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Best investment strategies we have tested

 

Below is a list of the most profitable investment strategies we found in the 50 page research paper called Quantitative Value Investing in Europe: What Works for Achieving Alpha as well as all our research and backtesting since then.

Easy to implement

Don't worry if some investment strategies look complicated, they are all easy to implement with the Quant Investing stock screener.

If you have a question help is just an email away.

Don’t choose the highest return, find the right strategy for you

All these investment strategies have great returns BUT your goal here is not to choose the investment strategy with the highest return.

Your goal is to choose the investment strategy that matches your investment style. This will also be the strategy you feel most comfortable with and lets you to sleep well.

Read this article first

This article helps you find the best investment strategy for you: How to find your best investment strategy – not the one you expect

Back test your own strategy

You can also back test your own investment strategy, this article shows you how: How to back test your investment strategy

I want to back test and implement my strategy, sign me up

Price to Book & Price Index 12m investment strategy

The Price to Book ratio (Current share price / Book value per share) is another good valuation measure you can use to find undervalued investment ideas.

It has been tested in numerous research papers, over long periods of time, and is an investment strategy that outperforms the market.

Can be improved
But, as you have seen with other one ratio investment strategies, it can be substantially improved.

Before we get to that here are the back tested returns you could have earned if you used a low PB strategy to invest in Europe over the 12 year period 13 June 1999 to 13 June 2011.
PB_overall_BT

Source: Quantitative Value Investing in Europe: What works for achieving alpha

Q1 (Quintile 1) represents the cheapest 20% of companies in terms of PB and Q5 (quintile 5) the most expensive.

The lowest PB companies (Q1) substantially outperformed the market, which over the same 12 year period returned 30.54%.

As you can see the strategy worked best for medium sized companies.

You can do even better
As mentioned you can improve your returns substantially if you combine PB with another ratio or indicator as the table below clearly shows:

PB_overall_2_factor_BT

Source: Quantitative Value Investing in Europe: What works for achieving alpha 

Best combination – Momentum
The best way to increase your returns was to combine PB with Price Index 6 months (6 months momentum) or Price Index 12 months (12 months momentum).

Momentum beats the Piotroski F-Score
As you can see the combination of price to book with momentum did even better compared to using the Piotroski F-Score investment strategy (+685.2%).

Exact definition – in glossary
You can see the exact definition of all the ratios and indicators in the Glossary.

 

Be careful! – Long periods of under-performance

Although the Price to Book ratio is a good valuation ratio it also has long periods of under-performance, please refer to the following article: Be careful of this time tested value ratio

 

Use Book to Market rather than Price to Book

When searcing for low Price to Book companies it is better if you use the Book to Market ratio (the inverse of Price to Book) to see why read the following article: Why use book to market and not price to book?

 

 

PS To start getting Price to Book and Momentum investment ideas for your portfolio right now sign up here.

PPS It is so easy to put things why don't you sign up now before it slips your mind?

 

 

Period
Jun 1999 - Jun 2011

Index
+2.25% p.a.

Return
+22.0% pa +987.3% 12yr