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The best investment strategies in 2018 - World-Wide

If you look at the 2018 returns of the 19 investment strategies we tracked you can only come to one conclusion - the markets were messed up!

What worked in the past (over decades in up and down markets) just did not work in 2018. 

All strategies recorded losses but in most cases if you invested in undervalued companies your losses would have been bigger than if you bought expensive companies. 

Not even momentum strategies worked. In other words companies with strong momentum did worse than companies with bad momentum!

 

What investment strategy worked in 2018?

So what worked best world-wide in 2018?

Here is a short summary:

  • Quality companies selected using the Gross Margin (Novy-Marx) ratio had the lowest losses of -8.2%
  • Large companies returned -9.4%  - investing in small companies was a disaster -21.6%
  • High dividend yield companies also had low losses of -10.6%

 

Returns were all over the place

If you look at the Results all Markets table below you will see that how the strategies performed were all over the place – meaning it was impossible to say what strategy would have done well as returns did not fit the long-term back tested returns of strategies that work.

Before I show you the exact strategies and their returns first some information on what and how we calculated the returns.

 

What strategies we tested – on 7,000 companies worldwide

We looked at the performance of the following 19 investment strategies from 1 January 2018 to 31 December 2018:

  • Large vs small companies (Quintile 1 = Biggest companies)
  • Book to Market value (inverse of price to book)
  • Earnings yield (EBIT / EV) 
  • Qi Value ranking – the strategy I use in my own portfolio 
  • Price Index 6m (Current price / Price 6 months ago) also known as 6 months momentum
  • Price Index 12m (Current price / Price 12 months ago) also known as 12 months momentum
  • VC One also known as Value Composite One rank  
  • VC Two known as Value Composite Two rank (Value Composite One with an additional ratio: Shareholder Yield)
  • ERP5 ranking (Ranking based on Price to Book, Earnings Yield, Return on invested capital (ROIC), 5 year average ROIC)  
  • Shareholders Yield (Dividend yield + Percentage of Shares Repurchased)
  • Dividend Yield
  • Dividend growth 5 years (The geometric average dividend per share growth rate over the past 5 years)
  • MF Rank (Magic Formula Ranking developed by Joel Greenblatt)  
  • Piotroski F-Score  
  • Qi Liquidity ranking (Adjusted Profits / Yearly trading value)  
  • Gross Margin Novy Marx (gross profits / total assets) – the best quality ratio we have tested  
  • Free Cash Flow (FCF) Score (Calculated by combining Free cash flow growth with free cash flow stability)
  • Adjusted slope average (125 day, 250 day) – momentum  
  • Adjusted slope (90 days) – momentum     

 

Only companies worth more than $50 million

We excluded companies with a market value less than $50 million, to make sure that we only look at companies you can buy and sell easily.

 

Markets worldwide then regions

The following stock markets (and regions) were included:

North American Markets

  • USA
  • Canada

European Markets

  • All the Eurozone countries
  • United Kingdom
  • Switzerland
  • Norway
  • Denmark
  • Sweden

Japanese Market

  • Only Japan

Other Asian and Oceanic Markets

  • Australia
  • New Zealand
  • Hong Kong
  • Singapore

This gave us a list of around 7,000 companies.

 

All companies in five groups – Quintile 1 the best

For each of the strategies using point in time data (no look ahead bias) on 1 January 2018 we divided all the companies in the universe into five 20% groups or quintiles.

Quintile 1 shows the companies that scored best in for all the strategies we tested - Quintile 5 the worse.

For example, Quintile 1 shows the return of the 20% of companies with the highest book to market ratio (lowest price to bookcheap companies) at the start of the year.

And Quintile 5 shows the return of companies with the lowest book to market ratio (highest price to book ratio – expensive companies).

For Price Index 6m quintile 1 show companies with the best momentum (biggest share price increase over 6 months) and quintile 5 companies with the biggest price fall in the previous 6 months.

For the F Score quintile 1 shows the return of companies with the best Piotroski F-Score (9 or 8) and quintile 5 those with the worse F-Score.

For the size strategy quintile 1 shows the return of the 20% of companies with the biggest market value and quintile 5 the 20% smallest companies.

 

To get this report on a daily basis as well as the tools to implement all 19 strategies (you can pay more for an inexpensive lunch for two) in your portfolio sign up here.

 

What worked world-wide?

The following table summarises how all 19 investment strategies performed world-wide:

 Best performing investment strategies worldwide 201812

Best performing strategies worldwide
Click image to enlarge
Source: www.quant-investing.com

How all the best rated companies (Quintile 1) perform?

  • Average return Quintile 1 of all strategies:  -15.7%
  • Maximum return of Quintile 1 strategies:  -8.2%
  • Minimum return of Quintile 1 strategies:  -20.9%

What worked?

Here are the two best performing strategies:

  • Quality companies selected using the Gross Margin (Novy-Marx) ratio had the lowest losses of -8.2%
  • Large companies returned -9.4%  - investing in small companies was a disaster -21.6%

What did not work?

These were the worse strategies:

  • Good Price Index 6 month (momentum) -20.9%
  • Good Price Index 12 month (momentum) -20.9%

 

To get this report on a daily basis as well as the tools to implement all 19 strategies (you can pay more for an inexpensive lunch for two) in your portfolio sign up here.

 

What worked in Europe?

Below is the performance of all 19 strategies in Europe:

Best performing investment strategies Europe 201812] 

Best performing strategies in Europe
Click image to enlarge
Source: www.quant-investing.com

How all the best rated companies (Quintile 1) perform?

  • Average return Quintile 1 of all strategies: -14.1%
  • Maximum return of Quintile 1 strategies:  -9.8%
  • Minimum return of Quintile 1 strategies:  -17.8%

What worked?

These were the best two strategies:

  • Buying the largest 20% of companies would have given you the lowest losses at -9.8%
  • Investing in high dividend companies would also have help you keep losses low at -10.4%

What did not work?

The two worse performing strategies were:

  • Companies with good 6m momentum Price Index 6m: -17.8%
  • Good momentum companies selected using Adjusted Slope 90d -16.5%

 

Get this report on a daily basis as well as the tools to implement all 19 strategies (you can pay more for an inexpensive lunch for two) in your portfolio sign up here.

 

What worked in North America?

Below is the performance of all 19 strategies in North America:

Apart from buying quality companies using the Gross Margin (Novy-Marx) ratio your losses just got larger.

Best performing investment strategies North America 201812 

Best performing strategies in North America
Click image to enlarge
Source: www.quant-investing.com

How all the best rated companies (Quintile 1) perform?

  • Average return Quintile 1 of all strategies:  -13.1%
  • Maximum return of Quintile 1 strategies:  -0.3%
  • Minimum return of Quintile 1 strategies:  -19.7%

What worked?

The two best performing strategies were:

  • Buying quality companies as defined by the Gross Margin (Novy-Marx) ratio would have kept your losses low at -0.3%
  • Buying large companies would also have helped you keep losses low at -7.8%

What did not work?

The two worse performing strategies were:

  • Cheap companies with a low price to book ratio (Book to Market) did really badly at -19.7%
  • Investing in good momentum companies using Price Index 6m also did not work as it returned -17.2%

 

Get this report on a daily basis as well as the tools to implement all 19 strategies (you can pay more for an inexpensive lunch for two) in your portfolio sign up here.

 

This was your best strategy in Japan

Below is the performance of all 19 strategies in Japan:

Momentum was a disastrous strategy!.

Best performing investment strategies Japan 201812

Best performing strategies in Japan
Click image to enlarge
Source: www.quant-investing.com

How all the best rated companies (Quintile 1) perform?

  • Average return Quintile 1 of all strategies:  -19.7%
  • Maximum return of Quintile 1 strategies:  -13.0%
  • Minimum return of Quintile 1 strategies:  -29.8%

What worked?

The two best performing strategies were:

  • Good quality companies selected using Gross Margin (Novy-Marx): -13.0%
  • Undervalued companies selected using the ERP5 investment strategy -14.6%

What did not work?

The two worse performing strategies were:

  • Good momentum companies selected using Adjusted Slope 125d/250d: -29.8%
  • Good momentum companies selected using Price Index 6m: -28.9%

 

Get this report on a daily basis as well as the tools to implement all 19 strategies (you can pay more for an inexpensive lunch for two) in your portfolio sign up here.

 

What worked in Asia and Oceania Markets?

(Australia, New Zealand, Hong Kong and Singapore companies are included in this analysis)

Here the performance of most strategies looks more normal.

Best performing investment strategies Asia Oceania 201812 

Best performing strategies in Asia and Oceania
Click image to enlarge
Source: www.quant-investing.com

How all the best rated companies (Quintile 1) perform?

  • Average return Quintile 1 of all strategies:  -12.9%
  • Maximum return of Quintile 1 strategies:  -7.7%
  • Minimum return of Quintile 1 strategies:  -21.9%

What worked?

The two best performing strategies were:

  • High dividend yield companies would have kept your losses the lowest at -7.7%
  • High dividend growth companies also performed well at -8.6%

What did not work?

The two worse performing strategies were:

  • Good momentum companies selected using Price Index 12m -21.9%
  • Undervalued companies selected using Book to Marker (inverse of price to book) at -18.7%

 

Returns all over the place – is normal

As you can see no one strategy worked everywhere – sometimes exactly the opposite worked – this just proves that over twelve months anything is possible in the markets. 

 

A quick warning – it may stop working

Please remember just because a strategy did well (or lost the least) in 2018 does not mean it will continue to do so. As you can see the exact same strategy was the best in one region and also the worse in another region. 

Jumping on the best performing strategy is most likely a bad idea - possibly a very bad idea. 

In fact your best strategy may be the worst performing strategy as it may turn around – this is not a recommendation.  

Like you I also have no clue as to what strategy will work in the future - if someone says he does, he is lying. 

If you want to get more information on all the best strategies we have tested click here: Best investment Strategies Quant Investing

 

Your performance tracking analyst

Wishing you profitable investing in 2019

 

Tim du Toit

PS To get this report on a daily basis as well as the tools to implement all 19 strategies (you can pay more for an inexpensive lunch for two) in your portfolio sign up here.

PPS It’s so easy to put things off, why not sign up right now?