Mean Reverting Momentum, or, a Dead Cat Bounce?

There have been debates between those who argue for momentum and mean-reversion.? I say, “Why Choose? You can benefit from both.”? Stock performance tends to persist after 12 months of outperformance, and tends to mean-revert after 48 months of underperformance.? Tonight’s screen reveals 33 stocks that were in the bottom quartile over the last 4 years, but in the top quartile over the last year, with market capitalization over $100 million.

A few of the larger stocks I look at here like Citigroup and AIG make me sick, but that is a part of the exercise.? If you don’t? get a “gag reflex” from some stocks as a value investor, you may not be taking enough risk.? I am certainly not a fan of the financial guarantors, but they are here.? They survived, at least for now.

I would would consider the following stocks to be a “disbelief” portfolio.? High risk, high opportunity.? There are few people that wake up in the morning and say, “This is the portfolio that I want to own.”

Mean Reverting Momentum

Too many financials.? Too many overlevered, dodgy companies.? But maybe they will do well over the next month.? The probabilities favor it, but I will try to measure it over the next month.? Portfolios that outperform rarely look normal.

One thought on “Mean Reverting Momentum, or, a Dead Cat Bounce?

  1. 2 more positives, a number of these (C for example) are jsut under 5.00 and /or are just starting back with a dividend. $5.00+ and dividend will open the door for a number of funds to add these. More buy activity suggest higher price…

    Had not thought of ZLC in this light, but…

    (full disclosure – I work for C).

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