Welcome back to Moneyball Economics … and welcome back to one of the most profitable investing experiments I’ve ever seen…
I’m talking about our ongoing quest to pinpoint exactly where hiring published hiring data interacts with share prices — and how we can turn that interaction into fast-moving profits.
We recently looked at how this approach can deliver a quick 50% gain if you know where to look. And today’s data looks even more promising.
Click below to start the show:
Video transcript:
Welcome to Moneyball Economics. I’m Andrew Zatlin.
A few months ago, I invited you to join me on a journey. I want to use my hiring data to pick winners and losers in the stock market.
And guess what?
After a few months, the results have been fantastic. There are some lessons learned that I want to apply to the methodology, and that’s what I’m going to share with you today so that we can get even better returns.
Start off with a theory that companies that are growing their employee base are doing so because their business is growing and that means it’s likely that their stock price is going to grow. It works just as well in reverse. Companies that are not expanding their employee base, it’s likely because their business isn’t growing and neither will their stock price.
And that’s the theory. To put it into practice, I turn to my hiring database.
I have a very robust hiring database that I’ve built.
Over the past 17 years, I have been each month grabbing the hiring for individual companies in the stock market. I have built a database looking at over 750 companies. So it’s a very target rich and a very historically rich set of data. I then dove in, did a lot of backtesting, a lot of analysis, and sure enough, there are 400 companies that I’m tracking where what’s going on in hiring is also what’s going to happen in the stock price. Strong correlations. Well, that’s the lab environment.
The time came a few months ago in March for me to put a stake in the ground and go out into the real world and start testing, start really seeing what happens. Initially, I decided to avoid the losers. So for example, Boston Scientific, take a look at this chart, shows you what’s going on with their hiring relative to their stock price.
Could we have made money trading this by buying puts?
Absolutely. But to test the model, I started initially by focusing only on picking winners. Wanted to look at companies where the hiring seemed to be accelerating upwards. Three I chose in March and another three in April for a total six. The results of the six-pack have been fantastic. Here, take a look at some of these charts and you’ll see that as the hiring accelerated, so did the stock price.
And then you see an unfortunate rolling over. You see the hiring slow down and even inflect down and that’s what happened with the stock price. So the good news is it works. If we want to talk in terms of what’s going on with the hiring data, we’ll predict what’s going on with the price in the market. Absolutely, it’s proven. But the mistake I made here and the lesson learned is that you can’t sit back.
As soon as that hiring starts to roll over, it’s time to exit.
As a result, money was left on the table. So turn now to the hot 100 that I released last month. Now here, the results are phenomenal as well. The hot 100, we chose some companies where the acceleration in hiring was off the charts, owned semiconductor, GM, you name it, up and to the right and the stock price similarly up and to the right. In fact, the returns in just one month are phenomenal.
They are hedge fund level returns.
Stock market grew about 2% in the last four weeks. These companies are hot 100. We saw 5% growth. That’s huge. That’s huge. But we can improve it because remember, I started out saying hot 100? We’re going to sit back three, six months before we even think about making changes. Well, that’s the methodology I want to fine tune.
Based on the six pack of companies, based on not removing a company after its hiring has slowed down, we leave money on the table.
What I’m going to now do is next month I’m going to come out with this hot 100 and I’m going to fine tune it. What I’m going to do is I’m going to take a look at the companies where the hiring pace has slowed down and I’m going to make a decision on pulling them out because when I look at the hot 100 now and I look at the returns that were negative, strong overlap with companies that saw their hiring slow down.
The theory is working in practice.
Now we just want to fine tune it because even though the results are outstanding, I think we can still improve them. And I’m really apreciative of you joining me on this journey.
I hope this helps you, because we’re a team.
And we’re in it to win it.
Zatlin out.
Andrew Zatlin
Editor, Moneyball Economics