There is something that I wanted to do for a while but have not done more work on it. Can a guy that has zero knowledge about stocks, I mean literally know nothing like economics, PE, NTA, etc made a killing in the stock market at the height of panic?????.
All that guy needs to do is to tell his broker to buy about RM 1,000 for every stock less than RM 1.00 on the Main board. I did not get through every stocks during the panic because it was way too many of them. So, I decided to just calculate return of 300 stocks based on decending volume on Oct 16, 09 closing price. Now you know why I have been procastinating this homework. I normally prefer to take a look only 30-50 stocks with minimum $ 500 M market capitalization.
If you buy 300 stocks on the main board on March 10, it should be safe enough because the risk is well spread. It will cost you around RM $ 312 k but you will get a very handsome gain of RM 252 k or 83%. Wow $ 300 k is quite a huge sum huh? The moral of this story is if you want to get lucky, be rich. (Heee.....heeee)
I'm still analyzing the data what if you have on $ 100 k or $ 50 k, will this work? The results will be shared later on.
At the end of my exercise, my thoughts begin to open up because the odd is pretty good. This of course assume that you catch it precisely almost at the bottom around March 10, 09. In terms of odds, you have
- 6% chance of losing money
- 1% chance of break even
- Depending on your view, 28% chance of underperform the benchmark.
So, adding that all up, 35% chance of doing about or worse than simply buying an index fund. The upside however was pretty good, 65% chance of outperforming the index.
- almost 50% chance of doubling your money and
- odd to tripple your money is somewhat smaller, 10 - 12% chance
When I looked at the 300 charts, it was awesome because most stocks hit the lowest point around that day. What is more interesting, some the stocks that I tracked were at point of maximum hatred. One them was Supermax that I posted If, trade you must. Picking a few of them with concentration strategy will serve you very well.
Here are the top 25 gainers and worst 20 losers(based on this study).