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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 251806  
Subject: Re: CashCowROE cousin of YEY? Date: 5/25/2013 7:50 AM
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One might therefore speculate that taking a very deep version of both
screens and doing an SOS might find a very good Magic-Formula-like screen.
[we pause while Jim opens up another tab...]
http://www.backtest.org/8912SS%28CashCowROE:SBenwG0IcdyG0Ita...


That screen construction is a little odd, in that each subcomponent does
its own momentum sort before the sum-of-ranks is done with the SOS.

Here's a variant that strips the momentum out of the CashCowROE and YLDEARNYEAR sub-screens,
does the sum of ranks, then does the momentum sort at the end.
This makes it yet another small step closer to the MFI, though still quite different.
backtest.org/8912SB%28SS%28CashCow100:SBenwG0IcdyG0ItasG0Inw...
Note that it's doing the momentum from within only the top 25 based
on the SOS step doing the value-oriented criteria.
Thus it's a very strongly value/fundamentals driven version and doesn't
rely very heavily on the momentum component. The more stocks you have
going into the final momentum sort the more it's a momentum screen.
A fairly remarkable win/loss ratio.
Remarkably (though not very meaningful statistically) it holds up
well right down to a one-stock "bullet" screen. That's reasonably
rare because just one dud stock in the whole series ruins the long run result.
It's fun to contemplate a one-stock screen returning 53%/year since 2000.

Meanwhile, closer to planet earth,
The top 5 monthly 1989-2012 shows CAGR 27, DDD3 risk metric 5.8%.
For those (most of the planet) unfamiliar with the DDD3 variant of
downside deviation, 0 means no risk, meaning no negative rolling
quarters and no rolling years under 10% return.
For comparison the S&P is around 11.3% in the same era and YLDEARNYEAR 7.4%.
At around 3-4% you can open a hedge fund, at 0-2% you're Bernie Madoff.
Thus 5.8% is pretty good for something 100% equities at all times.

Jim
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