Friday, September 26, 2014

Back-testing value investing

I have been recently playing with a fundamental stock scanner designed for the Polish market - GieldowyRadar.

This scanner offers a number of predefined strategies based on some gurus stock selection criteria and allows to back-test them over 7 years.

The best back-test results are currently produced by "the Warren Buffett" strategy.

The average annual return of this strategy is 29.3% vs. -1.85% for WIG index.

The strategy takes into consideration indebtness, EBIT profitability, cash/free cash flow ratio, return on equity and market capitalization.

The scanner makes possible to back-test your own strategies. Unfortunatelly, some more complex conditions - including some used in the pre-programmed guru strategies - are currently not available.

Still, I was wondering whether it is possible to beat the best guru strategy using the limited scanner's back-test functionality while keeping the criteria fundamentally reasonable.

The answer is - YES! :)

"Buy Cheap" strategy: 1014% over 7 years

The strategy I have designed - let's call it "Buy Cheap" strategy, returns on average 41.12% annually over 7 years.

Not unlike "the Warren Buffett" strategy, it is rather selective, giving seldom signals. Hence, it is not for day traders :)

There are two interesting things about both strategies:

1, they do not produce any signals before the second half of 2009 (the back-testing starts at the end of 2007)

It is also worth to mention, that the Polish stock market was raising from the beginning of 2009.

2. the back-testing assumes monthly portfolio re-balancing using re-balancing dates set in relation to the current date (i,e. if you back-test your strategy on September 26th, the previous re-balancing date is August 26th and so on) - this does not allow for entry points optimization based on the temporary relative prices

WIG performance in the back-test period: 154% from the through

"Warren Buffett" strategy: 504% over 7 years

"Buy Cheap" strategy: 1014% over 7 years


Tanika Co Valda said...

Great Article
Data Mining Projects IEEE for CSE
Project Centers in Chennai

JavaScript Training in Chennai
JavaScript Training in Chennai

markson said...

How about we get the gathering of a couple of information driven examination that standard: Data Analytics Course

Vinith Nalam said...

Very Informative article
Data Science Interview Questions

Anonymous said...

I feel very grateful that I read this. It is very helpful and very informative and I really learned a lot from it.
360DigiTMG pmp course in malaysia
360DigiTMG pmi certification

datasciencecourse said...

Great post i must say and thanks for the information. Education is definitely a sticky subject. However, is still among the leading topics of our time. I appreciate your post and look forward to more.

Simple Linear Regression

Correlation vs Covariance

priyanka said...

very well explained .I would like to thank you for the efforts you had made for writing this awesome article. This article inspired me to read more. keep it up.
Simple Linear Regression
Correlation vs covariance
data science interview questions
KNN Algorithm
Logistic Regression explained

priyanka said...

very well explained. I would like to thank you for the efforts you had made for writing this awesome article. This article inspired me to read more. keep it up.
Logistic Regression explained
Correlation vs Covariance
Simple Linear Regression
data science interview questions
KNN Algorithm

Mallela said...

Thanks for posting the best information and the blog is very science interview questions and answers

Data Science Training in Bhilai - 360DigiTMG said...

Extraordinary blog filled with an amazing content which no one has touched this subject before. Thanking the blogger for all the terrific efforts put in to develop such an awesome content. Expecting to deliver similar content further too and keep sharing as always.

data science training

Data Science Training in Bhilai - 360DigiTMG said...

Stupendous blog huge applause to the blogger and hoping you to come up with such an extraordinary content in future. Surely, this post will inspire many aspirants who are very keen in gaining the knowledge. Expecting many more contents with lot more curiosity further.

data science certification in bhilai

princika said...

I want to leave a little comment to support and wish you the best of luck.we wish you the best of luck in all your blogging enedevors.
data science course in chennai

360DigiTMG-Pune said...

I really enjoy reading and also appreciate your work.
artificial intelligence course

data science said...

I was basically inspecting through the web filtering for certain data and ran over your blog. I am flabbergasted by the data that you have on this blog. It shows how well you welcome this subject. Bookmarked this page, will return for extra. data science course in jaipur

cloud computing course in bangalore said...

Extremely overall quite fascinating post. I was searching for this sort of data and delighted in perusing this one. Continue posting. A debt of gratitude is in order for sharing. best institute for cloud computing in hyderabad