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15Buy upward earnings revisions
Buy stocks right after they raise their earnings forecast.
Result
After tax and costs it returned 0.4% a year. Holding the all-world index over the same period returned 14.2%, and TOPIX 11.2%.
Growth of ¥1M (log scale, month-end). The strategy is after tax and costs; indexes include dividends. Values in ¥10,000.
The numbers
| Annual return (after tax & costs) | 0.4% |
|---|---|
| Annual return (before tax) | 2.2% |
| Difference vs. All-World (after tax) | −13.8pt |
| Difference vs. TOPIX (after tax) | −10.7pt |
| 3-year runs that beat All-World | 24% (75 runs) |
| 3-year runs that beat TOPIX | 48% (75 runs) |
| Maximum drawdown | −47.5% |
| Winning trades | 9% (127 trades) |
| Median trade return | −8.2% |
Note: this exit only sells on a stop-loss, so closed trades are mostly stopped-out losers. Positions still in profit at the end are not counted, which makes the win rate look low.
What if the exit rule were different?
Here we sell at an 8% loss from the purchase price (no profit-taking). Keeping the same entry but switching among 16 exit rules gives after-tax annual returns of −5.6% to 8.7% (median 4.1%). Compare with 14.2% for the all-world index.
Picking the best of 16 after the fact tends to find a lucky one, so we fixed the exit rule by strategy type in advance.
- Period: 2017-07-03 to 2026-09-30 (~9.2 years)
- ¥10M capital split equally across up to 10 stocks, 100-share lots
- Universe: average daily trading value ≥ ¥100M, price ≤ ¥10,000, listed for at least a year
- Trades at the next day's open; costs from 0.1% per side, rising with order size relative to liquidity
- Japanese tax of 20.315% (annual loss offset, 3-year loss carry-forward); dividends taxed on receipt