If you like to read the RNS news each day, you’ll have seen this happen again and again.
A company trading statement lands in the feed at 7am. The announcement says the company is trading “ahead of expectations”.
On the open, the shares gap up 5% or more, and then they keep climbing. Sometimes the shares end the day 10% or 20% higher.
You can’t bring yourself to buy, so you look away and search for other bargains.
But when you look back on the shares a few weeks later, they are up another 30% or more. You knew it, and you kick yourself.
Could this be avoided?
Yes. If you are wondering how you could be more decisive in future, this is the article for you.
There are three simple decision rules to ask yourself in this situation, which year to date have already returned over 36%, in 12 setups with only one loser.
Why simple rules matter
Our mission at Stockopedia is to make investment decision-making easier. That means stripping out the noise and reducing guesswork, by discovering what really works.
The reason we spend so much time digging through the data is simple: we’re looking for evidence-based rules of thumb that make it easier to act with confidence.
Benjamin Graham said it best in “The Intelligent Investor”:
“People don’t need extraordinary insight or intelligence. What they need is the character to adopt simple rules and stick to them.”
Plenty of evidence backs this idea up.
In a 2000 study titled Clinical vs Mechanical Prediction, psychologist William Grove reviewed over 130 studies that compared expert judgement against mechanical, rules-based predictions.
Only 6% of the time did the experts do better. Whether it was forecasting heart attacks, criminal reoffending rates or startup success - simple rules won out.
In investing, it’s just the same - simple checklists can seriously improve our decision making. They really do give us an edge.
The 3-rule setup that’s worked all year
If you’ve been following the research studies we published earlier this year, you will already know the principles - but here’s the setup that’s been working best:
- The company says it’s trading “ahead of expectations”
- The share price jumps 10% or more on the day
- The StockRank is above 75
That’s it. A catalyst, a confirmation…
