Combining Persistence With Strength by Norman J. Brown
Here’s a switching technique that combines a stock’s persistence and ranking strength to offer
enhanced returns compared to buy & hold investing.
In my article “Parameters Affecting Stock Returns” published in the August 2014 issue
of Technical Analysis of Stocks & Commodities, I pointed out that buy & hold (BH)
investing in equity stocks have their annualized returns severely suppressed by a debilitating
tilt of the R ratio (R = win ratio = Roc+ / Roc-) downward, well below R = 1.0 (tilt,
T<0). My earlier articles described a trading technique termed one rank (OR) that switched a
single mutual fund (or exchange traded fund) and offered an enhanced return over BH. This is
a direct result of trading (switching) only those funds that exhibit a persistence of returns over
that of a random distribution, a process explained in those articles.
In this article, I will expand OR into more than one stock using a formula that takes advantage
of the OR process combined with the ability to switch back and forth into the highest-ranked stock, a process designated one rank/relative strength, or OR/RS...