Subject: Re: question for Jim
Here is the post I have from old MI board by Jim (5/24/2020):


"This is a retirement portfolio kind of screen: LargeCapCash.
The goal is a screen which is as safe as the S&P 500 but with the hope of somewhat higher returns over the long run.

This specific screen has low turnover,
lower concentration risk than the S&P with largest position at 2.5% of portfolio,
probably significantly lower company specific risk because of requirement of very strong balance sheet and profitability.
And a very strong large cap bias.

The screen:
Start from the Value Line 1700--this is old skool!

Of those with a reported ROE, take the top 30%--around 475 companies on average.
For each one, calculate their cash balance in excess of long term debt.
Buy equal dollar mounts of the 40 stocks with the largest net cash balances.
That's it.

Note: this uses largest cash balances in absolute terms, not largest cash balances as fraction of market cap...that's why it's a large cap screen.

The version I like best is buy top 40, hold two months.
Hold till drop at rank 45.
Rebalance annually.

Result:
January 1997 through April 2020, with 0.4% trading costs, CAGR of 14.1%
SPY same date range: CAGR 7.9%
Improvement: 6.2%

It beat the S&P 500 in 74% of rolling years.
That's pretty steady...it wasn't just one anomalous stretch of outperformance in one specific era.
The relative-to-market rolling year performance ranged from 15% worse to 48% better.
10th / 50th / 90th percentiles relative to market -3% / +4% / +17%.

That's a surprisingly high return backtest for what (largely) amounts to a very large cap screen."

Thanks,
AJ