Monday, September 29, 2014

How to consistenly lose the money on the stock market?


I have recently written about back-testing some fundamental investment strategy using GieldowyRadar stock scanner for the Polish stock market.

The results of the back-test were quite impressive (even if one should not believe in them too much), but can we do the opposite? Can we create a strategy that consistently loses money?

YES, we can! :)



My simple "contrarian" strategy uses:
  • financial debt / EBITDA < 0
  • EBIT margin < 0
  • companies among the 20% having the worst (i.e. highest) price / sales ratio
  • debt / equity > 0
Strategy with such parameters produced - quite consistently - average return of -36% / annum over 7 years testing period.

As a result, our test capital felt by nearly 96% - so, mission accomplished :)

One may think about using this strategy for short-selling, but unfortunatelly the stocks being selected are usualy not available for it :(

The two companies selected recently by the strategy were:
  • Clean&Carbon Energy
  • Skotan
Chart: Clean&Carbon Energy, 10 years

Chart: Skotan, 10 years

We have a number of such zombie companies on the Polish market and maybe it would be interesting to visit them again.

2 comments:

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Ayesha Jaiswal said...

I got a good overview about how to lose money in the market. I would like to add something that loss in the market also depends on the efficiency of the traders and techniques he used while trading if he uses best trading strategies and refers good stock tips he can perform better in the stock market.