If there is a bet on a flip of a coin : $100 becomes $120 on heads and becomes 0 on tails.
Value of bet is : 120 *0.5 + (-100) * 0.5 = 10.
Return is 10/100 but worst case is too risky (-100%)
If there are 10 coins, $10 bet on each, it becomes : $12 on each head and $0 on tails.
value of bet is 5heads and 5 tails : 10* (12 * 0.5 + (-10) * 0.5) = 10 = 10%
If it is 4H:6T : 4*(12 * 0.5) + 6*(-10)*0.5 = 24 -30 = -6 = -6%
-Lastly, O’Shaughnessy believes that proper diversification is a key factor in maintaining a profitable portfolio. He recommends at least 25 stocks in a micro-, small- or mid-cap portfolio and at least 10 in a large-cap portfolio.
-In case you were wondering, a strategy based on buying stocks with the worst 6-month returns and then holding for a year had an annualized return of 4.15 percent (compared to 14% for low p/s)! As stated in the book, “If you’re looking for a great way to underperform the market, look no further [than buying relative strength laggards].”
-Low P/S and P/B led to best returns. Adding a generic relative strength strategy based on a 6-month return factor with annual rebalances outperformed further.
Value of bet is : 120 *0.5 + (-100) * 0.5 = 10.
Return is 10/100 but worst case is too risky (-100%)
If there are 10 coins, $10 bet on each, it becomes : $12 on each head and $0 on tails.
value of bet is 5heads and 5 tails : 10* (12 * 0.5 + (-10) * 0.5) = 10 = 10%
If it is 4H:6T : 4*(12 * 0.5) + 6*(-10)*0.5 = 24 -30 = -6 = -6%
-Lastly, O’Shaughnessy believes that proper diversification is a key factor in maintaining a profitable portfolio. He recommends at least 25 stocks in a micro-, small- or mid-cap portfolio and at least 10 in a large-cap portfolio.
-In case you were wondering, a strategy based on buying stocks with the worst 6-month returns and then holding for a year had an annualized return of 4.15 percent (compared to 14% for low p/s)! As stated in the book, “If you’re looking for a great way to underperform the market, look no further [than buying relative strength laggards].”
-Low P/S and P/B led to best returns. Adding a generic relative strength strategy based on a 6-month return factor with annual rebalances outperformed further.
