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My investment strategies

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1. Momentum (buying winner stocks and avoid loser stocks)

Earning momentum (stocks with better than expected earnings generally perform better in the following year.)

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2. Avoid glamour stocks

Especially around earnings announcements.

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From paper (Trueman, Wong, and Zhang 2003)

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However, for ordinary stocks

It may pay off to buy before earnings announcements.

Msft Intc

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3. Notice the seasonality

Which month is the most risky month for investment?

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October.

“This is one of the peculiarly dangerous months to speculate in stocks in.”

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October. this is one of the peculiarly dangerous months to speculate in stocks in.

The others are July, January, September, April, November, May, March, June, December, August and February.

---Mark Twain, Pudd’nhead Wilson

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stock market crash on October 29, 1929 (loss>12%), known as Black Tuesday.

Black Monday Monday, October 19,

1987. The Dow dropped by 508 points to 1739 (22.6%).

October, 2008

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Return Seasonality

January effect (higher returns)

Summer effect (lackluster returns)

Day-of-week effect (higher returns on Fridays)

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Recent two years January return is good.

But previous two years January returns were not so good.

So no trading strategy is guaranteed to work every time.

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4. Favor stocks with low capital expenditure and/or accruals.

Avoid stocks with high capital expenditure and/or accruals.

Accruals=(earnings-cash flow from operating activities)

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One-year-ahead hedge returns based on capital investment levels. Donglin Li 2004

Go long the lowest investment

stocks.

Go short the highest investment stocks.

12 month size adjusted buy and hold hedge returns after May each year.

Positive in 36 out of 39 years, average 12.6%

Pattern is consistent with market mispricing and against semi-strong efficiency.

1 year ahead hedge returns between lowest and highest deciles of investment (d_PPE) firms

-0.1

-0.05

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Year

Hedg

e Po

rtfol

io R

etur

n

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5. Other considerations Buffett has said that he would rather own

comfortable businesses at a questionable price rather than questionable businesses at a comfortable price

Do not invest heavily on stocks that you are not familiar with.

Prefer stocks with high ownership by insiders. Prefer stocks with analysts upgrade , not

downgrade.

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Here is another guy who notices the summer effect.

http://finance.yahoo.com/blogs/breakout/may-means-time-sell-jeff-hirsch-152102594.html?sec=topStories&pos=5&asset=&ccode=