3 steps? Ha! We laugh at danger.

Let's try one step:

I still use the VL databases. Call me a dinosaur.
The one step:
([Sales Growth 1-Year] + [Sales Growth 5-Year]) * [Cash] / [Shareholders Equity] top 20

Monthly after friction 1997-2023 inclusive beat S&P 500 by 8.3%/year in backtest.
It beat the S&P in each of calendar 2020, 2021, 2022, 2023. That has been a tough bogey lately if you didn't own the Magnificent Faangs.


If you're willing to countenance one more step, adding a final "bottom 15 by beta" is nice.
Brings the advantage over SPY to 10.8%/year and it's a very much smoother ride. Lower rolling year downside deviation than the S&P, rather than higher.
Almost as good returns at 6 month holds, too, still a double digit advantage.

In backtest, anyway : )

What, you still want a third step?
Top 10 by dividend yield is even higher returns. Advantage over spy 12.5%/year. (but dodgy result because there aren't always 10 dividend paying stocks among the low 15 by beta)

Jim

Mechanical Investing FAQ

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