What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing today we're going to share with you a simple investing strategy that we believe can massively outperform the market is completely free and is accessible by individual investors. However, we are not financial advisors and nothing in this video is financial advice. We're just sharing some of our research and opinions for entertainment purposes, only make sure to do your own research and consult with a professional before making any investment decision. The investment strategy revolves around a website called valueinvestorsclub.com founded by legendary hedge fund manager.

Joel greenblatt value, investors, club or vic for short, is a website where investors approved through an application process, exchange value and special situation. Investment ideas. Membership is capped at 250 members and considered highly prestigious. Anyone can sign up for an account for free and read the investment ideas.

However, there is a 45-day delay between when an idea is submitted and when it can be viewed by non-approved members. The approved vic members are mostly professional investors, such as hedge fund managers, who research individual stocks for a living if they're good at their job, their picks should tend to outperform the overall market. In 2012, three university professors analyzed the returns of vic stock recommendations between 2000 and 2011.. They found both the long and short recommendations generated significant abnormal returns.

Of course, past performance does not guarantee future performance with the proliferation of online investment resources. The market has become much more efficient over the past 10 years. To put this to the test, i collected data from all the vic stock recommendations from 2012 through 2020 to measure their performance. This was well worth the effort, because now we can share the results with all of you.

This chart shows the returns of an average stock recommended on vic between 2012 and 2020.. The x-axis represents the days from the recommendation. It starts at negative 250 days, which is one year before the stock was recommended. There are 365 days in the calendar year, but the market is only open for approximately 250 of them day.

Zero is a day the stock was recommended on vic. The y-axis is the performance of the stock indexed to 100. At day minus 250.. The performance index measures the total return of the stock inclusive of dividends paid on average in the year before the stock is recommended.

It increases by 16 from 100 to 115.97. On the day that is recommended. The stock price goes up, as approved members start buying shares about 35 trading days. After its original submission, the recommendation is made available to the general population.

This causes even greater buying pressure, pushing the stock price even higher. This might start ringing alarm bells as a pump and dump approved members get to buy before it is released to the general public. However, an essential component of a pump and dump is the dump for the average vic stock. There is not appear to be any dumping of the shares.

In fact, the stock price remains strong for a year after the original submission from day 35. Through day 250, the average stock increases from 121 to 140.5. This is a 16 increase which is pretty good, but not great. It's roughly the same as the returns in the year prior to the recommendation, but we can take the analysis further.

All types of stocks are recommended on vic from microcaps to mega caps. A large stock, like apple, is covered by hundreds of professional analysts and owned by hundreds, if not thousands, of institutional investors with so many people researching the company. Its stock will be priced very efficiently. So there's not a lot of alpha to be made, on the other hand, think of a small stock with a market cap of just a few hundred million dollars.

Very few people even know about the company and there's a good chance. Not a single institutional research firm is covering the stock. The lack of attention gives tremendous opportunity for the stock price to diverge from the businesses fundamental value. This is where bit comes in handy.

This chart is the same as a previous chart, except the domain is restricted to stocks. With a market cap, less than 1 billion dollars similar to the previous chart, you can see a clear jump in the price on day zero and around day 35., from day 35 to day 250. The performance index increases from 131 to 158, representing an increase of 20 percent. This is four percent better than the 16 returns in the previous chart.

This may indicate that big contributors are better at generating alpha with small cap stocks than large cap stocks. Here is yet another chart showing the performance of long recommendations with market caps in excess of 1 billion dollars. The upside is not as great after the recommendation, but the slope of the line after the recommendation is clearly steeper than the slope before the recommendation. So, even with large cap stocks, the vic contributors appear to be generating alpha, also because liquidity is greater, there appears to be less of a pump in the stock price between the time of the recommendation and when is released to the public 45 days later.

Besides recommending stocks to buy big contributors also recommended stocks. To short, we analyzed these stocks as well to see if they underperform on the day. The idea is published, the stock price decreases as vic members short it, but, interestingly, there appears to be little effect on the price once the idea is published to the general public 45 days later after the short idea is published, the stock price tends to go up. You might think this makes it a failure, as it means the short positions tend to incur losses, but even if the shorts go up as long as they underperform the broader market, it is still a success from day 35 through day 250.

The average short recommendation increases from 123 to 136 or about 11 importantly, this is less than the 16 average gain for long recommendations. If you restrict the domain to stock through the market cap below 1 billion dollars, the results are even better. The average gain from day 35 through day 250 is just 8. This is less than half of the performance of the sub 1 billion long recommendations.

Just by looking at the chart, you can see that these stocks are quite volatile. A few of the shorts increase in value significantly incurring massive losses for the short sellers, so even if they underperform on average, there is still significant risk, especially if the short seller is only short, a handful of socks. Based on this evidence, it appears that bit contributors generate significant alpha with their recommendations, as their longs tend to outperform their shorts. Keep in mind that this is based on historical data between 2012 and 2020..

Past performance does not guarantee future performance, but, given that the sample period was 10 years and included hundreds of stock recommendations, we believe the performance was not a coincidence. Of course, a back test is one thing, but the only way to know if this strategy works for sure is to test it in real time. To this end, i will be investing two thousand dollars of my own money into this strategy as an experiment. Over the coming weeks, i will buy shares of the next 10 long recommendations posted on vic.

I will only choose stocks. I have a market cap of less than 1 billion to avoid any bias. I won't do any research on those companies and will just pick the next 10 that are published. I will target to invest a total of 1, 000 or 100 into each stock.

This number will have to be rounded based on share prices. Likewise i'll do the same for short recommendations, also only picking ones with market caps of less than 1 billion dollars with a sample size of 20 stocks. This should give us a pretty useful experiment. Once i build a portfolio, we'll publish another video looking at the stocks, so make sure you subscribe.

If you want to see the results, i plan to hold these positions for one year, so we can see how they perform. This will be a market neutral portfolio, as the value of the longs will equal the value of the shorts. If the portfolio generates any positive returns at all, even just one percent, it will be a success also because it is market neutral. It shouldn't matter whether the s p 500 goes up down or sideways over the next year, as we'll have zero net exposure.

Alright, guys that wraps it up for this video. What do you think about the value investors club? Let us know in the comments section below, if you like this content, make sure to like subscribe and share, also follow us on twitter link in the description below. As always. Thank you so much for watching and we'll see in the next one wall.

Street millennial signing out.