As usual, a single statistic means nothing if we don't understand the dispersion (standard deviation and distribution curve) of the population.
But I thought the different scenarios and their returns are actually indicative of comfort level and the amt of work required to achieve them:
(1) Buying expensive stocks in a downtrend:
Comfort level: Easiest to do so, because expensive stocks are either hyped up by influential people OR are well known. Always feel good to buy a "good quality" company that has become cheaper in price.
Work required: Probably a couple of videos or articles about them. Simply add a negative sign to what the Market is doing, and presto, one is a contrarian!
(2) Buying cheap stocks in a downtrend:
Comfort level: Easy for "value investors" who believes that they are more sophisticated than the avg "trend followers". Always good to buy cheaper stuff than your peers.
Work required: Hey, I know some accounting/investing 101 basics like PE/PB/ROE/ROIC etc. Simply add a negative sign to what the Market is doing, and presto, one is a contrarian!
(3) Buying expensive stocks in an uptrend:
Comfort level: Now, this starts to get hard. No one likes to think they are buying expensive things. But sometimes, good quality stuff (reflected as been expensive as Market has determined that it is probably going to be a future winner) has plenty of company.
Work required: A concrete imagination of future prospects and selecting the right price are different skill sets that aren't easy adopt at the same time.
(4) Buying cheap stocks in an uptrend:
Comfort level: Obviously this is the hardest thing to do. The cheapness is indicative of its unpopularity and the uptrend has made paying a ticket for a ride to become "more expensive" - I could have gotten it at 30% cheaper a few months ago!
Work required: Everyone tries to do turnarounds but turnarounds seldom succeed. Odds are against the investor investing in them and overcoming them is indicative of the amt of work/luck/insight required. This is where a
true contrarian hopes to find themselves in.
Combining ‘value investing’ and ‘trend following’ strategies to beat market returns?
Buying expensive stocks in a downtrend: annualised real return of -5.84 per cent
Buying cheap stocks in a downtrend: annualised real return of 6.17 per cent
Buying expensive stocks in an uptrend: annualised real return of 12.68 per cent
Buying cheap stocks in an uptrend: annualised real return of 14.03 per cent
By the way, the annualised real returns for US stocks are about 7 per cent from 1928 to 2021, according to Prof Aswath Damodaran of New York University.
https://www.businesstimes.com.sg/wealth/...et-returns