In theory, we should all be out of stocks when the market falls. But as we recently saw, for the umpteenth time, major tops aren’t so easy to identify while they’re unfolding. And after the fact, many hesitate to completely jump ship because we know that bad times create the worst selling occasions and the best buying opportunities (as discussed further in my recent Positioning For Recovery blog). So defense needs to be part of any investor’s strategic arsenal. Unusually, this beings with a list of businesses that are thought to be least vulnerable. And in this regard, a little TLC can improve the list beyond what we can usually cull from folklore alone. FULL ARTICLE.
I like your fundamental logic decisions in creating the filters for the universes, i.e. choosing the factors to use and compare.
Though why don’t you put them into ranking systems so that you pick only the top stocks?
e.g. CurFYEPSMean> CurFYEst4WkAgo could be put into a ranking system as the formula CurFYEPSMean / CurFYEst4WkAgo, and Sales%ChgTTM> Sales%ChgTTMInd as the formula Sales%ChgTTM / Sales%ChgTTMInd.
Also, considering that the past year would have produced awesome returns for short-selling strategies (in hindsight!), I’d like to see you cover short-selling strategies in the current market. e.g. based on backtesting, I’ve found in particular that short-selling stocks with the highest price-to-sales ratios would have done very well, especially for stocks in the Consumer Cyclical sector.
There’s more to come in this recession-oriented series; the next installment will appear later today. All of these additional articles will focus on combining different ranking systems with this defensive-stocks universe.