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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