Jeffrey Cohen, President US Advanced Computing Infrastructure, Inc. April 12, 2021
This is our first BLOG Post where we discuss some of the learnings from Q1 2021 as relates to our 'short' or 'reverse' model. We call it the reverse model because we found a way to select the worst, or most inefficient portfolios that can be held by an investor relative to the benchmark (either SPY or QQQ at this point).
Why would anyone want an inefficient stock portfolio? A portfolio that maximizes variance and minimizes expected returns. This portfolio provides stock price movement (noise) without clear market direction. The expression "all hat and no cattle" comes to mind. These are a portfolio of stocks to avoid, not to buy and hold...to short if you invest that way to balance or otherwise manage your market exposure.
We have been running this type of model for some time now, and we ran this job on Friday, April 9, 2021 market close data. Today was the first day we dug into the results in detail. We picked 4 of the 5 industry groups and did a cursory look at each stock, how it moved in the past year, and how they earn their revenues. We did not go into detail into financial statements, balance sheets, legal proceedings, or otherwise research the stock. We did not trade this data, but we began the research we would do to feel comfortable trading these stocks. This level of work took about half a day (for ~35 of the 50 stocks) and we learned a great deal.
We also created a portfolio of the 50 worst, or most inefficient stocks, which we call 'dogstars' in contract to 'allstars.' In the first day, 41 fell (and many fell double digit % losses), 2 were flat, and 7 rose (at most single digit % gains). The market was down overall, which is likely a contributing factor (market falls, dogstars fall more).
Industry groups: The top industry group represented was pharma/bio-science. Other industry sectors well represented were retail / consumer discretionary products, oil & gas, and technology (software and services).
In conclusion, we picked portfolios of stocks to avoid for a client, and we took the 50 'most inefficient' or 'worst' stocks to hold in a portfolio and did additional analysis on them. Those stocks were chosen by the Chicago Quantum Net Score, a quantum algorithm, based on April 9, 2021 market close data (going back one year). On the first day of trading, starting with market open and ending at market close, 41 of the 50 stocks fell (and more significantly than the 7 that rose...and 2 were flat). The overall market was down for the first day in a while.
We are curious to see if this trend continues tomorrow (*and how long it continues).
Disclosure: We are not financial advisors and this is not financial advice. We will not share details of the stocks chosen as this run was paid for by a client. We do not have a position in any of the stocks included in the 50 stock portfolio (long or short), but may begin to take short positions in the future. We are long SMLP and NGL at this time, other than our fully passive index and fund investments.
Please do your own due diligence before you invest.
Chicago Quantum (SM) is a protected service mark of US Advanced Computing Infrastructure Inc.
Strategic IT Management Consultant with a strong interest in Quantum Computing. Consulting for 29 years and this looks as interesting as cloud computing was in 2010.