Today I finished Donald Cassidy’s book on selling stocks and the ways to decide to sell. Though the whole book was good I usually like books which provide me an absolutely new tool or strategy which I did not know or I had overlooked so far. That’s what chapter 15 revealed and I was amazed to know diffusion index and advance/decline ratios as tools to get a broader picture.
I called my brother in my excitement to draw charts on P/E, P/B, Dividend yields against time but it seems that he was busy in some call. So I will wait for 1 more day and see what happens tomorrow. Till then let us see what we have derived from diffusion index.
I prepared 3 diffusion index based on what Donald Cassidy says in his book plus one based on my own correlation. These were:
1. Portfolio diffusion index
2. Index diffusion index 9 monthly
3. Index diffusion index 3 monthly
For my portfolio diffusion index I took a fixed date as my cost price for my portfolio stocks. The data was interesting to say the least. The long term patterns were studied with 2nd point listed above and short term data was studied with 3rd point. Point 1 revealed my portfolio pattern. These diffusion indexes gave me a routine view of the random movements. One pattern which seems to be emerging in a big way is the regression to mean theory and its use.
But I will have to wait one more day to have correlative data from Historical price, advance/decline, P/E, P/B, Dividend yield ratios to see for any patterns emerging regarding market tops and bottoms, booms and busts of the stock markets.
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