14 October 2009

Ford Factor Analysis

As I may have intimated earlier, FRS Calls is designed to promote Financial Research Station. FRS uses Tableau visual analysis software www.tableausoftware.com and market data from Mergent/Ford www.fordequity.com. Let's take a quick look at the Ford factors for September and YTD.

First 2009 so far. As we know the markets have recovered since earlier March when the Dow was at 6550. It's now pushing 10K as I write this. The chart shows the performance of each of Ford's factors with the spread between the highest quintile and the lowest quintile. So the High risk stocks greatly outperformed the 'Lows'. High PE stocks, volatile high beta stocks and most 'overpriced' names did best. This wasn't a bias against value but one towards junk. At the other extreme, the names that avoided the sell-off the most, rebounded the least. Traditional big cap, dividend payers i.e. typical high quality safe names and groups lagged. This is a very typical reaction to a major market sell-off. It happened in 1987, 1998, 2003 and it will happen next time as well. Now we are waiting for a signal that the normative state where good stocks do better than bad stocks will return. We'll come back later and look at September and see if there is any evidence of a return to normalcy.

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