This investment strategy is called price drift after earnings announcement. It was discovered by several accounting professors in the late 1980s. They thought of a simple thing at the time. Every quarter, listed companies will release earnings announcements. When releasing earnings announcements, some companies will have good news, such as higher earnings than analysts expected; some companies will have bad news, and earnings will be lower than analysts expected. What did their research find?
If you sort all the stocks by the quality of their earnings announcements every quarter, and buy the stocks with the best news and short the stocks with the worst news, this strategy can make money. Why can it make money?
Because the stocks with the best news will rise on the day, you won't make much money. But the most important thing is that the stocks with the best news will rise by about 2% on average in the next 60 days, and the stocks with the worst news will fall by about 2% on average in the next 60 days. The rise and fall are relative. It is possible that the whole market is falling, and the stocks with good news may not fall as much as the stocks with bad news.
So, this is called price drift after earnings announcement, that is, stocks with good news will rise a little at the time, but more importantly, they will continue to rise in the future, stocks with bad news will fall a little on the day, about 2%, but will continue to fall about 2% in the next 60 days. A simple strategy is to buy stocks with good news and sell stocks with bad news, so that you can earn price drift, about 4% in the next 60 days.
Since there are about 250 trading days in a year, you can earn about 20%. From 1974 to 1986, I used this strategy and basically made money every quarter. In those ten years, I only lost a little bit in one or two quarters occasionally, and earned about 5% on average every quarter. So this is a very good strategy. And it has a large capacity, because it is a fundamental strategy, you don't need to change hands frequently, and the turnover rate is not particularly high.
The same applies to the cryptocurrency world, and improvements can be made!
