Paul,
Fama and French concluded their empirical results in 1992 as follows:
" In short, our tests do not support the most basic prediction of CAPM ,that average stock prices are positively related to market betas." This and other studies lead Robert Haugen to write a book "The New Finance, The Case Against Efficient Markets". An investor following their gospel would load up on low beta stocks and, yes, not worry about market timing. Since we are on PAIR thread we cannot be excited with low beta stocks. Therefore, I propose a variation for high beta strategy which has not been tested empirically. Do your FA (technology, management, competitive strategies, CANSLIM, etc) and wait for stock to fall at least one standard deviation from its peak, at which time place the stock on your watch list. Continue your FA and if you find the investment still attractive use TA for entry. The proponents of EMH take pride in bashing TA but Value Line enigma is one of several anamolies that refute semi strong form of efficiency.
Comments welcome. |
