay For That?

Investors Business Daily wants you to subscribe to their service. Here's the headline from one of their infomercials in today's Yahoo Finance:

"Looking For Winners? Look At 52-Week Highs"

Then they present an article which uses rhetorical flourishes to "prove" their point - which is - a subscription to our service is very expensive ... Well that must be the point they are making because they offer no proof to support their headlined suppostion. (And I choose my words carefully - "supposition" is the correct word in this instance. Because what they are saying is something they "suppose" to be true - because, by cracky, everybody just knows that it's true).

(Ah, except me).

OK - I'm not the sharpest tool in the shed but I can say this and, as usual, I can prove it - you make more money off 52-week lows than 52-week highs in just about any period you would care to select.

I wrote a filter - here it is:

Show stocks where high reached a new 1 year high
and close is between 25 and 100

And then I tested it. Then I changed both instances of "high" in the first line to "low". Get the idea? And I tested that filter. Both filters were tested against a 4-day hold period i.e. what were the results 4-days after the buy.

The period selected was a very fertile period and both filters should have produced a lot of net value. Did they? Let's see.

New High 58% winners - 21% ROI
New Low 67% winners - 87% ROI

Now how can that be - a costly selection service's most original idea is beaten by something you can get for free? Yes - that's exactly right - new 52-week lows are published just about everywhere, every day - for free, as in - no money. But let me get to the best part -

New High 30-day net change = 1.03%
New Low 30-day net change = 6.81%

Oh you are kidding me - over 4 days maybe it's just luck - but 30 days - give me a break.

And now, because some of my readers like to see it - here are the results over a period beginning March 1,2006 and lasting 90 days. That period was selected because it represents the only real down period in the market last year.

New High 44% winners, -24.41% ROI
New Low 48% winners, -27.91% ROI

But even here the longer term is pleasantly surprising

New High 30-day net change -4.96%
New Low 30-day net change -1.19%

So my question now is - if people pay IBD for that kind of great advice - how much more would they make if they didn't?


Bullish Jim said...

I subscribe to the weekly IBD 100 internet version. The more I try to use their rankings to inform my investing decisions, the more I think that a simple screen of stocks with Relative Strength ratings of 95 or higher would yeild a list that would perform just as well as their list.

The name of the game is buy low, sell high. Right? I hate chasing momentum...

Marlyn Trades said...

You are correct Jim - I stopped looking to these kinds of services a long time ago - I figured it this way - either they were shotgunning their picks hoping something would hit - or by the time I heard about it so did 12 million other people.

That's the basic problem with Cramer - if I gave out 10 - 20 stocks a day I'd probably have the same success rate as he does - Of course he doesn't bother to tell you about the misses and I would feel honor bound to do so. That's why I only give out one or two now and then.

Anonymous said...

Hmm.........I gotta start looking at New Lows. Thanks marlyn, very interesting.

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Everything has a price.