Skip to main content
No. of Recommendations: 19
I too seem to have a unreasonable mental desire to find that seemingly unobtainable set of parameters that outperform...

I'm not sure all the disillusionment and abandonment is deserved.

The key, I think, is realistic goals.
My observation is that many of the screens that have very few parameters, meaningful depth (15+, up to 50), and very modest expectations seem to keep doing fine.
More like a custom index than what we used to think of as a 4-5 stock screen.
Remember, if you can outperform long term by 2-3%/year you're beating almost all professional money managers.
I think that's much more likely with a 30 stock screen that backtests at beating by 3-5%/year than with a five stock screen that backtests at beating by 20-30%/year.

This one...
...returned 68.8% in the last year (the 15 stock, hold-till-drop at 25 version), beating the S&P by 25%.
That's wildly anomalous, but at least the sign is correct.
Mix of backtest and out-of-sample shows an advantage of 4-5%/year in the last 15 years, 3.7% in the last three.

Another simple one of mine (sum of 4 one-factor sort ranks), 30 stocks deep, beat the S&P in all of the last four calendar years out of sample.
Overall advantage after friction 6.3%/year versus the S&P in the last 3.7 years.

I don't think we should conclude that stock screening is dead or doesn't work.
I think we just have to keep away from our old habits of picking too few high flying stocks in an overtuned screen.
Low expectations are often met.
Nothing ever returned 20%/year over the long run, and nothing ever will.

Sure, some things we thought were *really* reliable turned out not to be. YLDEARNYEAR is the one that springs first to mind.
Especially during the nuclear winter for dividend stocks. Ouch.
A portfolio of the highest yield 50% of the VL dividend stocks lost -6.9%/year from Dec 2016 to April 2020, while the S&P 500 rose +7.3%/year.
That was a portfolio of over 500 stocks--so much for the idea that all diversified portfolios must be index trackers!

Print the post  


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.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! 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.