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.


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