The problem with this magic formula is that it does not prevent you from selecting losers. It’s a pure statistic method which, as far as we are concerned, is open to further improvement.
Determining which stocks are undervalued or which are justly beaten up, is a very difficult task, which we believe is best executed by people who know the company very well, the insiders. What’s even more important about inside tradings is that when executives bought shares in their own companies, the stock tended to outperform the total market by 8.9% over the next 12 months. Conversely when they sold shares, the stock underperformed the market by 5.4% (Nejat Seyhun, a renowned professor and researcher in the field of insider trading at the University of Michigan).
Post a Comment