| Author: mungofitch |
| Subject: Re: A simple industry screen |
| Date: 1/3/2021 |
| Recommendations: 5 |
Re the "medical devices" / "high cash per share" 40 stock screen. FWIW, first four months out of sample 40 stock screen +28.8% not annualized Which approach do you think makes more sense: using the 5-year sales growth or the cash/market cap to select the holdings? Splitting hairs? Further, would you go with 20 stocks? 40 stocks? It depends what you want and need for your portfolio. Personally I am very hesitant to trust any meaningful fraction of my portfolio to any one quant pick, so I like lots of picks. A bit of extra typing is a small penalty to pay for the improved night`s sleep. If you`re realistically expecting to beat the market by only 2-3%, that can be accomplished even with a huge number of stocks...if they`re not picked at random. So, this screen suits that. The "beating SPY" screen has thinking along the same lines. If you already have lots of things in your portfolio that you`re happy with and just want to add another leg to the table, then fewer picks would be fine for a new screen. But performance of this particular screen isn`t much better with fewer. This is a broad shotgun approach. Remember that this is a VL screen, a slightly higher return 15-stock version could go like this * those two industries, average 59 stocks * ensure the stock has a timeliness rating (not too new, no huge M&A lately). This chops off 3-4 stocks on average. * no dividend. this is the high flyer version! Down to 32 stocks. * highest 15 by cash to market cap ratio This has an extraordinary backtest. But of course it`s only a backtest. Since 1997, without trading costs, monthly... Median rolling two years 24%/year compounded, versus median 10.5%/year for the S&P. Worst rolling two years -14.3%/year compounded, versus -27%/year for the S&P. Overall CAGR beat S&P by 15.0%/year. I would venture to say that there are lots of screens with backtests that good, and no real world results that good. But still, I think it`s an industry likely to do better than a dartboard over time. Which is what we`re all looking for. Jim |