Could not find a better place than this website to post my questions.

Could not find a better place than this website to post my questions.
During some 7 years of being involved in markets and systems study have come across some interesting things.
Among them are my current studies on the stock market, simple, objective, pragmatic rules of valuing companies based on what they are, not what they
can be , no "ifs" or "maybes". Below will post some backtested results having the universe of candidates limited to those 500 companies in the S&P500
and the mock portfolio being limited to the most undervalued 4 companies in the mentioned universe




And now the top 1 most discounted company in the S&P500


And to check the validity of it have flipped the rules and the returns would have looked like this


And the 2 proprietary rules also work in the whole universe of stocks. For illustration purpose SP was used.
This is not the only positive expectancy system in the bag, but the simplest to implement.
A general ideea of it would be, holding stocks that are cheap, unjustifiably.
As seen on websites that this kind of investing/trading is looked for, but would have to pass thru 2-3 or more years of live trading then to showcase it (explaining it in detail?), a thing wich im reluctant to do.

My questions for you;
Is this information of any value to anyone else besides me?
How could one start a mutual benefit partnership based on the mentioned strategy?

Altho I would of loved to mention that I hold an academia backround on the matter, I prefer to have a personal trackrecord of vision, diligence and perseveverance.
All your inputs are greatlly appreciated
Best regards, Adrian

Backtesting is not enough. Need real trading. JMHO

thank you

evermore said:

My questions for you;
Is this information of any value to anyone else besides me?

Click to expand...

Yes.

Thank you Alexander, that gave me some hope, was starting to think otherwise. Could you please give me some pointers as well ? I am seriouslly considering automating the forward tests, the portfolio of systems, with interactivebrokers, wishing to remove human error from it. Would anyone know if possible to automate the trading of fundamental ratios from balance sheet and income statement items? What would be some robust and user friendlly platforms to help me, as i do not know programing(yet)

Evermore - consider that he markets are a large sea.

In that sea, there are whales, sharks, big fish and little fish.

What you are doing right now is learning how little fish trade. The problem is, they tend to get eaten.

Think about it. There's sharks out there with billions of dollars. Do you think those people play fair or do you think they play in such a way as to eat as many fish as they can?

Any approach you take that does not take into account the way that the sharks play the game will end in you losing money.

The markets are not a 'fair' place. There is money involved.

DionysusToast said:

Evermore - consider that he markets are a large sea.

In that sea, there are whales, sharks, big fish and little fish.

What you are doing right now is learning how little fish trade. The problem is, they tend to get eaten.

Think about it. There's sharks out there with billions of dollars. Do you think those people play fair or do you think they play in such a way as to eat as many fish as they can?

Any approach you take that does not take into account the way that the sharks play the game will end in you losing money.

The markets are not a 'fair' place. There is money involved.

Click to expand...

Nice analogy DionysusToast, I tend to think that next to those big large calculated sharks are also remora fish that go along just well with shark's leftovers, and i'm not afraid by those sharks and their billions as you said. Seeing their overall results it seems to me that they swim in undersized fish bowl(limited opportunities).

Thank you for the reply and wish you all the best, Adrian

evermore said:

Nice analogy DionysusToast, I tend to think that next to those big large calculated sharks are also remora fish that go along just well with shark's leftovers, and i'm not afraid by those sharks and their billions as you said. Seeing their overall results it seems to me that they swim in undersized fish bowl(limited opportunities).

Thank you for the reply and wish you all the best, Adrian

Click to expand...

You are absolutely right.

Now - you just have to learn how to be the right sort of fish.

Which means NOT doing any of the things you have mentioned so far in this thread.

It's funny how many are fast to judge fundamentals while trading technicals, and viceversa, we should all recognise and accept that we're all in the same boat, the one going against EMH trend.
Thank you Dionysus, altho needed some time for your abstract response to sink in. I'm not so keen on trading the methods with people wanting the algo's behind it, altho some enticing offers are made to reveal such positive expectancy systems. Will be going my way, at least till I'm comfy with the results to start getting clients along that trust at least the systems if not myself. I know it seems difficult for people that are not familiar with the logic of the systems to believe me, but it's more simple and common sense driven than anyone may realise.
Will post results in one year or so on this thread besides comments for the nice people willing to help in my enterprise, please admins, leave the thread alive if possible.
Thank you all, Adrian

Adrian,

Of course screening works! Many before you have done it and there's no reason it won't work going forward. Investors Business Daily has been very successful with screens and their CANSLIM method is at the top of the list at aaii.com

One suggestion I would make to you is don't just blindly buy each stock that pops up on the screen. Make it a two step process. Use the screen to find the candidates and then define a trigger to enter and exit the stock.

For example, say you have a list of 5 issues from your screen. To decide where to buy each of them apply another rule ( Go long at 10 day high channel ) or something like that. You will then need to have another rule to exit the stock (besides waiting for it to fall off the screen). Maybe the exit is just the opposite of the entry, sell at the 10 day low.

The point is I think you can improve this by allowing your screen to be the setup and your entry and exits decided by price action. The problem with stocks is the high correlation. You don't want your screen to find a great stock to buy only to watch it drop like a rock when the entire world is in meltdown mode. Using price as the trigger will put you in cash when all the boats are sinking!

The mentioned screener is based on a relative and absolute value, could not find till now a way to improve it with the help of technicals, would rather buy more at a lower level than to buy more at a higher level.
Will really appreciate if someone would take a look at the attached .xls document to extract some risk statistics, like sharpe, average %DD, maximum %DD, time to recovery etc.The systems backtested results are in the "systems composite %DD" tab with the "A" column being the performance of the mock portfolio of 4 systems that have the same rebalance periods(daily eod) and slippage (0.05) and all working with the sp500 universe to find candidates for a time span of 10 years.

Will minimize the volatility with short positions in overvalued issues as some really promising short systems have been revealed
What would be a realistic average of the spreads in the sp500 issues?

Best regards to you all

evermore, Some of your replies have been from scalpers, which is of little use to you.
How long are you looking to hold for?

Are you asking this to see if it would churn?
Can not provide a hard number on that average holding time, the range can be from a few days to even a year or so.. depending on the time it would take to reach the system's intrinsic value threshold or till an even better candidate appears.

evermore said:

Are you asking this to see if it would churn?
Can not provide a hard number on that average holding time, the range can be from a few days to even a year or so.. depending on the time it would take to reach the system's intrinsic value threshold or till an even better candidate appears.

Click to expand...

I asked to place you on the map and so you are aware that some people who have replied to you are scalpers holding for a few seconds to a few minutes which is a very different proposition.

Reading your reply it really does seem as though you do not look at price action at all. A lot of people here will find it hard to get their heads around that. I think that a very simple breakout trigger would cut down on a little stock idling time, with your holding times you would not miss out on much price movement. So yes I guess the thought of churn was there as well.

I think it can be improved further. Last year's backtest with one extra rule that I believe to add alpha.
1 stock

2 stocks

3 stocks

4 stocks

5 stocks

6 stocks


Keep in mind that stockscreen123 uses compustat data and the backtest is performed on the known liquid stocks that make up the sp500 index excluding financials.
Current rank.

I dont have enough money to trade this but would be willing to put in a share with someone to leverage it up. Prop houses, PE, VC? Please advise.

That won't be so easy for you to find such PE to test it. Need a try. You have to convince them your system can help them to make money, even this system only runs on backtest, but have a try.

evermore - have you ever heard of the "Dogs of the Dow" system?

If not - look it up. It is not dissimilar to what you are suggesting here.

I think you can find stocks that are under priced or where an overreaction has occurred but I don't think you'll be able to do it systematically.

The more statistical components you add to this so that it improves historical results, the more likely you are to fail in a forward test.

When you find a company that has been sold off - first thing to consider is whether it is financially sound and whether it is selling off because of an overblown news event or some fundamental change in conditions.

The best way IMO to see if a company is sound is to look at their cash flow and P&L. P&L is not sufficient on it's own but P&L and cash flow make for a decent enough 20,000 foot view as to whether a company is screwed financially OR trying to pump up profits.

You've been at this a while - why not look at companies that get sold off and see if you can discern the good from the bad?

Piotroski, Ohlson, M-score, Z-score, Unholy trinity etc seem to work just fine with different fundamental criterias added to arrive at some quantitative measure.
Yes, Dogs of the Dow is a classic system.
I have just started a small account with interactivebrokers for a forward test and will pursue this matter untill i'm proven wrong.
Thank you for the advice Dionysus but I do not consider myself smart enough for discretionary trading, i'm sure there's an edge in knowledge but i'm modest about my wits.

Thank you for the inputs, keep them coming.

I totally agree with DionysusToast.