The strategy focuses on looking for the highest quality stocks amongst the 20% best value stocks on the market (as defined by a low price to book value). Companies with low price to book ratios tend to have low levels of investor interest, be neglected by the analyst community, and be in financial distress. They are considered ‘value’ stocks because they are cheap, but are often cheap for a good reason.
The study showed that profitability (as measured by gross profits-to-assets) can be usefully employed to outperform the market.
These stocks have little analyst coverage and are generally ignored by institutional investors. This should mean that there are more opportunities for out-performance within this group of stocks as compared to the market as a whole.
We're not claiming an automated Buffett strategy will out-perform Buffett, but we think it is a useful exercise to see how Buffett concepts and metrics perform over the long-term using rules-driven approach.
Kenneth Fisher highlighted the use of the price-to-sales ratio as a quick and easy metric to find potentially undervalued companies. He reasoned that, "any stock with a low price relative to its previous 12-month sales would rise if its future earnings became large enough to translate into a low future PE"
We offer investors the ability to test before they invest. This gives them a rational basis for improved investing performance. Having the evidence on hand, and knowing what to expect, allows an investor to stick with their strategy during the tough times. In short, a back-testing engine allows for clear, structured decision-making and it empowers an investor to invest with discipline.
We offer investors the ability to build and test long-term equity investment strategies. Strategies are based on factors which tend to result in superior returns. Such as value, size, quality, momentum, efficiency etc. Automatic updates allow our users to run ‘live’ strategies
Verification, Poor alternatives, Future proof
Emotions cloud judgement, especially in times of stress. Psychological biases get in the way. The financial markets are noisy.
High quality low cost B2C companies are growing fast and moving into the B2B markets, this may force the larger B2B companies to acquire the strong performers.