Important new value and momentum stock investment returns a serious investor benchmark!

2019-04-19 Investing No comment

For a long time, when a company accidentally released news of unexpected income, scholars already knew that prices had risen sharply. These equally rising stocks may also collapse due to unexpected losses.

Like the momentum gained by moving objects, these stock price movements have not stopped.

They tend to drift up or down for weeks, months or years after the US stock market. A recent important article in the Journal of Financial Economics extends this knowledge to international stocks.

A team led by Brad Barber, a finance professor at the University of California at Davis, found that international stocks offered higher returns in a few months of earnings announcements. As investors scramble to update the valuation, the results are considered to be due to high price uncertainty.

See from

Barber, Brad, Emmanuel De George, Reuven Lehavy and Brett Trueman. 2013. Global earnings announcement premium. Journal of Economics and Economics 108. 118-138.

The research involves many countries, but in the United States, Japan, the United Kingdom, Australia, Germany, France, South Africa and Switzerland are the most important countries.

Proof to beat stock market interest rates

According to Fama and French [2012], these new revenue announcement effects are compared to three known key strategies.

See from

Eugene Fama and Ken French. 2012. The scale, value and motivation of international stock returns. Journal of Financial Economics 105. 457-472.

Eugene Fama is a professor of finance at the University of Chicago Booth School of Business. He won the Nobel Prize in Economics for helping to clarify the capital asset model, and he used this model to prove three important anomalies that violated market efficiency.

Investors have long known that it is possible to beat the average of buying low-capitalized “small” stocks.

This will allow you to beat the market at 1.2% per year. And roughly equivalent to the abnormal dividend yield recorded by Wharton finance professor Jeremy Siegel.

Everyone knows how difficult it is to invest in Warren Buffett's way. He took a huge position to scare off ordinary investors.

However, compared to market capitalization, Main Street can easily invest by looking for low-priced stocks with high book value.

This simple "value" strategy yielded 5.4% importance.

However, rising stocks of high prices provide the biggest boost to your return. "Momentum" is king.

The momentum yield is the highest at 7.4%.

Main Street 401[k] and Ross IRA investors can beat the market in 3 main ways

Hairdresser, etc. people. [2013] research shows that companies are planning to buy stocks in the same month as they are scheduled to release earnings. International returns are even higher.

+ ---------------------------------------------- + - - -------------- +
|Abnormal abnormal regression|
+ ---------------------------------------------- + - - -------------- +
| Size 1.2%
+ ---------------------------------------------- + - - -------------- +
|sold at market price | 5.4%
+ ---------------------------------------------- + - - -------------- +
| Ex Ante earnings announcement | 7.2%
+ ---------------------------------------------- + - - -------------- +
| Momentum 7.4%
+ ---------------------------------------------- + - - -------------- +
| Ex Ante International Income Announcement | 11.0%
+ ---------------------------------------------- + - - -------------- +

But is this new income anomaly a serious investor should pay attention to?

The real huge amount of money comes from sitting idle and doing nothing when holding a large position in the long-term price trend of the uptrend. The problem with this new profit-based investment strategy is that it increases the turnover of the portfolio compared to long-term value and momentum strategies.

It increases the frequency of transactions.

According to numerous studies, an increase in the frequency of transactions leads to higher returns on portfolio turnover and higher cost losses. International stock markets hide costs and US investors' entry and exit trading frictions, making the strategy more volatile.

Both studies have once again confirmed the dominance of US domestic strategy, the power of value and motivation in your portfolio. But what does this say about family-meaningful numbers?

Professor Ken French reported the average rate of return over the past 12 months in his Dartmouth University database page [Rm-Rf Fama / French Research Factor 1/3].

Google Search: "Ken French Database", as long as you want to know what the correct market average benchmark is.

The average return over the past 12 months is currently 11.77% [but may not be available when you read this content]. This has driven the expected average return of value investors this fiscal year to 17.2%.

Top investors like Warren Buffet or Mohnish Pabrai can get higher returns as a skill premium.

Looking back at the 12-month momentum investors should get a return of 19.2%. If you run well below, reconsider what you are doing.

+ ---------------------------------------------- + - - -------------- + ------- + ---------------- +
|Abnormal Anomaly Regression | Rm-Rf |Total Rate of Return|
+ ---------------------------------------------- + - - -------------- + ------- + ---------------- +
| Size 1.2% 11.8% 13.0%
+ ---------------------------------------------- + - - -------------- + ------- + ---------------- +
|sold at market price | 5.4%11.8%17.2%
+ ---------------------------------------------- + - - -------------- + ------- + ---------------- +
| Ex Ante earnings announcement | 7.2% 11.8%19.0%
+ ---------------------------------------------- + - - -------------- + ------- + ---------------- +
| Momentum 7.4% 11.8% 19.2%
+ ---------------------------------------------- + - - -------------- + ------- + ---------------- +
| Ex Ante International Income Announcement | 11.0% 11.8% 22.8%
+ ---------------------------------------------- + - - -------------- + ------- + ---------------- +

If you know these simple numbers, you can get a very good value or momentum return benchmark at any point in time.

This is the internal scorecard that Warren Buffett calls.

The biggest step in building a large equity portfolio is to believe. I hope that these dazzling academic achievements will help.

To do this, you need to identify rare situations in the stock market that give you a favorable edge. The two major earnings studies above are road signs that instruct you to invest in US domestic value and momentum stocks to achieve a higher return on average single stock investment.

You have a chance.

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