Subject: Re: Buffett's stock selection screen
IBKR does look extremely interesting, thanks for pointing it out.
My remark about WEB being future-focused whereas we tend to turn more to past stats didn't mean to ignore Jim's use of forward EPS. But they are projections by people who aren't Buffet. Maybe in aggregate they're useful, that's testable.
My general concern is this:
Are we capitivated by the shiny object of easily available past data so we get very quantitative on this because this is relatively easy for us to do, but as a consequence we pay less attention than Buffet does to estimating, somehow (!), well into the future? MI used screens that seemed to be utterly logical screens of past data, but the picks too often failed going forward. Including future EPS projections by analysts might, or might not, be useful, that can be tested. I speculate a bit on doing something other than pure 'quant' at the end of this post.
Back to Jim's suggestion: I had suggested adding in past share price performance as a criterion, because if you're thinking that growth in EPS augurs well for the future then that idea should also be checked on past data. FWIW, below is the past five year CAGRs of the final 56 firms in Jim's post. I take 'five years' as the start of 2019 to present i.e. almost to end of 2023, so almost five years. The three Toronto exchangs tickers will have to be included later if of interest because the ".TO" threw off my script.
Bottom line: if you ask that the firms had to do at least as well as BRK over the past five years in terms of CAGR (maybe you don't want to demand that?) then these firms are ruled out:
DINO, CNHI, ALSN, GES, NMIH, WKC,TRP, MKL, CVX, G, WEX, RRX, AVNS, SPH, SHEL,CHTR , CI, FLT, EPC, PYPL, SIRI, KMI
I include BRK and SPY for reference:
BRK
Annualized Return 0.1150000
Annualized Std Dev 0.2204000
Annualized Sharpe (Rf=0%) 0.5218000
maxDrawdown 0.2956994
SPY
Annualized Return 0.1403000
Annualized Std Dev 0.2121000
Annualized Sharpe (Rf=0%) 0.6611000
maxDrawdown 0.3371727
TOL
Annualized Return 0.215900
Annualized Std Dev 0.485600
Annualized Sharpe (Rf=0%) 0.444600
maxDrawdown 0.719797
DINO
Annualized Return 0.0371000
Annualized Std Dev 0.5101000
Annualized Sharpe (Rf=0%) 0.0727000
maxDrawdown 0.6921351
GPI
Annualized Return 0.4099000
Annualized Std Dev 0.5336000
Annualized Sharpe (Rf=0%) 0.7681000
maxDrawdown 0.7024853
AN
Annualized Return 0.314000
Annualized Std Dev 0.433900
Annualized Sharpe (Rf=0%) 0.723800
maxDrawdown 0.574448
TS
Annualized Return 0.1254000
Annualized Std Dev 0.4274000
Annualized Sharpe (Rf=0%) 0.2933000
maxDrawdown 0.6873873
CNHI
Annualized Return 0.0380000
Annualized Std Dev 0.4083000
Annualized Sharpe (Rf=0%) 0.0930000
maxDrawdown 0.5585198
TEX
Annualized Return 0.1325000
Annualized Std Dev 0.4903000
Annualized Sharpe (Rf=0%) 0.2702000
maxDrawdown 0.6456199
ALSN
Annualized Return 0.0542000
Annualized Std Dev 0.3233000
Annualized Sharpe (Rf=0%) 0.1676000
maxDrawdown 0.4709926
GES
Annualized Return 0.0514000
Annualized Std Dev 0.8695000
Annualized Sharpe (Rf=0%) 0.0591000
maxDrawdown 0.8331915
NMIH
Annualized Return 0.0981000
Annualized Std Dev 0.4700000
Annualized Sharpe (Rf=0%) 0.2087000
maxDrawdown 0.7306719
BLDR
Annualized Return 0.6519000
Annualized Std Dev 0.5273000
Annualized Sharpe (Rf=0%) 1.2362000
maxDrawdown 0.6220724
WCC
Annualized Return 0.2424000
Annualized Std Dev 0.5150000
Annualized Sharpe (Rf=0%) 0.4707000
maxDrawdown 0.7371229
BYD
Annualized Return 0.2372000
Annualized Std Dev 0.5348000
Annualized Sharpe (Rf=0%) 0.4436000
maxDrawdown 0.7743236
HRI
Annualized Return 0.3711000
Annualized Std Dev 0.6173000
Annualized Sharpe (Rf=0%) 0.6012000
maxDrawdown 0.7475689
DAR
Annualized Return 0.180200
Annualized Std Dev 0.427100
Annualized Sharpe (Rf=0%) 0.422000
maxDrawdown 0.539688
OC
Annualized Return 0.2552000
Annualized Std Dev 0.3950000
Annualized Sharpe (Rf=0%) 0.6461000
maxDrawdown 0.5422821
STM
Annualized Return 0.2591000
Annualized Std Dev 0.4509000
Annualized Sharpe (Rf=0%) 0.5745000
maxDrawdown 0.4993788
OVV
Annualized Return 0.1252000
Annualized Std Dev 0.7493000
Annualized Sharpe (Rf=0%) 0.1670000
maxDrawdown 0.9409856
SWN
Annualized Return 0.1465000
Annualized Std Dev 0.6506000
Annualized Sharpe (Rf=0%) 0.2251000
maxDrawdown 0.7385892
PLAB
Annualized Return 0.1563000
Annualized Std Dev 0.4934000
Annualized Sharpe (Rf=0%) 0.3169000
maxDrawdown 0.4735873
WKC
Annualized Return 0.0021000
Annualized Std Dev 0.4973000
Annualized Sharpe (Rf=0%) 0.0042000
maxDrawdown 0.5602872
URI
Annualized Return 0.3518000
Annualized Std Dev 0.4596000
Annualized Sharpe (Rf=0%) 0.7654000
maxDrawdown 0.5902133
DOOR
Annualized Return 0.134000
Annualized Std Dev 0.459700
Annualized Sharpe (Rf=0%) 0.291500
maxDrawdown 0.585242
IMO
Annualized Return 0.2052000
Annualized Std Dev 0.4360000
Annualized Sharpe (Rf=0%) 0.4706000
maxDrawdown 0.7326301
TRP
Annualized Return 0.0603000
Annualized Std Dev 0.3004000
Annualized Sharpe (Rf=0%) 0.2009000
maxDrawdown 0.4164055
MKL
Annualized Return 0.052800
Annualized Std Dev 0.302900
Annualized Sharpe (Rf=0%) 0.174200
maxDrawdown 0.446558
CVX
Annualized Return 0.1037000
Annualized Std Dev 0.3587000
Annualized Sharpe (Rf=0%) 0.2890000
maxDrawdown 0.5577392
DE
Annualized Return 0.2225000
Annualized Std Dev 0.3372000
Annualized Sharpe (Rf=0%) 0.6600000
maxDrawdown 0.3791293
G
Annualized Return 0.0639000
Annualized Std Dev 0.2983000
Annualized Sharpe (Rf=0%) 0.2141000
maxDrawdown 0.4947237
SF
Annualized Return 0.1865000
Annualized Std Dev 0.4030000
Annualized Sharpe (Rf=0%) 0.4627000
maxDrawdown 0.5189201
WEX
Annualized Return 0.0428000
Annualized Std Dev 0.4688000
Annualized Sharpe (Rf=0%) 0.0912000
maxDrawdown 0.6460256
RRX
Annualized Return 0.1128000
Annualized Std Dev 0.3750000
Annualized Sharpe (Rf=0%) 0.3007000
maxDrawdown 0.4232069
BLD
Annualized Return 0.4420000
Annualized Std Dev 0.4804000
Annualized Sharpe (Rf=0%) 0.9202000
maxDrawdown 0.5225713
AVNS
Annualized Return -0.1438000
Annualized Std Dev 0.4407000
Annualized Sharpe (Rf=0%) -0.3262000
maxDrawdown 0.6696629
SPH
Annualized Return 0.0671000
Annualized Std Dev 0.3308000
Annualized Sharpe (Rf=0%) 0.2028000
maxDrawdown 0.5569809
SHEL
Annualized Return 0.0652000
Annualized Std Dev 0.3756000
Annualized Sharpe (Rf=0%) 0.1737000
maxDrawdown 0.6554945
CHTR
Annualized Return 0.0797000
Annualized Std Dev 0.3156000
Annualized Sharpe (Rf=0%) 0.2526000
maxDrawdown 0.6305161
AMP
Annualized Return 0.2970000
Annualized Std Dev 0.4056000
Annualized Sharpe (Rf=0%) 0.7323000
maxDrawdown 0.5388382
IBP
Annualized Return 0.3157000
Annualized Std Dev 0.5319000
Annualized Sharpe (Rf=0%) 0.5936000
maxDrawdown 0.6168815
CAT
Annualized Return 0.1637000
Annualized Std Dev 0.3282000
Annualized Sharpe (Rf=0%) 0.4988000
maxDrawdown 0.3855426
MCRI
Annualized Return 0.1263000
Annualized Std Dev 0.4883000
Annualized Sharpe (Rf=0%) 0.2586000
maxDrawdown 0.7507023
ACGL
Annualized Return 0.2666000
Annualized Std Dev 0.3344000
Annualized Sharpe (Rf=0%) 0.7971000
maxDrawdown 0.5383977
CI
Annualized Return 0.1062000
Annualized Std Dev 0.3417000
Annualized Sharpe (Rf=0%) 0.3106000
maxDrawdown 0.4154987
ELV
Annualized Return 0.1322000
Annualized Std Dev 0.3437000
Annualized Sharpe (Rf=0%) 0.3848000
maxDrawdown 0.4412388
FLT
Annualized Return 0.0502000
Annualized Std Dev 0.3522000
Annualized Sharpe (Rf=0%) 0.1425000
maxDrawdown 0.5012924
EPC
Annualized Return -0.0032000
Annualized Std Dev 0.4291000
Annualized Sharpe (Rf=0%) -0.0075000
maxDrawdown 0.5428633
PRI
Annualized Return 0.1786000
Annualized Std Dev 0.3457000
Annualized Sharpe (Rf=0%) 0.5166000
maxDrawdown 0.5446819
WRB
Annualized Return 0.1838000
Annualized Std Dev 0.2928000
Annualized Sharpe (Rf=0%) 0.6276000
maxDrawdown 0.4534569
PYPL
Annualized Return -0.0835000
Annualized Std Dev 0.4397000
Annualized Sharpe (Rf=0%) -0.1899000
maxDrawdown 0.8366771
SIRI
Annualized Return -0.0201000
Annualized Std Dev 0.3964000
Annualized Sharpe (Rf=0%) -0.0507000
maxDrawdown 0.5007201
VMI
Annualized Return 0.1348000
Annualized Std Dev 0.3345000
Annualized Sharpe (Rf=0%) 0.4030000
maxDrawdown 0.4516082
KMI
Annualized Return 0.0791000
Annualized Std Dev 0.3224000
Annualized Sharpe (Rf=0%) 0.2454000
maxDrawdown 0.5512589
SEDG
Annualized Return 0.155800
Annualized Std Dev 0.675100
Annualized Sharpe (Rf=0%) 0.230700
maxDrawdown 0.807591
Blue sky (bs):
What could Buffet be doing? I don't know, but am guessing he doesn't get excessively 'quant' on past data. FWIW, here's a guess: he asks himself if he like the management? If he does, he takes a quick look at past performance, i.e. both share price performance and also e.g. growth in book value, EPS, and other 'fundamental' measures over a period that interests him. So, I'm not suggesting that Buffet doesn't look at past data, just that he may be looking through a different lens. Maybe he asks if management has been in place over whatever past period he looks at? Perhaps it's a look over more than the past 5 years, e.g. maybe he also looks at how well management handled general shocks to the financial system. Maybe he looks at capex and makes qualitative decisions about whether it was a good idea or not to spend that money in that way. Maybe he looks at what wasn't done, i.e. if in the ZIRP period they didn't assume some leverage then maybe that counts in his mind against management? If he does like management well enough, perhaps he actually forgives them some past errors that negatively impacted the bottom line (after all, WEB does admit his own errors)? Does management have history in other endeavours, perhaps he tracks how certain people have done in other endevours?
I surely don't know what WEB does, I'm just trying to give an example of something that isn't totally 'quant' on past data. The above is more management oriented, allows 'forgiveness' for something that would kick a firm out of a total quant screen, has qualitative and not quantitative elements e.g. "why did they fund via equity and not debt, even though the stats still look good?".