Are you a hard-core value investor? Do you get excited the lower the share price of an undervalued good company falls? Do you love sifting through the 52-week low, lowest PE or highest dividend yield companies?
Something I used to do
I was a hard-core value investor and did all the above. But that is not what I do any more as I found a much better way to generate market beating returns. It is called quantitative value investing and I suggest you give it some serious thought.
Lead me explain.
I started investing in the worst way possible
If you are a long time reader of our Quant Value investment newsletter you will know that I started investing in the worst possible way.
Because of this I made nearly every mistake an investor can make.
I started using technical analysis and lost money. I then followed brokers recommendations (traded a lot) but never made any real money until I discovered value investing which I have been studying and practicing since 1988.
A new way of looking at value investing
However, in 2012 my approach to investing changed completely. And it changed because of an ambitious project a friend and I finished.
The search for the best investment strategy
We wanted to find the quantitative investment strategy that would have given us the best return in the European markets over the 12-year period from June 1999 to June 2011.
It was a horrible time
As you know this 12 year period was probably the most difficult time for any investor (not just in Europe) as it included both the bursting of the Internet bubble (2000), the financial crisis (2007 and 2008) as well as the European sovereign debt crisis (2010).
We called the research report Quantitative Value Investing in Europe: What Works for Achieving Alpha.
You can find it by either clicking on the image or the link above.
How to get the report for free
If you subscribe to the screener or the newsletters get the research report for free.
Astounding results +1157%, market returned only 30.54%.
What we found will also astound you.
The best performing strategy returned 1157% over the 12 year period. Over the same time the market returned only 30.54%.
In fact the best 10 quantitative investment strategies we tested had an average return of 881%, a return I’m sure you will also be proud of, even if you subtract dealing costs and capital gains taxes which were not included in the above numbers.
It will surprise you
The thing about the study that will surprise you as value investors is that valuation ratios were not the most important factor in any the best performing quantitative strategies.
Valuation was important but is not the first factor you should look at.
This is the key ratio
What was more important than valuation was positive stock price momentum.
With momentum simply defined as the share price change over a period of 6 or 12 months. (Current share price / share price 6 or 12 months ago).
You would have gotten the best returns if you first looked for the 20% of companies with the best price momentum over six or 12 months, and then from this group invested in the most undervalued companies.
If I didn’t do it myself, I still wouldn’t believe it
As a hard-core value investor these results were difficult for me to accept, but due to the endless hours spent looking at the numbers and writing the study I was able to convince myself to take stock price momentum seriously.
We even started a newsletter
Should you become a completely quantitative value investor?
Did the research study change me from classical value investor to a completely quantitative value investor?
The answer is I became a bit of both, and I suggest you do as well.
I still enjoy analysing companies and have remained a value investor but I make sure all of the ideas I analyse come from one of the top quantitative investment strategies in the research study as well as new research and back testing we do all the time.
But I have also become a quantitative value investor. I invest part of my portfolio in investment ideas that are quantitatively generated.
I do this with smaller amounts invested in each company and I use a few of the best investment strategies we have found to get investment ideas.
Digging in the richest vein
If you use the best tested quantitative strategies it means that you are digging in the richest vein of gold for market beating investment ideas.
If you still think classic value investing is better
If you still think classic value investing is better than quantitative value investing, I was too so I tested it.
You can read what I found here: A simple ratio beats the world’s best value funds.
How can you profit?
If you would like to have a look at and even implement the best quantitative strategies from the research study in your portfolio we have made it very easy for you.
PS You can sign up for the screener and / or the newsletter here: Sign up right now!
PPS Why not sign up now while it is still fresh in your mind. If you are not 100% happy you get your money back, no questions asked!