And isn't that the same as picking winners?
Since our launch in April 2021, each week we’ve sent out a Filing of Interest report to our institutional subscribers. These reports are curated by our human experts and feature algorithmically identified red flags from high-risk filings. How did we do?
To date, the 84 high risk companies we’ve featured have seen an average decrease in price of 13% , with about 70% of companies seeing a decline in price. During this period, the S&P 500 has seen gains of about 10%. (Yes, even with the recent poor performance of the index. Note that this analysis was performed on November 26th prior to the dramatic dip in the last few days.)
We sent out 12 high-quality research ideas per month to our institutional subscribers. That’s unheard of for a single (human) analyst. More importantly, we were able to identify a preponderance of underperformers at a time when betting against any stock was considered a fool’s errand.
We achieved this result simply by highlighting interesting red flags in filings that the Hudson Labs algorithms flagged as high risk. We didn’t do any analysis on timing, exogenous factors or market sentiment. We didn’t attempt to assess what aspects of the risk had already been priced in. Our approach was as simplistic as, “this looks weird, pay attention”.
Of the 24 companies featured at least six-months ago, only 6 have had positive returns of more than 1% since the date of the report. The six are GEOV (subject to SEC investigation), BLNK, GSM, BOMN, EBIX, and BRT.
Our Risk Scores constitute a very early signal and, on average, price impact increases with time. We generally see significant price impact from Risk Scores after six to nine months, due to the delayed nature of malfeasance discovery. However, our subscribers haven’t had to wait that long. Last month we highlighted nine high-risk companies. In just one month they’ve all seen stock price decline. The most significant losers were Qualtrics International ($C), Amarin Corp ($AMRN) and Rafael Holdings ($RFL). Contact us to see a full list of these names.
Avoiding underperformers is powerful.
Disclaimer: Hudson Labs is not providing financial or investment advice. We are research tool developers, not investment advisors. You should not rely on newsletters, and especially not this newsletter, to make investment decisions. Investing in securities, and shorting in particular, is very risky. Read the filings, learn the risks, do your own research, make your own decisions.
Details & Methodology:
Filings of Interest Report: Every week we highlight a few companies with medium-high to high Hudson Labs Risk Scores and interesting red flags in a Filings of Interest Report that is sent to our institutional customers.
Equities analyzed: We have analyzed stock price impact for all tickers highlighted by us in any Filings of Interest Report published between our launch date and October 2021 with a Risk Score of 70 or higher. There were 84 such companies. For the purposes of analysis, we only included the stock the first time it was included in one of our reports (i.e. we excluded duplicates). The companies highlighted in November reports were excluded due to recency.
Stock price: We calculated price increase or decrease based on the monthly adjusted closing price of the stock for the month of the Filings of Interest Report against the price at November 26th, 2021, the date of this analysis. Monthly adjusted close prices were obtained from AlphaVantage.