When evaluating stocks and trying to determine when a stock price is low, the stock you select is important, but even more important is when you select it. A stock could be considered a good buy from my valuations but in a couple weeks could no longer be attractive. So not only do you want to pick the right stocks, but you want to pick the right time to buy at a low stock price.
For those who have never been to my website, I’ve devised a formula to assign a number to each stock based on 7 categories and evaluating a company’s valuations and risk levels. I’ve called the formula the Value Trap Indicator and have performed many backtests to prove the formula’s effectiveness.
The following post is another example of one of these successful backtests. Notice that I pick the same 5 stocks and evaluate each one every single quarter, and some the same stocks show up as a buy one year and a sell on a different year.
Beginners Should Start Here
If you are interested in learning the basics to identifying a low stock price, I suggest starting with the 7 Steps to Understanding the Stock Market guide. Once you have completed this free guide you will have the basic education to understand the Value Trap Indicator, which can be examined by buying the Value Trap Indicator eBook.
This test shows another successful backtest involving the following companies: Exxon Mobil ($XOM), Conoco Phillips ($COP), Chevron ($CVX), Occidental Petroleum ($OXY), and Corning ($GLW). The test goes all the way back to 1994 for all companies. As I fully record all the financial data of other S&P 500 companies, I will add them to this backtest spreadsheet.
Low Stock Price = Low VTI Rating
The Value Trap Indicator method for these 5 companies would’ve resulted in an average gain of 59.97% when buying only stocks with a strong buy (0-100 VTI) rating. Results posted below:
Companies with a buy rating (101-125) performed even better with an average of 106.56%:
Companies with a rating of (126-150) had returns too volatile to be recommended as a buy rating in my opinion, but investors willing to accept the additional risk would’ve seen gains averaging 95.85%:
And finally, perhaps the most appealing aspect of the Value Trap Indicator is in its ability to identify value traps and protect investors from significant downside risk. Using the Value Trap Indicator to avoid stocks with a Strong Sell rating (800+) would’ve saved investors from an average loss of -25.97% as shown below:
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**Low Stock Price: Examples for How to Identify**