+74.99% average gain
Large winners do most of the heavy lifting. The job of the process is to keep them in the portfolio long enough to matter.
Risk
Risk is managed before returns are earned.
Formula Stocks is not trying to eliminate volatility. It is trying to make the payoff profile asymmetric by keeping losses contained, letting winners run, and giving the strategy enough breadth and time to work.
That framing matters because risk is not just how far a line can fall on a chart. It is also concentration, short holding periods, emotional decision-making, and paying too much for a good business at the wrong time.
Reward versus risk
The strategy only works if reward materially outweighs risk.
A sound investment process should display an asymmetric relationship between upside and downside. Historically, Formula Stocks has won 94.22% of the time with an average gain of +74.99%, while the losing trades averaged -16.74%.
That does not mean every position is safe. It means the portfolio is designed so that, across many trades and enough time, the math has historically tilted in the investor's favor.
-16.74% average loss
Losses still happen, but diversification and sell discipline are designed to stop any one idea from dominating the outcome.
+69.69% trade expectancy
That expectancy is not a guarantee. It is the historical edge produced by the combination of win rate and payoff spread.
Diversification
Risk falls when no single idea gets too much control.
Any individual investment can lose money. That is why Formula Stocks is meant to be used as a diversified basket held over a meaningful period of time, not as a short-term bet on one or two names.
Diversification matters across two dimensions: the number of stocks you hold and the amount of time you stay invested. More breadth lowers the impact of any single mistake. More time lets the process absorb drawdowns and take advantage of better opportunities that often appear during them.
01
Fear
Fear can turn a temporary drawdown into a permanent loss if you sell a good process at the worst possible moment.
02
Greed
Greed can be just as damaging when it pushes you to abandon discipline, over-concentrate, or cut winners too quickly.
03
Impatience
Impatience creates false negatives. A strategy built around compounding businesses and multi-year holding periods needs time to express its edge.
Market corrections
Corrections are part of the process, not proof that the process is broken.
Every serious strategy will live through market stress. The real question is how it behaves during those periods and whether it can recover without needing heroic predictions or emotional timing.
Historically, Formula Stocks has often recovered faster than the broader market after major dislocations. One reason is structural: lower prices increase future expected returns and create better opportunities for the next cycle of purchases.
Stress periods
Major drawdowns and the time it took to recover.
The table below keeps the comparison practical: peak-to-trough result during each major selloff, followed by the time needed to recover.
| Event | Formula Stocks | Recovery | S&P 500 | Recovery |
|---|---|---|---|---|
| 1973 market crash | -11.5% | 6 months | -43.4% | 67 months |
| 1987 Black Monday | +14.2% | 0 months | -26.8% | 23 months |
| 1990 recession | -24.0% | 3 months | -14.8% | 4 months |
| 2000-2003 dot-com bubble | +82.5% | 0 months | -43.6% | 51 months |
| 2007-2009 financial crisis | -9.3% | 1 month | -50.2% | 47 months |
| 2011 stock selloff | +5.6% | 0 months | -12.3% | 10 months |
| 2020 COVID-19 crisis | -26.3% | 3 months | -23.1% | 5 months |
1973 market crash
Formula Stocks
-11.5%
6 months to recover
S&P 500
-43.4%
67 months to recover
1987 Black Monday
Formula Stocks
+14.2%
0 months to recover
S&P 500
-26.8%
23 months to recover
1990 recession
Formula Stocks
-24.0%
3 months to recover
S&P 500
-14.8%
4 months to recover
2000-2003 dot-com bubble
Formula Stocks
+82.5%
0 months to recover
S&P 500
-43.6%
51 months to recover
2007-2009 financial crisis
Formula Stocks
-9.3%
1 month to recover
S&P 500
-50.2%
47 months to recover
2011 stock selloff
Formula Stocks
+5.6%
0 months to recover
S&P 500
-12.3%
10 months to recover
2020 COVID-19 crisis
Formula Stocks
-26.3%
3 months to recover
S&P 500
-23.1%
5 months to recover
Time in the market
Holding period changes the risk more than short-term noise does.
The historical pattern is simple: brief holding periods expose you to more chance, while longer holding periods have reduced the odds of a net loss.
The comparison below shows how the share of profitable holding windows improves as time invested increases, for both Formula Stocks and the S&P 500.
1 month
Historical positive rolling periods
67%
3 years
Historical positive rolling periods
100%
5 years
Historical positive rolling periods
100%
The longer you stay invested, the lower the historical odds of losing money
Using it as intended
This is not a get-rich-quick system.
Used for a very short period of time, the strategy behaves more like a concentrated wager than a disciplined portfolio. Used as intended, with diversification and patience, the historical odds of a positive outcome improve dramatically.
The practical takeaway is straightforward: diversify across enough stocks, stay invested long enough for the probabilities to shift in your favor, and let rationale rather than emotion guide the decision-making.
Formula Stocks is an information provider, not an investment advisory service or registered investment adviser. It does not offer individualized investment advice and does not manage client funds. Unless otherwise specified, all return figures shown above are for illustrative purposes only. Formula Stocks does not purport to tell individual customers which securities they should buy or sell, and its recommendations are not solicitations to buy or sell any security. Like a newsletter, Formula Stocks offers a model portfolio that members may choose to use as an input in their own decision-making process. Formula Stocks assumes no responsibility or liability for your investment results. You understand and acknowledge that investing in securities involves risk. For technical reasons, the website displays up-to-date graph data refreshed daily based on backtested data. Backtested performance results have certain inherent limitations, as they may be designed with some benefit of hindsight, even though every effort has been made to avoid that risk. Unlike an actual performance record, backtested results do not represent actual trading and may not reflect the impact of brokerage commissions, slippage, or other fees. Because transactions may or may not have been executed, results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of market liquidity or level of participation. Past results of any investment system are not necessarily indicative of future results. No representation is being made that you are likely to achieve profits or losses similar to those shown here. In addition, information, system output, articles, and other features of our products are provided for educational and informational purposes only and should not be construed as investment advice. It remains the user's exclusive responsibility to review and evaluate the content and to determine whether to accept or reject any content. Formula Stocks expresses no opinion as to whether any website content is appropriate for a user's investment portfolio, strategy, financial situation, or investment objectives.