The rumble of the delivery truck, the early morning starts, the endless miles – that was my life as a delivery driver for McLane/Wawa. Amidst the organized chaos of loading docks and convenience store deliveries, I encountered a surprisingly simple, almost audacious, investment strategy. It came from a co-worker, a man who saw opportunity where others saw yesterday's news.
His approach? Start each trading day by placing a pre-market order to buy the previous day's biggest declining stock. No complex analysis, no hours of research, just a straightforward bet on a potential bounce. His exit strategy was equally simple: a one percent gain. In its stark simplicity, it was almost brilliant, a real-world application bordering on the efficient market hypothesis – the idea that all known information is already priced into a stock.
Yet, the nagging thought always lingered: his investment strategy felt a lot like gambling.
Over the years, this unconventional strategy has stuck with me. Perhaps it was the sheer audacity of it, or maybe the countless hours spent in the passenger seat, contemplating its merits and flaws. This curiosity led me to create a couple of tools in my Stock Analysis Workbook (on Google Sheets). One sheet diligently tracks the top 10 gainers from the previous trading day, while the other focuses on the 10 biggest decliners. I have similar snapshots for my entire watchlist of 172 companies and for the stocks I currently hold.
My own twist on Joe's strategy, the "other side of the line" as I see it, is to consider selling a portion of a holding and then looking to buy it back at a 99% target (or a similar small discount). The logic here is akin to scalping, aiming to capture those small intraday price fluctuations. And as the law of large numbers dictates, the more shares involved, the greater the potential for profit, even with small percentage moves.
After years of passively tracking this data, I've noticed a fascinating pattern. More often than not, both sides of this simple strategy – buying the previous day's biggest loser and considering selling the previous day's biggest gainer to buy back lower – seem to yield more "hits" than "misses." While my data collection isn't perfect (API issues occasionally disrupt the flow), the recurring patterns, particularly with a volatile ticker like ENPH, are hard to ignore.
(The accompanying data table showcasing daily gainers and decliners for various dates further illustrates these patterns).
This brings us to the crucial question: do we really want to conflate gambling with investing? I've heard countless times that the stock market is just gambling. While I can understand the sentiment, especially when observing speculative trading, I believe there's a fundamental difference when it comes to stocks.
Investing, at its core, offers a degree of control that pure gambling often lacks. We have the agency to take profits or cut losses. We can choose to increase our "bet" (invest more) based on our evolving understanding of a company and its prospects, fueled by knowledge, research, and financial reports. While market sentiment can feel random at times, the underlying value of a company and its potential for growth offer a foundation that a roll of the dice simply cannot provide.
My old co-worker's strategy was undeniably simple, almost a gamble in its purest form. Yet, the data suggests that even such a rudimentary approach can stumble upon profitable patterns. Perhaps there's a sliver of truth to be found even in the most unconventional of investment ideas. The key, as always, is to understand the risks involved and to align any strategy with your own financial goals and risk tolerance.
What are your thoughts? Have you ever encountered surprisingly simple – or seemingly risky – investment strategies that have yielded unexpected results? Share your experiences in the comments below!
ENPH really stands out:
