The core assumption of the fund would be that at least 50% percent of these drops are based on market overreactions that will eventually be corrected. And that large negative reactions are more likely to be overreactions. Or at least that the probability of them going up in combination with the lower price would make the expected value appealing. Also, the parameters (how large is the drop, over what period, and how long do you hold before selling) would need to be tinkered with, but I think you get the point. Maybe you even add some additional parameter related to fundamentals in, like as long as their credit rating is above BBB, as long as their leverage is below a certain point, as long as they're cash flow positive and have been around for at least 5 years. I don't know. You could take it in several directions. I'm sure someone with a data analysis background could run all sorts of regressions and shit analyzing what characteristics the funds that came back from a 30%+ drop tended to have in common.
Obviously I'm not saying this fund would necessarily be a winner, but I think it's at least worth exploring if only as an intellectual exercise. for instance, netflix dropped 35% in a day last year but has since climbed back 95%. meta dropped almost 30% in a day in the past year and they're up 26% from the point that 30% dropped from.
Submitted March 03, 2023 at 08:08AM by Texas_Rockets https://ift.tt/AZQhy8e
