Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (19) | Ignore Thread Prev | Next
Author: tommurphy9 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 211930  
Subject: Re: OT: If Mr Graham had had a backtester... Date: 4/2/2014 9:56 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
here is a sort of quant approach for skeptics, drawing from Mr Graham (for what's important) and from Mr Greenblatt (how to use it).

I used all the 1700 companies covered by Value Line reports, using data 1986-2013 inclusive, 28 years in total.

Rank all the firms by price/book. Give the cheapest a score of 1, next cheapest a score of 2, etc.
Rank all the firms by current P/E ratio. Give the cheapest a score of 1, next cheapest a score of 2, etc.
Rank all the firms by dividend yield. Give the highest a score of 1, next one a score of 2, etc.
Rank all the firms by ROE. Give the highest a score of 1, next one a score of 2, etc.
Rank all the firms by debt to equity ratio. Give the least leveraged a score of 1, next one a score of 2, etc.
Once you have all those ranks, add 'em up for each stock, and find the 60 stocks with the lowest scores.
Voila!

Now, you could invest from within this pool in a number of different ways.
You could buy them all, or any at random, or the ones that look best (bad idea, FYI).
You could sell regularly, or after a certain percentage profit, or something else.


I'm a committed value investor who's trying to reduce my selection process to quant criteria. It's music to my ears that the lucid perspective of none other than Benjamin Graham evolved to a quant approach, largely based upon the rapidly widening availability of relevant information.

Mr. Graham's criteria expose a large number of "value" stocks. Jim has greatly elaborated on such criteria for gross selection. These are intended to be value investments that may hopefully be profitably held for many years.

Jim additionally enumerates various ways of advantageously narrowing this to a number of holdings more manageable by individual investors. Given a small selection intelligently extracted from within a larger universe of value stocks, the question becomes how often to adjust these holdings.

Quant approaches necessarily call for a reevaluation frequency. I'm inclined to hypothesize that frequency of adjustment might best be related to the fraction of the source universe represented in current holdings.

But then periodic selection of any frequency from within a larger universe naturally evokes consideration of momentum. In turn, adopting momentum as a final selection criterion introduces an element of fickleness.

Given a quant value bias, the questions that occur to me are:
• what is the optimal combination of value criteria?
• what is the optimal momentum criterion?
• what is the optimal readjustment frequency?
• what is the optimal combination of criteria for terminating a hold?

Tom
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (19) | Ignore Thread Prev | Next

Announcements

Post of the Day:
Value Hounds

Mylan Transitioning from Generics
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement