Should You Buy the Best or Worst YTD Stocks

Is it better to buy the worst year-to-date performing stocks or the best year-to-date performing stocks for the month of December? Common wisdom would say stay away from the losers because those are the one that people are selling for tax reasons. Are fund managers buying the winners for window dressing?

The Best 10 Rules

Buy Rules

  • On the last trading day of November
  • Stock is member of the S&P500
  • Buy the 10 best year-to-date performing stocks
  • Buy on the close

Sell Rules

  • Sell on the close of the first trading day of January of the next year

The Worst 10 Rules

Buy Rules

  • On the last trading day of November
  • Stock is member of the S&P500
  • Buy the 10 worst year-to-date performing stocks
  • Buy on the close

Sell Rules

  • Sell on the close of the first trading day of January of the next year

SPX Baseline Rules

Buy Rules

  • On the last trading day of November
  • Buy SPX on the close

Sell Rules

  • Sell on the close of the first trading day of January of the next year

 

The Results

EndOfYear1

Buying the worst YTD S&P500 stocks is better from an avg. % p/l view. The total avg %p/l is twice that of the highest YTD stocks. Of the 12 years, the worst stocks outperformed the best stocks 7 of the years. What will this year bring?

Current Best/Worst YTD (11/13/2013)

EndOfYear2

Spreadsheet

If you’re interested in a spreadsheet of my testing results, enter your information below, and I will send you a link to the spreadsheet. Additional stats include: a yearly breakdown of avg %p/l of trades, best winner, and worst loser.

 

Click Here to Leave a Comment Below

Valery - November 19, 2013 Reply

Is there any correlation of the results with YTD performance of SPX each of the noted years?

    Cesar Alvarez - November 19, 2013 Reply

    The correlation between YTD performance of the SP500 and the return of the highest YTD stocks held one month is .50.

    The correlation between YTD performance of the SP500 and the return of the lowest YTD stocks held one month is -.37.

    Cesar

MP - November 20, 2013 Reply

Curious how the strategy performs for all months? That is, buying 10 worst performing (12 trailing mos.) stocks and holding for one month, at the end of every month.

Monthly S&P500 Stock Rotation Strategy » Alvarez Quant Trading - December 5, 2013 Reply

[…] the “Should You Buy the Best or Worst YTD Stocks” post, several readers made comments if one could make a monthly rotation system from this idea. […]

Andy - December 8, 2013 Reply

I’m wondering if implementing a stop-loss that would allow the strategy to exit losing positions mid-month would have helped the performance of the Worst portfolio when it got smacked (technical term) in 2008.

Marco - September 24, 2014 Reply

Maybe something good would come adding a highest/lowest dividend yield stocks or looking at the payout ratio.
http://nightlypatterns.wordpress.com

    Cesar Alvarez - September 24, 2014 Reply

    That is an interesting idea. Unfortunately I do not have dividend data.

Robbie Davis - April 22, 2015 Reply

Looks like you should consider trading both ‘the most up’ and ‘the most down’ portfolios together, as that would have resulted in much more consistent overall performance.

    Cesar Alvarez - April 22, 2015 Reply

    That is correct. Some people don’t like trading short. The idea was to show which end of the spectrum tended to produce better results.

Michael Barrow - December 29, 2016 Reply

Have you fully accounted for survivorship bias in these results? I would think that that factor would be particularly important in this evaluating this type of strategy.

Thanks,
Michael

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