Papers - by Most Recent
Instead of by Topic
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.
Portfolios by Goal
April 10, 2018
Portfolios by Goal
Wenzel Analytics is focused on portfolios more than
individual stocks that comprise the portfolios. Specific portfolios
fall into goal categories to 1) exceed the market, 2) exceed in down
markets, 3) match the market or 4) be independent of the market.
Portfolios are also categorized by methodology used to create the
portfolios. Some are 1) based on a strong logic, rationale or story,
2) some are derived from sources tested over many years, and 3) some are
based upon statistical work.
Gains from Behavioral Finance
October 12, 2017
Gains Behavioral
Finance.pdf
Instead of merely trying to not fall victim to the human
foibles revealed by behavioral finance, how can we go a step further and
capitalize on all the stupid things investors do?
Drain the Traditional IRA Early?
October 12, 2017
Drain the IRA.pdf
A common perception is
that the longer funds remain untaxed, the greater the returns because of
gains on untaxed money. While counterintuitive, we show and illustrate
that often for many investors it's better to pay the taxes
now.
Approaches for Picking
Individual Stocks, Screening for a Group of Stocks, or Selecting
Factor-Based Indexs of Many Stocks
May 25, 2017
Stock Selection - Rifle, Shotgun or
Net.pdf
June 13,
2017
Portfolio Status by Rifle, Net or Shotgun.pdf
The methods we use to select stocks need to take account
of how many stocks we want to select and the variation in results we might
expect. Skillful allocation between index funds might beat the overall
market for a given year, if that is your goal, but not satisfy if your goal
is to beat the market by ten percent. Selecting individual stocks
using factor-based research is a misappropriation of the research and is not
likely to work.
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.
Factors
Liquidity as a Style
December
4, 2015.
Ibbotson-Liquidity as an Investment Style.pdf
Roger Ibbotson et.al. present a compelling case and data
as to why liquidity can produce excess returns even more so than the usual
factors of value, size and momentum.
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.
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.
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.
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.
Presentation Slides for Twin
Cities AAII Chapter Program
December 3, 2015
AAII Dec 2015.pptx
This are the PowerPoints I used in my presentation to the
local AAII chapter titled "Dangerous Maxims." I also review other
research, some of it described below.
Reactions to and Suggestions for
the National AAII Conference
November 10,
2015. AAII 2015
Conf Reactions.pdf
I had the privilege of attending the National AAII
Conference in Las Vegas November 8 and 9. The attached write-up is
about some of the issues I saw presented, and some that I saw missing.
Planning Spreadsheet (Monte
Carlo) Intro Page.pdf
Sample Printout.pdf
Many Boomers will not be able to continue their present lifestyle into a non-working retirement even with the most aggressive and successful investment program. Many other families approaching retirement or already retired have assets far in excess of what is required to assure their current and chosen lifestyle.
For them these assets and the fruits of these assets will eventually go to heirs, charity or the government. They need to be prudently managed for that purpose, rather than to miss returns that could greatly benefit chosen heirs or causes. In between these extremes are people who need to plan and invest with exceptional care and attention so as to enable their future security. Personally, I happen to be in this last group, as are many of my clients. It is easy to read that historical equity returns average 9.8% and then make future projections based on that rate each year. Doing so creates a very misleading picture, as historical returns vary considerably. In fact, annual returns vary more than the normal statistical distribution assumed by many financial planning tools providing Monte Carlo simulations. I developed a spreadsheet for inputting projected income and expenses in years going forward, along with other relevant data such as allocation between equities, Treasury Bills, bonds and real estate. Multiple scenarios are then calculated using randomly selected years since 1928 (or a more recent year of your choosing). A comparison is also shown for calculations using a fixed rate of return. The two principal advantages to the spreadsheet are: 1). Returns are calculated based upon historical precedent, rather than assumptions about normal statistical distributions. 2). It is not a black box.
Contact me if you would like to run the calculations on
your situation. Once we have done so, I can then send you your
spreadsheet and you can continue to run simulations.
Planning
Input Data.pdf
Planning Input Data.xlsx Use one of these data entry worksheets to
submit your initial data for doing your own Monte Carlo projections.
Use the pdf to print and write on paper if you are uncomfortable with the
risks of downloading xlsx files.
Do Index Funds and ETFs
Undermine the Efficient Allocation of Capital?
October 19, 2013.
Tor Dahl e-mail.pdf
Index products buy all the stocks in the index, whether
they have merit or not. These capital flows do not distinguish the
efficient and productive companies from all the rest. Will this
undermine capitalism? Could we just as well have the State allocating
capital to specific companies? A noted economist answered my e-mail.
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.
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.
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.
Making Money through Paradigm
Violations
February 5, 2011
Paradigm Violations.pdf
This two-page discussion paper outlines eight paradigms
for all economic transactions, and presents a framework for understanding
innovations by applying a paradigm to a set of services usually provided
through another paradigm. Several examples illustrate the concepts.
Yes, But is it Health Insurance?
January 3, 2011
Yes But
is it health insurance MISF.pdf
Many economists, politicians and commentators mention
that going forward, the costs of Medicare and other medical services are the
biggest threat to our economy. Well, I wrote a paper about how to
think out the solution, and here it is! If you like thinking from new
perspectives and alternative paradigms, this is for you. I sent it to
former Senator David Durenberger, now chair of the National Institute of
Health Policy at the University of St. Thomas, and he replied, "I took a
great deal from your article 'yes, but is it health insurance.' I am going
to use it in my health policy class. And probably on other occasions. It is
ahead of its time, certainly way ahead of the current reforms which are
important, but costly."
Investing for Non-Profit
Donations
December
2, 2010
Investing for
Non-Profit Donations.pdf
By gifting appreciated assets to selected non-profits,
one can often make sizeable gifts at no cost to the donor, or at a cost
basis which is a small fraction of the gift's value. If one can deduct
the full value of a stock that has gone up three-fold, and one is at
marginal tax brackets of 25% federal and 8% state, the original cost to the
donor is entirely matched by the tax benefit. However, the strategy
for part of ones portfolio requires choosing highly volatile stocks, which
will make many donors uncomfortable. To gift stocks which happen to
have appreciated is to miss most of the opportunities currently offered by
the tax code. For this to work, one has to deliberately have a
portfolio dedicated to this purpose. The article goes into details of
how to select such portfolios, and what return distributions might look
like. Lists are given of prerequisites and cautions.
A Replacement for Health Insurance August 27, 2009 Replacement for Health Insurance.pdf Because our nation is now involved in an intense debate about reforming how we pay for health and medical services, I reviewed and edited a paper I did on the subject in 1995 when I was studying the matter as part of a Ph.D. program. The paper describes why insurance is inappropriate for most healthcare services and then suggests one of many possible alternative ways to structure paying for services. Since the paper is lengthy, I have also included a brief Health Finance Advocacy Statement as well as a biographical statement of my background in healthcare procurement. (Health Finance Bio.pdf.) 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.
Getting There How can you be comfortable in the face of investment uncertainties? What framework does it take for you to know that you are doing what you can to have enough, and even beyond that, maximizing your resources for the benefit of people and causes important to you? Investing Process Do you wonder how Wenzel Analytics has achieved its
performance record? Is there a reason for exceptional performance to continue? This detailed description of the investment process provides a way for you to do due diligence on Wenzel Analytics before handing over authority to manage investments. You might get some ideas for how to do your own investing, or you may want to imitate the steps in setting up a similar money management practice.
Allocation and Use of Pivot Tables The complexity of investment diversification will be overwhelming, result in procrastination and be expensive if you don't have a good framework and tools for seeing high-level balance and then being able to drill down to the details. To effectively make allocation decisions, you need to be able to see what you want to see, how you want to see it, when you want to see it, and not see a lot of other stuff that is confusing. This paper provides models you can create on paper, as well as samples of how an Excel pivot table can be an indispensable aid. Download the sample pivot table and explore.
To put your own data in a pivot table, you may download this example, edit a
row in the Master worksheet maintaining the formulas, and then delete the
remained illustrative rows.
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.
How Do You Make Investment Decisions? There are eight radically different ways that we go about making investment decisions. Which do you use? Which do you want to use?
Data Mining Interested in know more about how data mining works? Want to see an example of a decision tree? This summary gives more detail than was given in Investing Process.
Scott's Master's Thesis
Muslim Nations Toward Minorities Scott Wenzel.pdf
|