No. of Recommendations: 19
The question of course is whether you even check with those lazy rebalancing intervals, and if so, whether your screens still show interesting performances with those. For this style of high growth/momentum investing, no, not really. It's not for the lazy investor.
The returns from this particular selection strategy traded annually drops to 15%/year. You're holding long past when the momentum figures were relevant.
Given the unreliability of backtests, that removes a lot of what you might call the "quant margin of safety".
But other, more sane/prudent/boring quant techniques work pretty well with reasonably long holds.
Not exactly "set it and forget it", but much further along the spectrum in that direction.
e.g, I like a strategy I created called LargeCapCash. If Berkshire didn't exist, it's how I'd manage most of my money.
This screen was designed with the express goal of giving safe long term returns similar to the S&P 500 (and even somewhat correlated), but with a decent chance of modestly higher long run returns.
It is not designed for the highest returns, or trying to make money even in bear markets, or any of the other things a quant screen might attempt.
Again, pretty simple, after a couple of housekeeping steps:
Start with the Value Line stocks with a "Timeliness" ranking (almost all of the 1700, but eliminating those with less than 5 years of data or undergoing buyout or bankruptcy)
Also, eliminate those not paying a dividend. I'm not fond of dividends, but for this particular screen it helps results materially.
Find the 30% of eligible stocks with the highest ROE (annual calculation, so not much change)
Of those, buy equal dollar amounts of the 40 stocks with the highest cash balance (cash minus long term debt). These will generally be very large cap firms.
Hold for a year. Repeat.
Since both the ROE and cash metrics tend to change pretty slowly, there isn't much trading. About 15 of the 40 stocks change each year, about 25 held over to the next year.
This would have beat the S&P 500 by 4.55%/year after trading costs in the last 34.5 years, including beating the S&P in about 80% of rolling years.
It has beat the S&P quite nicely since it was proposed.
Given that low turnover, it probably wouldn't even matter materially if you forgot to trade for several months, or even redid it every 2 or 3 years.
This post has a rundown of the performance of the main variants in the first three years after its introduction
https://www.shrewdm.com/MB?pid=864956561Beating the S&P by 3-7%/year depending on the specific variant examined.
A slightly subtle note: the requirement for a high cash balance is an absolute number, not a percentage of the market cap.
This is why it almost always picks very large cap firms, which in turn is why its short term correlation to the S&P is quite high.
At the one-month level, correlation coefficient is 94.6%. At one year it is 93%.
The best-fit model for one year performance of the screen is 1.037 times the S&P return in that year, plus 4.3%.
Its performance relative to market tends to be a tad bigger during weak markets. (in this case, one tad = 1%/year rate)
Here are some recent picks, to get a feel for what it recommends.
MSFT TSM CSCO ACN COST NKE NVDA BHP INFY TJX
ROST EOG AB EXPD STM AMP BBY EQH LOGI SIG
HLI TER TXN SEIC KLIC MPWR WIRE PBF NTAP MLI
RHI CNS NSP DKS WSM LPLA LSTR UFPI BCC DDS
The average dividend yield of that set is 1.81%.
The average earnings yield is 6.66% (P/E of 15.0)
Average ROE (last full fiscal) 49.1%
This is only 40 stocks, but they all have some good properties, and in any case it's less than a third the single-stock risk of the S&P 500.
Increasing it to 60 stocks for more diversification doesn't make a whole lot of difference. Maybe 0.4%/year lower returns, at a guess. More typing.
Jim