Iso,
The thought sure occurred to me too. Here's his response; the window is very wide, unfortunately - 35-70% oversold. Guess you need to watch for a bottom to form. Will ask him your question. I understand he founded the Motley Fool mechnical investing board; better sign up now to get that $30 break. -g-
"I looked at a whole bunch of stocks from 1968 onwards, all using Compustat data and all using historical numbers, not VL (edit - Value Line) Estimates. Thus, the results I got are very skewed. However, some trends did emerge:
"#1 The further a stock was below downside price, the better it did, with a sweet spot between 35% and 70% below downside targets. I'm not sure those are good numbers, as I used the historical values for ROE and BV as opposed to the VL estimates.
"#2 Using historical values, the best holding periods were 1-4 months. I believe that this is not very valuable information because with VL estimates, that holding period would probably get pushed out to 6-12 months.
"I would love looking at the 1929-1932 period. Unfortunately, the data for that period does not exist. Furthermore, the 1933 and 1934 Securities acts fundamentally changed the stock market and the accounting practices of the times might not be of the same quality as today. Still, it would be interesting to look at, if you could do so.
"I'm working on a better BI (edit - Benchmark Investing, the other name for the Trouncing the Dow method) backtest. I will let you know if anything comes of it." |
