Anyone else noticed that the "trash" stocks (Stockrank 0-10 red line) outperformed all the other Stockrank deciles in 2020?
It's a topsy turvy world out there.
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Anyone else noticed that the "trash" stocks (Stockrank 0-10 red line) outperformed all the other Stockrank deciles in 2020?
It's a topsy turvy world out there.
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There have been several posts, but no satisfactory answers.
The consensus view seems to be that we are seeing the rise in prices of speculative stocks, although this would not explain why negative momentum stocks are also doing well.
My sense it that there is something more to this trend, but I do not have the answer. It started in March when rates went down to zero and has not stopped since. Have retail investor overwhelmed the market since March (seems unlikely) and why are they pushing low momentum (as well as low value/quality) stocks?
This is typical factor performance at the start of an economic recovery. At such times, investors seek recovery stocks which will initially have falling profits (low M), be cyclical (low Q) and more likely to be small cap than large cap (higher risk).
In a nutshell, the StockRanks do not work during the beginning of economic recoveries.
JPMorgan attempt to identify which factors work best during a stylised economic cycle:
Nice one Jesse - that reminded me that I had an old screenshot annotated with Stockrank's for each of the phases :-
Aha yes, that was actually my graphic PLS - I should just point out that I messed it up slightly and the top ride quadrant should actually be labelled "turnarounds" and not "Super Stocks".
As to the wider question of why we are seeing this reversion, I personally think there are two main factors at play.
1. There is a degree of randomness in the StockRanks at the moment - the SRs are highly linked to the latest results and in particular latest Year (or TTM) vs Prior Year. For any company that has a covid impact; whether or not that have yet reported covid impact results is pretty binary and going forwards the same will be true for post Covid results.
Of course, random does not explain inversion. Here I think there is a second issue in play.
2. There's a lot of "dumb money" around, so of the actual Covid winners have been story stocks that otherwise would possibly have continued to wither on the vine (and may well do so in due course). Also, even those companies who have not yet been Covid winners are finding lots of naïve ears for their compelling stories.
As a matter of policy I hedge my long portfolio with a short portfolio of poor quality story stocks - I have largely unwound this for the time being as I just cannot see much rationality in the current market.
I suspect it will all end in tears, and I am determined that they will not be mine.
Ahh your sins always come back to haunt you :-) and I just noticed there were 2 super stocks!!
At the time it struck me as so profound that the picture was worth adding to my scrap book, so many thanks for your insight and clarity on this and so many other topics, its very much appreciated,
Looking into this more, it seems that the rally is not in trash stocks but in speculative (high volatility) stocks. Many of these stocks happen to have low QV rankings and so the surge in low QV is a by-product of this deeper trend.
The pattern in momentum of both low and high momentum deciles doing well needs further investigation.
I looked into this and the best performing ranks were Q 10-20 and Value 1-10. It is difficult to find shares that were in those bands last year but I did find one: Synairgen (LON:SNG). We don't know how many shares were in each band, if only a few then results could be affected by a few large movements.
Novacyt SA (LON:NCYT) would have fitted the low value score even before the large share price rise.
Avacta (LON:AVCT) also had a low Value score before the huge rise around x12.
Ceres Power Holdings (LON:CWR) had a VR of 5 and QR 20 last April.
Powerhouse Energy (LON:PHE) had VR of 2 last April. QR was 6.