Holding V&M’s Stock of the Week for Longer than a Week

18Apr10

This is my last bit of geekery re: the VIX & More Stock of the Week portfolio.

In my first post I showed the performance of following the SOTW using a simple “buy at Monday’s open, sell at Friday’s close” approach, and in my second post I tested an approach to reducing market risk (beta) in the SOTW portfolio with an ETF hedge.

The logical next question is how does the SOTW perform if held longer than a week?

The graph above shows the average (dark blue) and median (light blue) weekly return of the SOTW in the 10 weeks after being published in the VIX & More newsletter.

The first week is from Monday’s open to Friday’s close and subsequent weeks are from Friday’s close to Friday’s close (because the investor already owns the stock). Results do not account for transaction costs or slippage.

From this view, V&M’s pick really is the stock of the week. Returns fall sharply after week 1. The next graph looks at the same data in terms of weekly win %.

More or less the same story.

As we’ve shown previously, V&M’s Stock of the Week has performed very well since inception when traded as suggested. We’re dealing with a smallish number of trades here (n = 107), but based on the data available, beyond the first week, returns for the SOTW drop off precipitously.

[click for a summary of all recent posts about the VIX & More SOTW]

Happy Trading,
ms

Geek note: I had difficulty retrieving historical data for 1 of the 107 trades (ticker: CGRB), but based on the data I do have, this trade wasn’t a big mover and wouldn’t materially impact results here.

P.S. I’m not compensated in any way for these posts – I’m just trying to shine the light on the good guys.

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3 Responses to “Holding V&M’s Stock of the Week for Longer than a Week”

  1. 1 Josh

    That leads me to suspect that a short-term oversold factor is a major (or the only) part of the selection process for the SOTW. You’d expect valuation or momentum to have more persistence in the remaining weeks, at the least, not a drastic reversal of gains.

    I definitely don’t mean that as a critique of Bill’s system. I’ll take profits offered to me from the overreactions of sellers any day.

    Josh

    • 2 MarketSci

      RE to Josh: interesting thought – I have zero idea how Bill selects the SOTW so can’t confirm or deny. I do remember eyeballing some of his picks in the past though and they were stocks showing strength. Might be worthwhile to look through past picks (available on Bill’s blog) to see what the technicals looked like at the time of selection. michael

      • 3 Josh

        Hmm…

        Looking at some randomly picked charts, it looks like strongly trending stocks before the crash, oversold ones around the october 2008 period, and then back to trending.

        And based on exiting at friday’s close, one of them barely escaped a 45% monday drop!


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