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The week's question
In March 2025, in the thread "Re: OT, out", Umm asked the members: "Do you think it is because America is made up of magical soil that makes businesses based in America magically profitable?" This week it is put to everyone again. The button below opens the small thread re-asking it - read what others have said so far, then give your own answer as an ordinary reply.
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Investment Strategies / Mechanical Investing
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Author: RAMc ✭  😊 😞
Number: of 6243 
Subject: Re: profitability subsumes beta and value as a factor
Date: 04/12/25 6:27 PM
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Tedthedog: it seems surprising that a relatively simple metric based on quarterly reported data would correlate well with short-term, i.e. four week, performance.
The factors change only during the first week of a quarter and remain the same for the entire quarter. So a stocks rank will stay the same for the entire quarter and will very likely remain in the same bin and be reselected for each of the following 4 week samples remaining in the quarter. I looked at the average hold time for the top bin and it was averaged over a year if I remember correctly. But as there was no penalty for trade friction it would not make a difference.
I just ran a simulation with trading friction from 1/1/2002 till present. Selecting the top ranked 45 stocks. The results are not particularly good. Only 12.45 CAGR (poor) with a 43.5% annual turnover (excellent low taxes) a max drawdown of 45.5% (9% less than the universe) 59% winners, 0.7 Sharp. Although this isn’t spectacular it is outstanding for one simple formula. Add a few simple additions like mungo’s “sanity test that their debt not be too high” and this could be the foundation for a nice screen. But I’ll stick with MI.
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This community has written 6,227 posts about Mechanical Investing. The article-length ones it recommended most:
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