This is not a popular question search engines are asked today. Investors are more interested in knowing if they should sell Chesapeake Energy (CHK) which has already fallen 80% from its peak at near 30 to 3. Should we not have looked at selling the stock at 30 rather than at 3? Of course, that would have been perfect, but why do we ask the wrong questions at the wrong time?
Human psychology is more momentum (trend following) than value. This means that we want to buy something that is rising and sell something that is falling. We rarely look at selling something that is rising and vice versa. The reason we do it because humans rely on simplification for decision making also referred to as heuristics. These are judgmental shortcuts that lead to improper decision-making. This means investors will generally be off trend leading to their poor ability to anticipate and hence invariably selling things at the bottom and buying them at the top. Just because we can not think differently from the herd, our fate is preordained to rise and fall with the market.
Tralio does not claim to know the answer to the question whether Oil will ever recover or not. What it knows is that if Oil has to recover, companies like CHK should lead the recovery. Stock markets are considered as leading indicators and lead the recovery of an asset class (Oil in this case). This does not seem likely now for CHK. Once a stock gets into ‘Value’ ranking (worst performer), it needs on average 24-36 months to stage a recovery. This would suggest more research on other energy stocks and the sector. We looked at the few other bottom-ranked performers with CHK. 6 out of 11 companies ranked as worst performers with CHK on US 100 are from the energy sector, suggesting the sector could be hitting ‘Value’, offering yet another chance to not run after the train but wait for it.
Jiseki Performance Rankings (6 out of 11 US 100 worst performers are from Energy Sector)
Price Performance Rankings (CHK down 80% for the year)
Jiseki Chesapeake Energy (CHK) reaches Value