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- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 8
Jim recently made a suggestion for a simple screen. Sort the Russell
1000 stocks by ROE, buy the top 150 and hold for a long time, like 1
or 2 years.
I thought about adding some tweaks based on other ideas he has
mentioned -- limit it to only stocks that also have a Value Line
timeliness rating (VL1500), and also look at 5 Year Revenue Growth. I
also cut to 100 stocks instead of 150.
As it turns out, I have data for the Russell 1000 stocks of the last 2
years and the VL1500 stocks of 1 year ago.
Dividends reinvested. Stocks no longer traded are omitted. (These
seem to be stocks that got bought out, generally at a premium.)
Stocks whose earnings are positive and book is < 0 are included in
"best by ROE". Because these are strong companies where the stats
come out weird.
Russell 1000 stock data from barcharts{.}com.
For 7/22/2022 to 7/7/2023:
SPY: 12.8%
IWB: 12.4%
R1000 in VL1500, best 100 by ROE: 14.9%
Best 50: 9.9%
Best 25: 9.8%
R1000 in VL1500, best 300 by ROE, then best 100 by 5yRG: 15.2%
Best 50: 15.8%
Best 25: 16.8%
R1000 in VL1500, best 100 by 5yRG: 11.8%
Best 50: 5.5%
Best 25: 0.7%
R1000 regardless of VL1500, best 300 by ROE, then best 100 by 5yRG: 14.2%
Best 50: 13.4%
Best 25: 8.1%
---------------------
For 7/19/2021 to 7/11/2022:
SPY: -11.2%
IWB: -13.5%
R1000 regardless of VL1500, best 300 by ROE, then best 100 by 5yRG: -14.1%
Best 50: -17.1%
Best 25: -15.7%
=================================
Summary:
It appears that in a good year selecting the best 300 stocks by ROE
and taking the best 100 of these by 5-year-revenue-growth in equal
weight and holding for a year slightly beats the SP&500 index fund and
the Russell 1000 index fund.
In a bad year this is slightly worse than the index funds.
Also, it does not seem that the number of oldings makes much of a
difference.
No. of Recommendations: 2
It appears that in a good year.....
In a bad year....
Very brave conclusions, based on just one bad and one good year.
No. of Recommendations: 5
Very brave conclusions, based on just one bad and one good year.
Ah, yes. But this idea came from Jim (mungofitch)! ;-)
Puts together several good factors:
* A highly ranked set of companies (the top 1000 companies by market capitalization in the United States)
* Valueline Timeliness rating
* High return-on-equity (ROE)
* High 5-year revenue growth
* Infequent trading
* Equal weighted, not cap-weighted
Seems arguably better than just picking a random 15% of the Russell 1000 stocks.
No. of Recommendations: 0
Thanks for the backtests, Ray.
No. of Recommendations: 2
"Summary:
It appears that in a good year selecting the best 300 stocks by ROE
and taking the best 100 of these by 5-year-revenue-growth in equal
weight and holding for a year slightly beats the SP&500 index fund and
the Russell 1000 index fund".
"Puts together several good factors:
* A highly ranked set of companies (the top 1000 companies by market capitalization in the United States)
* Valueline Timeliness rating
* High return-on-equity (ROE)
* High 5-year revenue growth
* Infequent trading
* Equal weighted, not cap-weighted"
This is propably about as close to that strategy as I can create with Fidelity's screener.
I actually invested in something similar for a couple months with 15 stock picks.
ROE_RevGr5_GMI-Quality
Security Type
Common Stock Selected
7924
Company Headquarters Location
North America selected
5880
Market Capitalization
Mega, Large, Mid & Small Selected
$2.03B and Above
1402
S&P Global Market Intelligence Quality
Exc. 0-20 Selected
21-100
1281
Return on Equity (TTM)
Very High & High Selected
18.34% and Above
477
Revenue Growth (5 Yrs)
Very High & High Selected
13.91% and Above
147
GD_
No. of Recommendations: 1
But 147 stocks is too many to buy. How do you narrow it down to a manageable level.
No. of Recommendations: 1
Pretty high annual turnover.
Of the 100 picks on July 2022, only 40 were still in the picks of July 2023.
Keep 40, sell 60 and buy 60, then rebalance.
No. of Recommendations: 2
Replying to Mark19
But 147 stocks is too many to buy. How do you narrow it down to a manageable level?
ROE_RevGr5_GMI-Quality
Attemped 3 month test run as follows:(too short of course for any real "MI" data)
First Selected top 100 by Sum of Ranks
Second Buy top 25 by highest ROE
Replaced drop outs in a "My Fidelity Solo FidFolios" equal weighted account every 5 weeks
Sum of Ranks:
Quality
RevGr(5y)
RoE (TTM)
But that did have a lot of turnover.
The 25 was chosen for the test because that is the chart limit of symbols allowed(used for data export).
One year hold may be a better choice.
GD_
No. of Recommendations: 15
FWIW, I tried to create a "better by ROE" group from within the Nasdaq 100 set of stocks.
Historically I have found this is a tough group to subset: it's usually better to just buy them all and be done with it!
This is my best attempt
I did this exercise with Value Line.
I don't have an exact "Nasdaq 100" membership field, so I approximated it.
At a top level view, the Nasdaq 100 is defined as the 100 largest Nasdaq-listed stocks which are not financials.
Technically it is "top 100 HTD 105", but let's ignore that.
So, to roughly approximate the Nasdaq 100 I start off with this as a universe:
Exchange is Nasdaq
Sales > 0 (Value Line does not populate the Sales field for most financials including banks, so this is a quick and dirty way to eliminate them)
Market cap top 100
Then we add the screen steps:
Ratio of price to 52-week high, top 50 (crowd source elimination of the ones crashing most at the moment)
ROE top 30
5-year sales growth rate top 20
With friction, it looks better at two month holds.
CAGR SPY 1997 to June 2023: 8.82%
CAGR All 100 stocks of my Nasdaq crudy proxy: 9.03%/year
CAGR of this 20 stocks screen, 2 month holds with 0.4% friction: 15.13%/year
My risk metric (DDD3) of SPY: 11.28%
My risk metric (DDD3) of Nasdaq 100 proxy: 15.96%
My risk metric (DDD3) of the 20 stock screen: 10.32%
Of course, the Nasdaq 100 (proxy) stocks had such wild gyrations around the tech bubble that it's more illustrative to break it down into eras
The bubble, January 97 - March 2000
Nasdaq 100 stocks up 50%/year, this screen up 47%/year: it kept up
The crash, March 2000-October 2002
Nasdaq 100 stocks down -81%, this screen -41% (figures not annualized -- the screen offered a lot of protection, but only on a relative basis)
The bungee rebound, October 2002 - November 2003
Nasdaq 100 stocks up +88%, this screen +40% (figures not annualized -- screen did not keep up: after a crash, the worst stuff always bounces best)
More normal times, November 2003 - June 2023
Nasdaq 100 stocks up +10.9%/year, this screen +14.8%/year (nice advantage in relatively normal times, at least in backtest)
This would have beat the S&P 500 and Nasdaq 100 equal weight about 70% of rolling years in the last ~20 years. Again, in backtest.
Some recent picks, to get a feel for what it likes
MELI VRTX NFLX NVDA GOOG ADBE LULU KLAC LRCX AMAT
CPRT AAPL MSFT IDXX CDNS SNPS NXPI COST MU CTAS
Jim
No. of Recommendations: 2
Sales > 0 (Value Line does not populate the Sales field for most financials including banks, so this is a quick and dirty way to eliminate them)
The not quick and dirty way to do this in VL is to screen for SIC Code < 6000 or SIC Code > 6999.
Elan
No. of Recommendations: 4
Looks like this is not particularly stable on the selections.
Of the 100 picks of 7/1/2023, when I ran the screen on 7/29/23 there were
84 keep
16 sell
16 buy
16% turnover after one month seems excessive.
Some wild returns for the month. -17.9% to +31.23%
FWIW, the one month return: 3.70%
vs. SPY 3.16%
