FAME to Black

The 4-week value strategy I am working with this month includes 7 equities. The metrics to create this sample of stocks were a Price-Earnings using a 12-month Earnings per Share ratio, quarterly Earnings per Share this quarter and the quarter prior ratio, and the Zacks “Rating Change and Estimate Revision Factor.”

According to J O'Shaughnessy in What Works on Wall Street, the Price-to-Sales Ratio “is the best,” measuring the price of the company against annual sales instead of earnings. This means that it is “’an almost perfect measure of popularity.’ Only hope and hype will increase the price of a stock with a high PSR.” (He is quoting the author of the 1984 book Super Stocks.)

I learned quickly on my second attempt trading with my brokerage account to put the trade at least one day ahead of the price you want for your security. The market ended high last Friday the 27^th and I got Friday’s ask price. Monday, today, the first of October, awoke to a “shut-down” federal government. The market was at a three-week low and I got those bid prices, too.

The Economist uses hyperbole, calling the current Congress with a rodeo clown compared to a country once considered a stalwart of good governance. Also noting:

If America were in real danger of missing a debt payment it is likely that President Obama would find some constitutional justification for ignoring Congress rather than set off a financial meltdown.

I followed the advice of David Darst, director and Chief Investment Strategist of Morgan Stanley Smith Barney: “Buy the pancake; sell the spike.” He spoke at an annual FAME Conference at San Francisco State University in November 2012 and I was fortunate enough to be part of the Student Investment Fund in attendance.

After one day I have already recouped my trading costs and am in the black. However, I realize how quickly the market can turn down, wiping away any positive gains I return after the first day of trading.