Zoom Case Study: How DynaLogic Helps You Protect Gains
We explore a scenario where following DynaLogic’s Signals would have generated an additional $96,344 when compared to a buy and hold strategy on ZM!
ZM Case Study: How DynaLogic Helps You Protect Gains
DynaLogic runs proprietary software that helps you buy low and sell high. Once you subscribe, we send out daily signals that alert you to sell a stock when it’s becoming overbought and buy a stock when it’s becoming oversold. We are not financial advisors and are not making predictions about the future. Instead, our Buy/Sell signals are based purely on a mathematical formula.
Zoom Communications (ZM) is a technology company that provides video and chat services through a cloud-based platform. The ZM Initial Public Offering (IPO) was priced at $36/share on April 18, 2019 and the opening trade was $65, 80% above IPO price. When the pandemic hit and the whole world was shutting down, ZM was one of the most rewarded stocks because it allowed the world to isolate but still function. While offices shuttered and travel shut down, ZM offered a way for people to communicate. It had a massive run.
On October 19, 2020, 18 months after the IPO, ZM closed at $568, up 770% from the opening price on April 18, 2019. By December 31, 2020, ZM had dropped to $337, a 40% decline. Pfizer and Moderna were set to launch their covid vaccines. On November 30, Science magazine reported, “Absolutely remarkable: No one who got Moderna’s vaccine in trial developed severe COVID-19”. The whole world was beginning to be pulled back from the brink. On Dec11th, FDA had authorized the covid vaccine for emergency use. We all know the rest of the story.
It’s easy to look back on history and see what should have been done, but in the heat of the moment, our emotions take over. It’s just who we are, fear and greed rule. Absent some rules-based strategy, we are driven by our emotions. Let’s look at an example of how following DynaLogic’s rule-based Sell signals could have helped you optimize your investment in Zoom (ZM) since the start of the pandemic.
How DynaLogic Could Have Helped
Using end-of-day stock price data on Zoom, let’s examine how following DynaLogic’s Buy/Sell Signals could have made you more money than simply buying and holding the stock. The time frame is from April 22, 2019 through December 20, 2022.
Buy and Hold Strategy
Let’s say that you purchased $100,000 worth of ZM on April 22, 2019 at the closing price of $65.70 per share. You’d have purchased 1522 shares.
If you used a buy and hold strategy, as of December 20, 2022, you’d still own 1522 shares that would be trading for $69.86 per share and your total investment would now be worth $105,875. Just as a point of reference, on October 19, 2020, your 1522 shares would have been worth $865,053.
In other words, after riding a huge rollercoaster, today you would be up slightly and have an unrealized gain of $5,875.
Following DynaLogic
Now, let’s examine the same exact scenario but assume that you followed DynaLogic’s Sell Signals.
Again, let’s say that you purchased $100,000 worth of ZM on April 22, 2019 when it was trading for $65.70 per share. You’d have purchased 1522 shares.
Over the next 3+ years, we issued approximately 40 sell signals, averaging just over 1 per month (some months when volatility was high, and the stock price was rising there were multiple signals and some months there were no sell signals).
Assuming that you had followed our Sell signals, you’d have generated $191,050 from selling your stock. You would have generated $30,114 in capital gains taxes, some at 40% for short term capital gains.
Additionally, you’d still own 593 shares @ $69.56 each, which would be worth about $41,283 total.
After paying capital gains tax ($30,114), the total value of your investment (what you sold after capital gains tax + your existing holding) would be worth $202,219..
In other words, you would have doubled your investment.
In this scenario, following DynaLogic’s Signals would have generated an additional $96,344 when compared to a buy and hold strategy!
Zoom is a great example of a stock that got completely caught up in the fear of the pandemic. As the price was soaring, greed was in control and it would have been incredibly hard for ZM investors not to keep buying more stock in hopes of making more money. After all, the stock felt unbeatable; everyone was riding a rocketship.
But, in reality, investors should have done the opposite and sold as the stock was rising to lock in their gains. Sell when others are buying and buy when others are selling.
Our motto is: “Just do Something”!
DynaLogic doesn’t give investment advice, it’s not trying to predict the future. Our Sell signals are based on mathematical formulas applied to historical price data helping you answer one question, “Should I be doing something”?
Our signals are typically quite small by design, only prompting you to sell 1-3% or so at a time because markets over long periods of time are biased to the upside and selling too much early on can have a significant impact on future values. As is seen in this example though, during extreme volatility, even small sell actions compounded over time can result in a substantially better outcome.
Bottom line, DynaLogic will be there for your next winner tapping you on the shoulder all along the way to take a little off the table to prepare for the inevitable downturn. What we hope to help you avoid is the statement, “I wish I had done something”.
If you are not a subscriber, please be sure to subscribe below to get our Daily Buy & Sell Signal post “Risk-Off” at www.dynalogic.substack.com. It’s free.
(Note: DynaLogic provides to subscribers relevant and real time market movement information on a host of equity securities. Signals (sell or buy) are based solely on mathematical changes in the price of a security. No other methodology is used.
DynaLogic is not a registered investment advisor, and it makes no representation or recommendation concerning the purchase or sale of any security investment product; DynaLogic provides no advice or recommendation whether a subscriber should or should not act on any signal a subscriber receives, and it has no knowledge whether a subscriber, in fact, acts on a signal or any signal; DynaLogic maintains no portfolio account or other investment information on any subscriber.)