DeBondt & Thaler contrarian strategy — buy long-term losers for mean reversion
Investors systematically overreact to bad news. 3-5 year losers outperform winners by 24.6% over next 36 months (DeBondt & Thaler 1985)
| Symbol | Action | Vol | Stop Loss | Take Profit | Size | Links |
|---|---|---|---|---|---|---|
| SLYV | BUY | 22% | 17.4% below entry | 4.9% above entry | 7.0% | TVYH |
| IWD | BUY | 14% | 11.1% below entry | 3.2% above entry | 10.9% | TVYH |
| VBR | BUY | 19% | 15.0% below entry | 4.3% above entry | 8.1% | TVYH |
| SHY | BUY | 2% | 9.3% below entry | 3.0% above entry | 13.0% | TVYH |
This strategy is suitable for passive investing. - Take profit: Rebalance when any position exceeds 2x its target weight. Trim back to target, redeploy to underweight positions. - Stop loss: NO price-based stop loss. This strategy recovered from 35% drawdown to deliver positive long-term returns. - Exit rule: Review annually. Exit if strategy underperforms its benchmark for 3 consecutive years.