Kind of like the weather, everyone talks about buying low and selling high, but no-one does it, at least according to a Bloomberg columnist. Then again, some people, like my friend Barry Ritholtz, argue that you should avoid stocks selling at low prices — like those at 52-week lows. The relentlessly empirical James Altucher takes Barry to task on that point, and demonstrates that buying at 52-week lows can work, sort of:
I took all Nasdaq 100 stocks since 1996,
including stocks that have been deleted from the index (to avoid
survivorship bias). What happens if you buy stocks hitting 52-week lows
that are trading for greater than $5 (avoiding penny stocks) and sell
them one quarter later?
The results actually demonstrate that, over this period, the odds
were on your side to outperform the market if you bought stocks at
52-week lows. The average return per trade was 7.34% (over 662 trades),
including wins and losses. This far outperforms the average return per
quarter of the Nasdaq during this period of 2.6%.
Some 60% of the trades turned out favorably and 40% were failures.