November 12th, 2008

Market = Lottery Ticket

I don’t know about you but I periodically lapse back into that old mode of looking for stocks to buy. I keep saying to myself that if I just try harder, I’m going to find those needles in a haystack, those rare stocks that are moving up in an otherwise horrible down market. But then I catch myself with the truth: “50% of a stock‚Äôs price movement can be attributed to the overall movement in the market, 30% to the movement in its sector and only 20% on its own”. In a down market, the odds are that you’re not going to find and own a stock that’s going up. But what are those odds?

To find out, I scanned the 7035 chart in my database (Telechart Gold from Worden Bros. ) by percentage change since September 30, exactly 6 weeks of trading. It’s been a rough time in the market, as we all know too well, with the S&P 500 declining 21.19%. I could have picked any time period but that short period included a significant market change and was short enough to easily handle. A universe of over 7000 stocks to chose from so how many do you think were able to buck the trend? Here are the results:

That’s not a misprint. Only 274 didn’t show a loss over the 6 weeks and of that number, 84 were short and ultrashort (market, sectors, etc.), fixed income and foreign etf’s. Another 43 stopped trading because of delisting or being acquired/merged. That left only 147 individual stocks.

As the summary above shows, many were low-priced and traded less than 100,000 shares/day. But if you were lucky enough to have found and bought one, it may have paid off handsomely in terms of annualized returns.

If you didn’t own any of them, you’re in good company. Owning stocks during markets like we’ve been experiencing is like buying lottery tickets and hoping to win the Pick-5. It’s pure luck and the odds are against you.


The market today looked as if it was going to careen down to the support level around at 845 but was able to pull itself up by its bootstraps (with a little help from Freddie and Fannie with plans for mortgage workouts). Volume continues to be anemic and the spring continues to be tighened further. Unfortunately, we just don’t know which way it will jump when released. I’m still in the camp that it will be through the upper boundary of the current range but not yet convinced enough to put money either in individual stocks or the SSO.

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