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How to back test your investment strategy

We recently added an extra feature to the Quant Investing stock screener that makes it very easy for you to back test your investment strategy.

This article shows you how you can easily (step-by-step) back test your investment strategy to make sure it works.

This means you can go back in time and see exactly what companies fit your investment strategy and how they have performed.

This is not using calculated back test values but actual values as they were in the past (point in time data) you thus have no look-ahead or survivorship bias in your back test. Data goes back till 4 December 2015.

 

How to screen the past

This is how you can start using the historical point in time back test database.

I expand on all these points below but here are the steps if you know the screener:

  1. Login and go to the screener
  2. Set up or load a screen
  3. Click on the Historical Screener icon
  4. Select the date in the past from where you want the screener results for
  5. Select the future closing price date to where you want to calculate returns
  6. Click Confirm to get the historical screener results

 

Here are the detailed steps

Here are the detailed steps for you to back test your investment strategy using the back test point in time database.

 

1. Login and Set up or load a saved screen

For instructions on exactly how to log in and set up a screen look at this article: How to run your first screen with the Quant Investing screener

 

2. Get historical results of your screen

Once you have run your screen and you have a list of companies that currently fit the screen criteria you are ready to go back in time.

To do this click on the Historical Screener icon to open the Historical Screener date selector.

Quant Investing back test 1

A window will the open where you can select two dates.

The first date is the date in the past you want to the screener to run and give you investment ideas. The closing stock prices on this date will automatically be loaded.

You can also (you do not have to) select a second closing price date.

If you add a second date the Historical Screener will automatically calculate the stock price percentage change from the past screener date to the second closing price date.

For example , if you choose to run the historical screener on 3 January 2016 and enter 30 June 2016 as the second date the screener will automatically calculate the stock price return from 3 January 2016 to 30 June 2016 for you.

This makes it easy to see how your investment strategy has performed.

To select the past date you would like to screen for click the top date selector icon.

Quant Investing back test 2

To select a date you can either click the blue left arrow or click on the date heading as shown below.

Quant Investing back test 3

Next select a second closing stock price date.

The Historical Screener will calculate returns from the above selected screener date to this date.

Quant Investing back test 4

After selecting the date click the Confirm button to start the historical screen.

Quant Investing back test 5

That is all you have to do to screen past results.

 

If there is No Data

As you saw you can only select weekdays in the above date selector. However it may be that the day you selected was a market holiday with no closing price.

If it was a market holiday you will see a "No data" message like this:

Quant Investing back test 6

If you do get the No data message simply select a day before or after the date you selected.

 

What were the returns of your back test?

The results of your back test will look like this:

Quant Investing back test 7

  1.  Shows you what saved screen you are back testing
  2. Shows you the date you are back testing (companies that fit your screen on that past date)
  3. Shows you the saved Template you are using. A Template is a saved collection of columns displayed with a screen.
  4. The closing stock price on the date you are back testing. The date shown in 2.
  5. The second closing price you selected when you ran the historical screener.
  6. The percentage change from the closing price in 4 to the closing price in 5.

 

If the returns look unusual or funny

If the returns of companies in your back rest look unusual or funny, -100% or no return for example. You will have to do a bit of research as the back test function does not save the last price before a company terminates its listing.

This may happen when a company gets taken over or goes bankrupt.

To find the last price the company traded at simply do an internet search with its name. An article is sure to come up on what happened to the company.

Use this price to calculate the company's back tested return. The easy solution will be to use Microsoft Excel.

 

Export to Excel for more calculations

If you want to calculate more return numbers remember you can export the above results to Microsoft Excel.

To export to Excel just click on the Export Data to MS Excel icon.

Quant Investing back test 8

 

Your questions welcome

If you need help to use the back tester or find anything that does not look right please let us know.

 

PS Not a subscriber to the Quant Investing stock screener and back tester yet? Sign up here.

PPS Why not sign up right now before it slips your mind?