Survival of the Fittest! - Investment Ideas
Another Form of Competition Upon returning home, I realized how we now live in a kind of bubble, isolated and insulated from the struggles that early humans faced. In our modern cities, towns and houses, we've essentially removed any natural thing that could harm us. In the woods, I was getting bitten by much more than just mosquitoes. But now, we've created safe environments with little to no discomfort or danger. I wondered: Where then do we actually face highly competitive environments? Sports, business and the stock market are the primary things that came to mind. Perhaps that's why we find these activities so exhilarating. The stock market is a remarkable place where there are two sides to every trade. For the most part, you have someone who wants to own a stock that someone else doesn't. Think about this during your next trade: someone actually wants to own that stock you are selling and someone doesn't want that stock you are buying. Only one person is right, right? After all, rational people don't go around selling stocks that they think will go up, do they? So are you the one that's going to eat or be eaten on a trade? Remember from my last article, it's not much more than a 50/50 prospect for the average investor.
How to Survive Even the best investors become lunch some days, but what separates the predators from the prey is whether one is disciplined enough to follow proven strategies, access and use information and tools effectively, and refine and evolve their techniques. That's why I believe the Zacks Research Wizard is something every individual investor needs. The Research Wizard contains hundreds of pieces of data for each company, and it allows you to test to see what works and enables you to adjust your strategies to reflect changing market conditions. Let's look at an example. Among the different market anomalies that exist, an approach that considers a combination of them is one of my favorites. Last September, I created a multiple anomaly strategy that's in the Research Wizard software. Here's how the strategy performed from 2002-2011. What's more, the Multi-anomaly strategy is up about 22% YTD. Since I created it in September 2011, the strategy is up 52%. How's that for an out-of-sample test? At this point in my articles, I usually spell out the strategy's individual criteria in detail, but I don't want to give away the secret sauce and give something away that current RW users have access to. So I'm only going to provide general ideas including:
- Buys high volume, small cap U.S. stocks
- Includes only highly-rated Zacks Ranks
- Contains a measure of value
- Looks at estimate revisions
- Considers stock price changes
You Need an Investing Tool For survival in the wild, many consider a knife to be the most important tool. But if you find yourself dealing more with the perils of the stock market, you need a tool designed and built for the individual investor. The Zacks Research Wizard contains hundreds of different data items available for you to test or use one of our pre-built strategies like the Multi-anomaly. I urge you to use it to navigate what the market may send your way. Starting today, you are invited to use it free of charge. You'll have 14 days to create, tweak, and backtest your strategies. At the same time, you can see the latest picks from pre-loaded winning strategies with average gains of up to +67.4% per year. Learn more about your Research Wizard free trial >> Let's make some money! Kip Kip Robbins is a Quantitative Analyst with Zacks.com. He analyzes screens and strategies for Zacks customers and for use in Zacks Research Wizard which empowers individual investors to use market-beating screens, build their own, and backtest their results. Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. Disclosure: Performance information for Zacks' portfolios and strategies are available at: http://www.zacks.com/performance.