Subject: Re: ROE Cash LT Debt Screen
Hi, I didn't see this thread for a while.

FWIW
Going back to the thread which introduced the screens, this post has the endpoints of the tuning process that I did back when
http://www.datahelper.com/mi/s...

That post has one basic version, and one version that requires dividends.
The cutoffs are tuned, but the screens are still very simple.
Those suggested versions used the "ROE latest quarter" field, not the annual figure as in the kickoff post in that thread.

Backtest figures in that post were up to Q1 2020 inclusive.
So, three years out of sample, 2020-Q2 through 2023-Q1 inclusive, tested the same way as in the old post.
Figures below are run as recommended at the top of the original thread: Top-40-hold-till-drop-45, run every two months, with 0.4% friction.


(1) First version as in that post (no requirement of dividend): Absolute return 22.3%, beat SPY by +4.8%/year
(2) Second version as in that post (requires dividend): Absolute return 20.6%, beat SPY by +3.1%/year

I have always had a lot of success with screens using the simpler annual VL field "Return on Shareholders Equity", so I tested those too.
Lower turnover, and it seems to work fine. Returns a bit higher in the first three years out of sample, especially for the dividend version. A lot of that is probably random noise, but maybe not all of it, hard to say.
(3) First version as in that post, but using annual ROE (no requirement of dividend): Absolute return 22.7%, beat SPY by +5.1%/year
(4) Second version as in that post, but using annual ROE (requires dividend): Absolute return 24.3%, beat SPY by +6.8%/year

Some recent picks of version (1) above, quarterly ROE and no requirement of a dividend
MSFT CSCO NVDA HUM ACN RNR MOH COST APO NKE
PANW VEEV ANET TJX ROST EOG EXPD AMP NTAP BBY
MELI NVR PSTG CPRT EQH LOGI LULU FTNT ALNY SPNT
RL NYCB UAA CMG DECK TXN MPWR ULTA WIRE PBF

Some recent picks of version (2) above, quarterly ROE and requiring a dividend
MSFT CSCO NVDA HUM ACN RNR COST APO NKE TJX
ROST EOG EXPD AMP NTAP BBY EQH LOGI RL NYCB
TXN MPWR WIRE PBF MLI RHI IDCC MKTX CNS NSP
DKS WSM WHD LPLA LSTR DDS MGY BKE GGG PAYC

As an aside, another nice way to run it is Dozens: 13 stocks not already held, hold 3 months, so you always have 39 stocks.

A parting thought:
Remember that the goal of this screen is not necessarily the highest possible return in backtest.
It's intended to be large cap and safe alternative to SPY, but with a good chance of a slightly higher average long run return.
A 40 stock equally weighted MI screen has largest single-company risk of 2.5% of portfolio. SPY's risk on that metric is three times as high.
The fact that returns have been so good relative to market in the first three years post discovery probably includes a lot of luck.
Still, all the firms are big, have great returns on equity, and lots of cash. Really bad explosions will presumably be rare.

Jim