Yes, hopefully...but results must be really better because you add one more degree of freedom. You can test it on the sp500 and check which results your picks would have made out of sample in the Nikkei...if you got the data
Good general point, but you would want to avoid buying off the "dead cat bounce." The partial recovery would need to be defined and characterized such that it is more likely to represent a real return of positive investor sentiment.
Great stuff. I keep wondering, however, how to avoid error of commission. Some stocks fall below 50 and 90 percent but ever truly recover. Are there characteristics that helps with a stocks recovery? For instance, are large cap stocks more likely to recover? Is the recovery better for tech than say industrial? It'd be great to dig deeper to see if there are any variables we should be looking for that would improve the odds of recovery.
Large-cap stocks are more likely to recover. They typically have more cash reserves and are better equipped to survive downturns.
Regarding characteristics, there are some.
For example, when Nvidia declined in 2022, all the other semiconductor companies also went down. So it was a cyclical trend more than an individual company issue. If only one company in an industry is going down, it's a red flag.
Leverage is another sign -- If the company is highly levered, it might not have the luxury of waiting out the downturn.
I enjoyed the article, thanks! One error in reference to saying a stock down 90 percent can lose another 90 percent (it can lose 100% still) to point out, but thanks again for doing the research!
Someone on Bloomberg recently said Novo Nord is a buy -"you get the GLP-1 business for free!". But later articles suggested there might now be a true fundamental shift going on in the GLP1 business that favors Lilly and disadvantages ND.
Question: if this is mainly a FUNDAMENTALS question, we may never have the insider, technical knowledge to get ahead of the herd. But is there a TECHNICAL solution to the problem of which "good" companies are likely to have a sustained rebound? Does the trading action tell us anything?
They ran a pure technical Backtest. Imo you cannot start to use Fundamental reasoning on top of it, except it's testable. Btw if most people and Bloomberg think it's a fundamental problem than it might be a good buy, since all of that is already priced in.
I understand that the time frames of technical and fundamental analysis are very different. My only point is that, having identified a "value" stock worth following from a fundamental POV, some technical data (e.g. closing at the daily high on rising volume) might help with the timing of the trade. Then again, some investors consider that kind of market timing irrelevant in the long run.
Yeah. I don't think timing the bottom is the idea per se. It's more about researching why a particular stock is down and understanding the underlying business -- Whether it has the potential to bounce back.
Stocks can be down to multiple issues that might have nothing to do with them, especially in cyclical industries.
To give a very simple example, one of the reasons why Nike is down so much is that investors are worried about the long-term implications of Tariffs. The question becomes whether you believe tariffs are going to stay at the current levels. If you dont think so, it becomes a viable investment candidate.
This is something I had always wondered about during my five years of observing and investing/trading. I've had the opportunity to observe the market during events like Covid, 2-3 major wars, trade wars, and the AI and crypto booms and dips. Every time an event passed, when I reviewed the performance of both the index and my own portfolio, I was consistently frustrated. Despite knowing the basic concepts and patterns, I somehow missed out on making extraordinary profits 4 out of 5 times. This post gave me a bird's-eye view of the situation and highlighted exactly where I was failing. Thank you so much for such a great analysis and the backtest data. I will be looking forward to more posts from Rebound Stack.
You might add one more variable. Stocks going down by x and then recover by Y before you buy. Say70/10. More optimized of course, but interesting.
Great idea. Will test out on a backtest. This way, you might avoid the stocks that are on a continuous downhill path.
Yes, hopefully...but results must be really better because you add one more degree of freedom. You can test it on the sp500 and check which results your picks would have made out of sample in the Nikkei...if you got the data
Good general point, but you would want to avoid buying off the "dead cat bounce." The partial recovery would need to be defined and characterized such that it is more likely to represent a real return of positive investor sentiment.
Great stuff. I keep wondering, however, how to avoid error of commission. Some stocks fall below 50 and 90 percent but ever truly recover. Are there characteristics that helps with a stocks recovery? For instance, are large cap stocks more likely to recover? Is the recovery better for tech than say industrial? It'd be great to dig deeper to see if there are any variables we should be looking for that would improve the odds of recovery.
Yes. Exactly the idea behind Rebound Capital.
Large-cap stocks are more likely to recover. They typically have more cash reserves and are better equipped to survive downturns.
Regarding characteristics, there are some.
For example, when Nvidia declined in 2022, all the other semiconductor companies also went down. So it was a cyclical trend more than an individual company issue. If only one company in an industry is going down, it's a red flag.
Leverage is another sign -- If the company is highly levered, it might not have the luxury of waiting out the downturn.
I enjoyed the article, thanks! One error in reference to saying a stock down 90 percent can lose another 90 percent (it can lose 100% still) to point out, but thanks again for doing the research!
Haha. Yes. It was just to highlight that it can still keep going down :)
Thanks for this thought provoking free research. Rebound Capital is likely to make great returns for investors
Novo Nordisk is a good candidate
Interesting. Will take a look.
Someone on Bloomberg recently said Novo Nord is a buy -"you get the GLP-1 business for free!". But later articles suggested there might now be a true fundamental shift going on in the GLP1 business that favors Lilly and disadvantages ND.
Question: if this is mainly a FUNDAMENTALS question, we may never have the insider, technical knowledge to get ahead of the herd. But is there a TECHNICAL solution to the problem of which "good" companies are likely to have a sustained rebound? Does the trading action tell us anything?
They ran a pure technical Backtest. Imo you cannot start to use Fundamental reasoning on top of it, except it's testable. Btw if most people and Bloomberg think it's a fundamental problem than it might be a good buy, since all of that is already priced in.
Thanks-
I understand that the time frames of technical and fundamental analysis are very different. My only point is that, having identified a "value" stock worth following from a fundamental POV, some technical data (e.g. closing at the daily high on rising volume) might help with the timing of the trade. Then again, some investors consider that kind of market timing irrelevant in the long run.
Yeah. I don't think timing the bottom is the idea per se. It's more about researching why a particular stock is down and understanding the underlying business -- Whether it has the potential to bounce back.
Stocks can be down to multiple issues that might have nothing to do with them, especially in cyclical industries.
To give a very simple example, one of the reasons why Nike is down so much is that investors are worried about the long-term implications of Tariffs. The question becomes whether you believe tariffs are going to stay at the current levels. If you dont think so, it becomes a viable investment candidate.
Good stuff, I'll be sure to read Rebound Capital!
Appreciate it!
This is something I had always wondered about during my five years of observing and investing/trading. I've had the opportunity to observe the market during events like Covid, 2-3 major wars, trade wars, and the AI and crypto booms and dips. Every time an event passed, when I reviewed the performance of both the index and my own portfolio, I was consistently frustrated. Despite knowing the basic concepts and patterns, I somehow missed out on making extraordinary profits 4 out of 5 times. This post gave me a bird's-eye view of the situation and highlighted exactly where I was failing. Thank you so much for such a great analysis and the backtest data. I will be looking forward to more posts from Rebound Stack.