AAII Journal > May 1996
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Everyone Loves a Winner, But Should They? A Look at the "Loser" Approach

by Richard Evans

Everyone Loves A Winner, But Should They? A Look At The

Everybody loves a winner. People flock to sports figures who are winners, politicians who are winners, movie stars who are winners, you name it—everybody loves a winner, including investors.

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Richard Evans .
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But, should they?

Now I suppose there might be some personal gratification in gaggling over celebrities, but investors who have been so thoroughly educated to invest in “winning” stocks often come up on the short end of the stick. Investors who seek out the “winners” end up in effect buying the losers!

Winners can be classified in a variety of ways, but past performance is probably the number one method of rating a stock as to whether it is a winner or not.

And, if an investor is judging a stock based on past stock price activity, he or she in effect has entered the world of technical analysis. In technical analysis, the primary assumption in studying past stock market activity is to enable investors to draw implications and make forecasts regarding likely future stock price activity. However, as we’ll see in the analysis of winners vs. losers, the actual outcomes are often the reverse of investors’ preconceived notions.

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