I've recently been into buying stocks when they go on sale (e.g. AMZN right now) so I can ride the recovery. Has anyone backtested such strategies to see if they actually beat the index?
In theory, volatility is risk and risk is rewarded on average. Just don't put too much into them, or you can get wiped out and not recover. Bet small so that you can play the game enough times to earn the long-run average.
Also, volatility implies a random up-and-down cycle. So volatile price movements are just random noise, not necessarily a signal of a decline in fundamental value. Often the fundamental value might just be dipping a tiny bit but the price overreacts and exaggerates the bad news. Then corrects as investors regain their sanity. Many price drops are just investors temporarily panicking. In the short run, the market is a voting machine; in the long run, the market is a weighing machine. Bet against the crowd.
In theory, volatility is risk and risk is rewarded on average. Just don't put too much into them, or you can get wiped out and not recover. Bet small so that you can play the game enough times to earn the long-run average.
Also, volatility implies a random up-and-down cycle. So volatile price movements are just random noise, not necessarily a signal of a decline in fundamental value. Often the fundamental value might just be dipping a tiny bit but the price overreacts and exaggerates the bad news. Then corrects as investors regain their sanity. Many price drops are just investors temporarily panicking. In the short run, the market is a voting machine; in the long run, the market is a weighing machine. Bet against the crowd.
Statistics: Posted by simpleisbest — Mon Aug 05, 2024 8:37 am — Replies 0 — Views 27