Studies
Portfolio Comparison: Navellier
Grades vs Investor Advisory Services/Small Cap Informer Newsletters (IAS/SCI)
January 13, 2022
Growth vs Value 2022-1-7.pdf
Data Mining for High Return
Criteria
February 22, 2021
Mining for
Consistent High Returns.pdf
It has been some time since I updated the monthly data
downloads and used KnowledgeSEEKER's decision trees to statistically search
for criteria yielding consistent high returns. This brief summary of
some of the findings concludes that trying to find long-term patterns is a
fools errand unless one has a horizon that stretches for decades.
Markets have juncture points at which the dynamics change. It only
makes sense to research from those points forward. We are in a period
since 11/1/2020 or so of specific criteria yielding very high returns (50%
change per month) with very little variation between all the stocks selected
by the criteria.
Using Data to Capitalize on
Behavioral Finance
December
11, 2016 What
Moves Stock Prices4.pdf
How do we explain that stock movements correlate so
tightly with each other? Are there ways to systematically take
advantage of what we know about stock correlations? Why are investors
so phobic of volatility, when it is more predictable than price and is
essential for gains? Are there systematic ways to take advantage of
irrational behavior revealed by behavioral finance? Momentum shows us
that stocks go up ̶ until they don't. Is one ahead to buy stocks
trending up, or to buy stocks that have dropped and expect a reversion to
the mean?
These are some of the questions to which we sought
answers by looking at monthly returns over twelve years and over a million
rows of data. Variables include volatility, correlation, and price.
The resultant portfolios are working nicely.
Playing Defense
December 30, 2015.
Playing Defense.pdf
In this two-page summary I first review my effort to
replicate and create a portfolio from the liquidity findings of the Ibbotson
et.al. article below. While my data were not useful for that
purpose, they were very useful in the discovery of a portfolio with very low
draw-downs and high annual returns (16.7%, including time in cash).
What is most dramatic is that the number of stocks selected by the screen
correlate with returns over the next year (p of .00000435).
Since 2003, months with a screen selection count of 15-29 have not had a
loss the consequent twelve months and had average returns of 24.7%.
Screen counts of 30 or more have not had a loss and had annual returns of 27.0%.
Study the table.
Using Screen Counts to Forecast
Market Trends
November 12, 2012
Counts Forecast Returns.pdf
Serendipitously I discovered that the number of stocks
conforming to criteria for a specific screen corresponded to the returns
from that screen over the next year. For high counts occurring 29% of
the time the relationship held true without exception. Since almost
every screen or set of criteria that one might construct will also correlate
with market returns, this has some interesting implications. Detailed
data is provided in tables and charts.
Factors
Small Cap Advantage
December 13, 2015.
Factor-Market
Capitalization.pdf
Similar to with value and growth, charts and some
methodological description are shown in the endeavor to find a pattern of
superior performance between large and small cap stocks. In looking at
data other than are reported here, I generally find that small cap stocks
outperform, but as a result of exceptional returns from a small number of
stocks. If I remove the outliers or cap their returns in the analysis,
the large cap stocks outperform. I see the same thing between value
and growth, with value stocks being more similar in their returns.
Cycles for Value and Growth
December 13, 2015.
Factor-Value Growth.pdf
The divergence between value and growth since 2000 is
shown on several charts in the search for investable patterns. There
are definitely periods—sometimes extended periods—when either value or
growth has far superior returns. And there is a reversion to the mean.
However, the length of the cycles is not consistent. For example,
value has been underperformed growth in a serious way for the past twenty
months or so, but how long that will continue is hard to know.
Style Reversion to the Mean
December 4, 2015.
If Factor Returns Are Predictable_Why is There an Investor Return Gap.pdf
Styles or factors run in predictable cycles, with most
investors exiting and changing managers, funds or investments when they
should be buying. The article was published by Research Affiliates and
is written by Jason Hsu, Ph.D. Below are reports on my endeavors to
test and implement this very provocative article.
Momentum
November 27, 2015.
Momentum or Reversal.pdf
Every time I buy a portfolio of nicely trending stocks,
they seem to reverse. The paper describes a study of weekly percent
change since 2009 for the largest 3,000 stocks. I made several
interesting discoveries in addition to clear evidence that for the last six
years, stocks going down (and still around) give far better returns than
stocks going up.
Quality as Measured by the
Piotroski F-Score
December 3, 2015
Quality and
Piotroski F-Screen.pdf
The Stock Investor Pro Piotroski F-Score is a
measure of a firm's healthy financials and fundamentals. Is it a
useful measure of quality? I discovered some surprises in this
examination.
When Should One Buy Quality
Stocks?
November 7, 2012
Risk-On Risk-Off.pdf
It is easy to naively assume that one should always buy
quality stocks, but some markets reward quality stocks and sometimes risk-on
markets reward low-quality stocks. Identifying quality is the easy
part. The more complicated part involves indicators for risk-on and
risk-off markets, and knowing how to hedge the risks for each type of
market.
Why is it harder to beat the
market?
July 10, 2013. Why
it's harder to get market-beating returns.pdf
Not only Wenzel Analytics, but active managers in general
are having more trouble beating the market. This analysis presents data on
changes in correlations and the number of stocks significantly exceeding
market returns. While indexed products are a common response, are they
also the cause of the changed market dynamics? The last page addresses
what an investor might do.
Analysis of AAII Shadow Stock
Screen
December 10, 2012. Shadow
Stock Analysis.pdf
AAII Shadow Stock screen frequently publishes updates on
its Shadow Stock Screen (SSS), a small cap screen available through their
Stock Investor Pro stock data and software. Should you invest using
the screen? Perhaps more useful than the detailed assessment of the
screen is the methodology for how to evaluate or improve upon a screen.
Stock Screen Rotation June, 2009 Stock Screen Rotation.pdf Whether looking at AAII stock screens or those I have developed, I find it hard to find stock screens that produce a consistent count month after month, year after year, with consistent high performance and consistent performance from all the stocks selected. Would we get better returns using the current best performing screens? The answer is no. But we get exceptional returns when using specific ranks other than the best. Here is an overview report.
Cyclicals as Stand-in for Commodities Commodities should be part of everyone's asset allocation for the next few years. Cyclical stocks track the commodities, and are more practical to buy for the average investor. The paper ends with our choice of nine stocks from the index.
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