Don't go shopping for DEO now, it is underperforming the market
07 Dec, 201813 min read
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DIAGEO PLC (Foreign) is a falling knife that can bleed you if you catch it today. It delivered -1.35% to close at 141.29. It's recent 5 day performance has been -0.1%, -0.88%, +0.2%, -0.5% and -0.39%.
DEO showed a bullish trend over the last 3 months. During this period DEO surged by +1.02% and saw a maximum drawdown of -7.27%. It has been unusually choppy during this period. Long term investors are better off avoiding investing in DEO till volatility reduces and a clear trend emerges.
DEO has been outperforming the SP500 index in recent time. It showed significant underperformance (compared to the SP500 index) from 3 Feb, 2016 to 20 Dec, 2016. Over the last 2 years 11 months and 3 days, DEO outperformed the SP500 index on 50% days. Which indicates that on days DEO outperforms the SP500 index, it's performance is marginally better than on the days it underperforms the SP500 index.
DEO was profitable on 52% days in the last three months. During this time, it delivered on average +0.02% per day. It delivered it's worst daily return of -3.49%, during this period, on Wednesday, 10 Oct, 2018. The longest stort-term trend during this period was 6 profitable days, which started on 20 Nov, 2018 and went on till 28 Nov, 2018. This bullish trend returned +1.73% to investors.
The last 12 months saw DEO's investors making profits in 5 months and incurring losses in 7 months. DEO was less consistent in delivering monthly returs than SP500 index. DEO significantly outperformed SP500 index in Apr 2018, when it returned +6.2% compared to +4.75% returned by SP500 index during it's best month in the last one year - Jan 2018. DEO had a longer winning streak of losing months than SP500 index. It went down in 3 straight months (from Jan 2018 to Mar 2018) during which period it delivered -6.75%. It is interesting to note that both DEO and SP500 index significantly outperform during months when quarterly/annual results are announced.
"It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.
DEO is currently seeing overall increase in volatility. In comparison, the SP500 index is seeing increase in volatility. During the last three months, there was a significant surge in DEO's volatility from 10 Sep, 2018 to 24 Oct, 2018. While there was a significant surge in the SP500 index's volatility from 10 Sep, 2018 to 29 Oct, 2018.
Advanced/professional short-term investors should note that DEO has negative skewness in it's return distribution. This indicates that investors may need to stay invested through long periods of drawdown before expecting a recovery.
SP500 index has more chance of extreme outcomes than DEO. Therefore, SP500 must receive a lower allocation than DEO in your portfolio. SP500 index usually has shorter drawdown period than DEO.
Based on your interest in DEO you may find it interesting to know that RPT has delivered similar performance as DEO and can be considered as an alternative investment candidate (to DEO).
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