NVS investors herd to book profits while the going is good
14 Dec, 201813 min read
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NOVARTIS AG (Foreign) delivered massive losses on Friday. It lost -1.14% to close at 87.39. It is currently trading +20% above it's 52 week low of 72.44 and is down only -6% from it's 52 week high.
Buy-and-Hold investors in NVS experienced a maximum drawdown of -5.34% over the last three months. It returned +2.65% during this up trending period. There were no short signals during this period, while the long signal generated profits of +2.65% for investors.
NVS has been outperforming the SP500 index in recent time. Over the last 2 years 11 months and 10 days, NVS underperformed the SP500 index on 49% days. Which indicates that on days NVS underperforms the SP500 index, it's performance is marginally worse than on the days it outperforms the SP500 index.
During the last three months NVS delivered losses on 51% days. However, it still managed to end this period in a profit. It's best return during this period (of +3.09%) was on Tuesday, 16 Oct, 2018. While it's worst loss in the same period (of -4.27%) was on Wednesday, 24 Oct, 2018. There was initially a bullish trend during this period which started on 28 Sep, 2018 and went on till 3 Oct, 2018. The bullish trend returned +1.56% to investors. This was followed by a bearish trend that started on 4 Oct, 2018 and ended on 12 Oct, 2018. This bearish trend lost -5.45% of investor capital.
NVS had 6 profitable and 6 loss making months over the last year. During the last year, NVS underperformed SP500 index on monthly return basis. NVS significantly outperformed SP500 index in Jul 2018, when it returned +12.3% compared to +4.75% returned by SP500 index during it's best month in the last one year - Jan 2018. NVS had a longer winning streak of losing months than SP500 index. It went down in 4 straight months (from Feb 2018 to May 2018) during which period it delivered -16.92%. It is interesting to note that both NVS and SP500 index significantly outperform during months when quarterly/annual results are announced.
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NVS is becoming less volatile overall. In comparison, the SP500 index is seeing a rise in volatility. During the last three months, there was a significant surge in NVS's volatility from 17 Sep, 2018 to 25 Oct, 2018. While there was a significant surge in the SP500 index's volatility from 25 Sep, 2018 to 29 Oct, 2018.
Advanced/professional short-term investors should note that NVS 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.
NVS has more chance of extreme outcomes than the SP500 index. Therefore, NVS must receive a lower allocation than SP500 in your portfolio. SP500 index usually has shorter drawdown period than NVS.
On a general note (since you are interested in NVS), two large cap instruments that deserve special mention are CSCO and AMZN. They have significantly outperformed the overall market.
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