Top 10 Stocks vs News Sentiment: Same 251% Return, Half the 2022 Loss

0:00The simplest active trading strategy happens to beat the market.

0:03Instead of buying the S&P 500, which holds the top 500 US companies, I take only the top ten, and rebalance every week.

0:11Across almost seven years, that turned $100,000 into $351,000.

0:17The S&P 500, with dividends, got to $260,000.

0:22Last week I tested whether news sentiment predicts stock returns.

0:26A day out, a week, a month, a quarter, a year.

0:30I couldn't find a reliable edge.

0:32I didn't believe it.

0:33I wanted to see if news sentiment could make this strategy even better.

0:36So here's how I tested it.

0:37Same weekly rebalance.

0:40But instead of the ten biggest companies, I took the ten biggest whose news over the last 60 trading days was positive on average.

0:47Total return was a tie.

0:49251% with the filter.

0:51251% without.

0:53The difference was the ride.

0:55In 2022, the plain top ten lost 38%.

0:58The filtered version lost 19%.

1:00Its worst drop was 32%, not 41%.

1:04And it wasn't one lucky stretch.

1:06In every three-year window, the filtered version fell less.

1:10In 97% of them, it had the better risk-adjusted return.

1:14Then I flipped the filter and kept only companies with negative news.

1:18It cut 2022 almost exactly in half too.

1:21So I ran one more test.

1:23No news at all, just the 20 biggest companies.

1:26Its worst drop was 29%, the smallest of any version.

1:30Then I added positive news to those 20.

1:32The return fell from 224% to 141%.

1:37The filter kept skipping Meta and Tesla while they took off.

1:40So news sentiment didn't make this strategy better.

1:43The smoother ride came from owning more companies.

1:45The full results, and every company the filter skipped, are in the article.