Risk

All investments have some degree of risk associated with them and Weekly Stocktip isn't exempt from that. This page attempts to explain the risks associated with using Weekly Stocktip both short-term and long-term.

The 7% losers

How many of our signals lost value over time?

Since exception about 93% of the signals provided has been sold with a profit. But that also means that about 7% of them has been sold with a loss. To better understand the risk associated with this, it's important to look at the average win, v.s. the average loss, how statistically significant the number is, and how they are spread out.

  • Average return of a winner: +102.37%
  • Average loss of a loser: -16.47%

This shows the average return of the 93.67% of winners, are much higher than the average loss of the 6.33% losers. In other words, there's always a chance to lose on a single investment. The win ratio, and average returns are calculated from our backtests since 1970 to 2020. Our realtime performance since our launch in 2009 has performed statistically similar, with a slightly higher win ratio of ~94%.

Another thing that is worth noting regarding the win ratio is how spread out the "losers" are. The losing signals so far has not been spread out uniformly, but rather in batches. The majority of our losing signals, has been followed by each other shortly before a financial crisis occurred. (see the section below for more information.)

Dependency on the Stock Market

How dependant is Weekly Stocktip on the Stock Market and how does it perform during recessions?

As shown in the chart below, Weekly Stocktip is very dependant on how the stock market moves.

Weekly Stockip vs. DJIA

This chart shows the performance of Weekly Stocktip vs. DJIA since our launch in 2009. There is an undeniable correlation between how well Weekly Stocktip performs and how well the Stock Market is doing.

This means that when the stock market goes up, our stock picks have gone up a lot more, but when the stock market has gone down in value, so has our portfolio. Let's examine just how big these swings have been vs. the S&P500.

EventWeekly StocktipTime to Recover (WS)S&P 500Time to Recover (Market)
1973 - Stock market crash-47.85%15 months-43.35%67 months
1987 - Black Monday-33.84%12 months-26.84%23 months
1990 - Recession-17.52%6 months-14.78%4 months
2000-2003 - Dot-com Bubble+127.37%-43.65%51 months
2007-2009 - Financial Crisis-40.94%10 months-50.21%47 months
2011 - Short bear market-11.15%2 months-12.29%10 months
2020 - COVID-19 crisis-13.17%2 months-23.10%+5 months (TBT)

In the above table you can see how big each loss was in every major crash/recession since 1970 for both Weekly Stocktip and the S&P500. You can also see how many months it took to Weekly Stocktip and the S&P500 to recover from the recessions.

You can see that in Recessions, Weekly Stocktip loses about the same amount of value as the S&P500, slightly more some years, slightly less other years. Following a value investing strategy this is expected, as when the market in general drops, most stocks "value stocks" or not, will also drop in price.

However, Weekly Stocktip has recovered much faster than the general market in all major crashes since 1970. The quick recovery is attributed to our value investing strategy. When a financial crisis hits, investors often "over-react" and sell off everything. This presents unique opportunities to invest in stocks that are selling for much cheaper than they should be! In fact, the stocks Weekly Stocktip picked out during crashes have had a win ratio of nearly 100%, and much higher average returns. The stock picks selected during a crash, is why Weekly Stocktip was able to recover so quickly compared to the general market.

You may notice that Weekly Stocktip almost doubled in value during the Dot-com bubble. This is again attributed to the value investing strategy. Since most of the over-hyped internet companies that crashed in the early 2000s, did not have a good track-record, they weren't profitable, they had a lot of debt and overall they were over-priced compared to their intrinsic value. Weekly Stocktip simply wouldn't have bought any of these low-value stocks. Weekly Stocktip only invests in companies that are very profitable, with good growth and healthy financial reports, and thus would have avoided any costly mistakes in the dot-com bubble.

This shows that just like the general Stock market, Weekly Stocktip is not immune to market crashes, and when a financial happens (and it will some day), the stocks Weekly Stocktip recommended shortly before are likely to drop in value in the short term. However, Weekly Stocktip is of course not designed to be used in the short term, it is inherently a long-term investment strategy and should be judged on a period of years, not weeks or months. This however does not concern us, as a market crash always results in better buying opportunities for much higher growth the years following the crash, while the general market is still playing catch-up.

Your emotions

The biggest risk factor is usually the human investor.

Weekly Stocktip is the sum of over 2 decades of work to build automated unbiased algorithms that attempts to find the best value stocks in the market every week. This works fantastic during bull years (most of the time). However as you've seen above, it is expected to lose value during a financial crisis.

Unlike the algorithms, humans have to deal with emotions like fear and greed, and a large part of our outperformance relies on the investors ability to ignore those emotions and trust the system. When the next financial crisis inevitably will happen, are you determined enough to stick with it, not sell, and keep investing in stocks during a crash? What happens when your portfolio says you are -10%, -20% -30% in the negative compared to last year? Do you give up and cash out? If your answer to that question is yes, you would have missed out on the average +100% gains Weekly Stocktip has had the year following every major crash. Depending on how unlucky you were with the timing, you might even have lost more than you gained if you gave up on the investments during a crash.

Investing based on emotions rather than objective financials is the #1 cause of losses in the stock market. If you cannot survive a temporary loss, you should not be investing in the stock market, in case there is a stock market crash coming soon.

Not using Weekly Stocktip as intended

Weekly Stocktip will not make you rich in a week!

We often see people join Weekly Stocktip for a single week or two, and then quit if they didn't see immediate results. For a value investing strategy this is meaningless. If you sign up to Weekly Stocktip with the intention of just trying it out for a week to see if the first signal is profitable. Your risk increases exponentially!

Weekly Stocktip finds new stocks that are selling for cheaper than they should be. This means, more often than not, Weekly Stocktip will recommend stocks that other investors are selling. Sometimes investors "over-react" to bad news or other events and end up selling a stock for much cheaper than it's intrinsic value. This is often when Weekly Stocktip comes in and recommends to buy (while the stock is still falling in price!). That means it is very common that after you buy a value stock, it can continue to drop a bit more in value before later going back up. In fact we tested this, and if you sold every signal we recommended after just a single week, the win ratio went from 93.67% down to only 54%! Value investing doesn't happen overnight and if your expectation is to buy a stock and sell it at a profit within a week, your risk and gain-to-pain ratio will be much much higher. Our statistics and results are based on following the system in the long-term. Value investing like Warren Buffet, takes a lot of patience.

Longer term = Lower risk

Weekly Stocktip has consistently both outperformed and been a safer investments than other investment vehicles such as index funds in the long term. The longer you use it, the more diversified, less volatile and closer to the average statistics you'd be. Any single investment could end up being one of the 7% losers, but when investing in many signals over a longer time period the risk decreases exponentially to almost 0. It just won't happen overnight!