13 January 2010

Hindsight Trading Long-Short

Here at last. How you could have made big profits in '09 with long and short portfolios. This is perfect hindsight but much of this was pretty pretty clear back in May-June. In brief:

Buy losers and sell winners. Yep but you have to know when.

Beta is nice but not predictive. Most beta calculations are heavily weighted down by obsolete historical data.

Buy junk sell quality. Maybe you are familiar with the trials and tribulations of quants? Acadian took a stab at explaining it here. http://bit.ly/8cL8kO Here are the numbers for Ford Equity's VMO scores. High VMO usually means high earnings and price momentum but not too much. It worked perfectly as a contra-indicator last year.

Don't make sector bets. Most sectors had enough stars and dogs that their overall performance was average.

Coming up. How to make money in 2010. Available in Jan'11. Preview: it will be some version of these graphs.

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