What’s Working in the Long Run?
About a month ago, I wrote an article about what is working in the markets.
It wasn’t tailored toward specific technical strategies. Rather, it’s a general view as to what type of stocks are outperforming others — which is valuable information.
Over the past 12 months, three types of strategies performed exceptionally well: undervalued stocks, low-volatility stocks and stocks with momentum.
Today we are going to stretch that out a bit and see what’s been working since the mid-‘80s.
Take a look:
The top two performers are price momentum and valuation.
Volatility, another one that has been working this year, is actually an underperformer over the long haul. So we can expect that strategy’s recent outperformance to revert back to underperformance in the coming year.
The S&P 500 is shown as the black line, clustered near four other strategies in the middle.
So the top two, momentum and valuation, clearly have separated themselves from the pack. They still have a large collapse when times are tough, like in 2008 to 2009, but the rally is significantly stronger than the other classifications, proving that these are the types of stocks you want your money in.
In a couple of weeks, I’ll take a deeper dive into momentum and valuation and see what exactly is classified under each category.
Chad Shoop, CMT
Editor, Automatic Profits Alert