Chicago Quantum | US Advanced Computing Infrastructure, Inc.
  • Home
    • Our Brochure | Chicago Quantum
    • Stocks Held By Advisers
  • Investment Information
    • Negative BETA Stocks
    • Top dividend stocks
    • Leptokurtic Stocks
    • Platykurtic Stocks
    • High & Low BETA Stocks
    • Positive and Negative Skew Stocks
    • Fallen in price
    • Price & Volume Spikes
    • Stocks that split this year
  • Research
    • Today's Insights
    • Today's Market Insights (part 2)
    • MEME Stocks
    • Daily Price Variance R&D
    • Results from our model
    • US-Listed Stocks of Foreign Firms
    • Liquidity Research
  • Contact
  • Stock Market Quant Analysis
    • Portfolio.m
    • Stock analysis, US Composite tickers, "UP" run
    • Stock analysis, US Composite tickers, "Down" run
    • Custom Algorithm Development
    • Investment Planning Workshop
    • Newsletter Service
  • Project Services

April 2, 2022 Insights from our US Equities analysis

4/3/2022

0 Comments

 
Insights from our Chicago Quantum Net Score Data Analysis
Sunday, April 3, 2022
By: Jeffrey Cohen, Investment Advisor Representative & President
US Advanced Computing Infrastructure Inc.
jeffrey@quantum-usaci.com
https://www.chicagoquantum.com
+1.312.515.7333


PART 1: SHOULD INVESTORS INVEST IN STOCKS OF MONEY LOSING COMPANIES?


Should investors invest in validated, US listed stocks that lose money, or more precisely have negative net income.  The simple answer is that our model found only 8 stocks out of 1,157 that would be more efficient (higher expected returns vs. stock price variance) than buying a broadly diversified portfolio.


We see four portfolios that are more efficient to hold than investing in individual money losing companies:
  1. The $IWM, or the iShares Russell 2000 ETF
  2. A portfolio of all 1,157 common stocks of money-losing companies
  3. The $QQQ, or the Invesco QQQ Trust Series 1 (ETF)
  4. The $SPY, or the S&P 500 ETF Trust ETF


We answer this question during a time of moderating market returns.  The ‘forward’ one-year expected market return is 8.13% for a balanced portfolio of $SPY, $IWM and $QQQ, using a risk-free rate of 1.00%.


Stock Price Volatility
Money losing companies stocks have a higher daily price variance than those that make money, often by a factor of 2:1 to 3:1.  Today’s ratio is 3.42 x 10-4 / 1.18 x 10-4 = 2.89.


Expected Returns
Money losing companies stocks have a higher BETA and therefore a higher expected return in the coming year than money-losing company stocks.  Expected Return = 11.84% /  9.14% = 1.295.


We believe the greater risk outweighs the greater expected returns during times of moderating market returns.  Investors should avoid holding individual stocks in companies with negative net income.  They should either focus on profitable companies, or in buying a broadly diversified portfolio such as $SPY, $QQQ or $IWM.




PART 2: HOW CAN WE PROFIT FROM STOCKS OF MONEY-LOSING COMPANIES?


We did find small portfolios that would be the most inefficient you could hold.  We say small portfolios because diversification of risk increases efficiency, so these portfolios have between one and three stocks, held equally.


Inefficient portfolios have significantly more risk than expected return, when normalized against the ‘all stock’ portfolio above (#2), or the $SPY.


We call these our CQNS DOWN portfolios, because they are portfolios of stocks you should avoid holding, or can bet against after they move higher.  They have seen significant daily price variance without significant BETA values.


Sometimes you cannot short these stocks because they are not available to be borrowed.  In those cases, you may be able to buy puts or sell calls.




PART 3:  HOW IS THIS DIFFERENT FOR STOCKS OF MONEY MAKING COMPANIES?


Investors have a better chance investing in stocks of companies that make money.  In contrast to the 8 / 1,157 stocks (0.0069) that were more efficient than $SPY, 124 individual stocks of money-making companies, or 124/2,399 stocks (0.052), were more efficient than the $SPY, $IWM or a broadly diversified portfolio.


We found larger portfolios (from 2 to 14 stocks) that are significantly more efficient than a fully diversified portfolio. Your choice of efficient investments is diverse and allows for different types of stocks to be held.


However, if you are not confident in picking individual stocks or stock portfolios, a broadly diversified portfolio is a very efficient and ‘safe’ choice.


Also, if you are not confident in the direction of the overall market, then just choosing portfolios on the basis of efficiency could leave you with a significant BETA value of your stocks, which will overstate market movements in your portfolio.  You win in advancing US equity markets but you lose in declining US equity markets.
0 Comments



Leave a Reply.

    Author

    Jeffrey Cohen, President and Investment Advisor Representative
    ​US Advanced Computing Infrastructure, Inc.

    Archives

    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    October 2021

    RSS Feed

    Picture

Copyright 2022 US Advanced Computing Infrastructure, Inc.  
Chicago Quantum (SM) is a protected service mark, registration 113562, by the Secretary of State of Illinois.
US Advanced Computing Infrastructure CRD#: 316375
Business Mailing Address: PO BOX 1292, Highland Park, Illinois 60035-7292

Disclaimer: 
All investing, stock forecasts, and investment strategies include the risk of loss for some or even all of your capital.  Please do your due diligence and research before investing.  Statements made on our website or in social media are not investment advice.  They do not take into account your unique circumstances, risk tolerance or investing objectives.  Please consider our website and social media outlets as for informational purposes only.

The stocks mentioned may not be suitable for all investors.  As with any investment there is risk.  Past performance is not an indication of future results.  Please do your own due diligence on any stock portfolios highlighted.  Finally, we make no guarantees for your financial results.  You bear all the risk, and gain all the rewards of your investments.

Unauthorized reproduction or redistribution of this information or the analysis provided in any form is strictly prohibited.

  • Home
    • Our Brochure | Chicago Quantum
    • Stocks Held By Advisers
  • Investment Information
    • Negative BETA Stocks
    • Top dividend stocks
    • Leptokurtic Stocks
    • Platykurtic Stocks
    • High & Low BETA Stocks
    • Positive and Negative Skew Stocks
    • Fallen in price
    • Price & Volume Spikes
    • Stocks that split this year
  • Research
    • Today's Insights
    • Today's Market Insights (part 2)
    • MEME Stocks
    • Daily Price Variance R&D
    • Results from our model
    • US-Listed Stocks of Foreign Firms
    • Liquidity Research
  • Contact
  • Stock Market Quant Analysis
    • Portfolio.m
    • Stock analysis, US Composite tickers, "UP" run
    • Stock analysis, US Composite tickers, "Down" run
    • Custom Algorithm Development
    • Investment Planning Workshop
    • Newsletter Service
  • Project Services