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The Portfolio That’s Up 39% This Year

The S&P 500-stock index is off to a an excellent start in 2012, up 6.8%. But the 10 worst performers from 2011 are up an average of 28.5%.

Investors who bought one share each of these 10, thereby weighting their portfolios by stock price, are up 39.4%, according to Howard Silverblatt, senior index analyst at S&P.

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Last year’s 10 biggest winners are up just 1.8%, or 5.2% when weighted by stock price.

A handful of stocks that got clobbered last year have enjoyed big bounces.  Sears (SHLD) and Bank of America (BAC) are up more than 40% and Netflix (NFLX) is up more than 70%. But the outperformance is evenly spread.  All of last year’s 10 biggest losers are up, eight of them by double digit percentages.

Financials were the worst performing sector from last year, falling 18.4%.  This year they’re the best performer, rising 11.9% so far.

The 500 index’s biggest loser from 2011 — First Solar (FSLR) — is up 30% this year.

These results notwithstanding, stock investors probably shouldn’t adopt a “biggest losers” strategy just yet.  Over the long term, stocks that are inexpensive relative to things like revenues and book value tend to outperform, but those that have fallen sharply of late haven’t necessarily fallen enough to make them cheap.

And in the short term, price momentum matters as much as valuation.  According to James O’Shaughnessey, in his book “What Works On Wall Street,” buying the past year’s losers has historically been a poor bet.

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    • It’s information to the individuals who did not know that these stocks have bounced back. Jack is not trying to tempt anyone to do anything… He actually warned people not to.

    • Jack: if studies show that this strategy doesn’t work, then why are you bothering to publish this article? Your headline is tantalizing, but will simply serve to tempt naive investors into wasting money by trying this strategy. Better to remind them to be well diversified and keep a low-cost portfolio.

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