Idea Lab
A Portfolio123 Strategy: The Prudent Yield Hog
Income investing has long been popular because many investors value the cash streams thrown off by such portfolios while others cherish the lesser volatility we usually associate with them. Most income strategies, though, require users to suppress natural tendencies to reach for the highest yields they can find. The reasons for this are sensible: The highest-yielding stocks are often too-risky and wind up performing badly as business deteriorates and dividends get cut. But perhaps we go further than we must in the interest of safety. Maybe there is a way to chase yield without stumbling over the edge of a cliff.
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Idea Lab
The Zweig Strategy: Befriend The Trend
"The trend is your friend," an expression long associated with the Martin Zweig strategy, has a lot of appeal. Many argue that it's best to find stocks that others don't follow or like, and there's something to be said for that. But even under the best of conditions, the market can be fraught with uncertainty, so there's also much to be said from validation of your own decisions based on the fact that other investors also feel positive about the stocks you are considering.
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Idea Lab
The Piotroski Strategy: Academic Research That Produces Real-World Results
Reading academic finance research papers can be a brutal and perhaps impossible task for those without advanced degrees in mathematics. But don't assume such research is necessarily good. Many are mathematically elegant formulations that implode when actually put to work. Joseph Piotroski is different. His output is deeply rooted in Wall Street reality and common sense, and resulted in a market-beating value strategy.
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Idea Lab
Looking For Large Caps: Don't Out-think The Room
It's not easy to build good models (those that backtest and perform well) focusing on large-cap stocks. It's hard to discover anything about these companies that doesn't seem to already be known by a gazillion others. And even if one is fortunate enough to come up with a truly novel insight, who knows if or when the market, which seems obsessed only with the latest news story, especially if it relates to increased or reduced earnings guidance, will ever trade on it. To paraphrase an old cliché, the masses can cling to a shallow or even incorrect assessment of a stock a lot longer than you can stay solvent. Ironically, however, that may be the key to finding large-cap ideas: work with the masses, instead of trying to out-think them.
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