Dear all,
I am sure that I saw a chart at some point, that showed how shares performed, grouped by stockranks (SR 0-10, 11-20, 21-30, etc). However, I do not think this went across downturns and I do not recall where to find it.
Is such statistics available?
It is under Ranks -> Performance from the menu at the top, or follow this link:
http://www.stockopedia.com/stockranks/performance/
They only go back to 2013 when the Stockrank system started though.
I think it's fair to say that Stockopedia has existed only with a backdrop of generally rising Equity markets - the last major prolonged Equity downturn (2008) preceeded Stockopedia's existence.
But it's fairly intuitive to realise that not all of the factors that work on the way up will work on the way down.
e.g. small caps, high volatility & low Quality names are highly correlated with Equity market direction & should be avoided in a downturn.
Nick: Thank you for the link. So there is no data on how shares in the past would have performed based on their SR? And is there no way to move the start and end points (say if one wanted to compare 2014-2015 instead of 2013 to now?
Howard: Obviously some factors "should" be beneficial in a downturn, such as sound financials, but as you pointed out, not all factors will work well. That is why I wanted to see how SR performed if back tested. We are after all "over due" a recession, so to speak.
Interesting side note, while SR >90 has been a marker for high performance in the UK and EU, the US shows some very bizarre findings. Any suggestions as to why this is?
That's right Logic, the factors that will work relatively best in a downturn are:
I stress relatively as in a major correction everything will fall.. the above factors will simply fall less.
So there is no data on how shares in the past would have performed based on their SR? And is there no way to move the start and end points (say if one wanted to compare 2014-2015 instead of 2013 to now?
Don't think they provide any data prior to 2013. You can change start and end points by clicking and dragging across the range you want - but it doesn't rebase to the new range.
One of the regular posters here, who goes by the name of Mechanical Bull once did some research with backtested data from the SharelockHolmes Market Scores which are similar to the Stockopedia Stockranks. You can probably find his post if you search. Here is the graph he made of the various deciles going back to 2003.
Would be interesting to update the above graph - I assume the decile trends have continued because of a continued bull market? MB mentioned and important cavat in his 2014 blog:
......it is also interesting to note that that all deciles fall away during the bear market that started in mid-2007 through to early 2009. I think this raises some interesting questions about market psychology. It seems that the market as a whole acts fairly rationally during bull markets, identifying quality, undervalued and winning stocks and dumping junk, expensive and losing stocks. However, during a bear market, fear takes over and investors seem to be willing to irrationally dump stocks irrespective of fundamentals. So, really, we should be grateful for bear markets since they generate the fertile ground for rational investors to exploit in the next bull run.
The last sentence reminds me of what Warren Buffett said, that if one is in the business of buying something and not selling it, a falling price should be welcomed, not feared. I suppose that is even more true if one, like Warren, holds significant amounts of cash.
It would also be interesting to see the graphs extended back across even more "dips", however I understand the Sharelock data only goes back to 2003.
To be fair, it looks like the top decile falls from about 290 to 170 (-41%) but the bottom decile falls from about 95 to 30 (-68%) so even during the bear market the top decile is holding up significantly better than the bottom decile, and the top decile recovers all its lost value within the next two years, whereas the bottom decile never reaches 95 again.
If one has borrowed the money to invest in stocks then there maybe no choice in the selling...
MB,
Many thanks for the updated graph. 1000% in 15 years from the top decile is impressive. What is just as impressive from the point of view of multi-factor confidence is how deciles 1-10 fan out over that period. Long may it last! Ian
Dear MB,
is it possible to run the same values on US shares and/or other markets? When using the US data on http://www.stockopedia.com/stockranks/performance/ it seems that stockranks are not as predictive (SR >90 has underperformed S&P500, for instance).
Typically, one would think that a multifactorial system that only works on some of a set of comparable markets, is a poor one. But they do seem to work too well on EU and UK to simply be written off. Any suggestion why the US shows such different results (would be interesting to see what they are like for other markets, but I can only see US/EU/UK).
underscored: I would be quite cautious about borrowing to the extent that I would have to sell in a down-turn, unless you are very canny at spotting a down-turn before it happens (which few are).
Logic,
I asked this question some time ago and Ed very helpfully produced a bunch of equivalent charts for various markets. So check out this thread: http://www.stockopedia.com/content/are-high-stockrank-strategies-working-in-non-european-markets-183592/
Ed says that this functionality will be extended at some point.
Yes the U.S. has very different results. The most likely reason is that the U.S. is a more efficient market that is saturated with factor based strategies.
MB
MB - Yes agree with you that the US is more advanced/ahead of the Factor-Factor. Makes me wonder about factor investing returns in the UK 2-3 years down the line?
The other point is that high ranking Factors selection tends to find smaller, less researched companies and so comparing Top decile US Stockranks with the S@P 500 risks comparing apples with oranges. Comparing equivalent US market cap weighted stocks may produce a different picture?
While I could accept that US and perhaps Canada would be rather efficient, I find it hard to accept that the UK with all the bankers of the city of London would be so markedly inefficient compared to South Korea. South Korea is a developed economy of course, but it is not exactly as famous for its banking as the UK.
I have no great suggestion for an explanation though.
In terms of the original question about loner term performance of stock ranks, a book called "What Works on Wall Street" by James O Shaugnessy. It is a 700 page book full of narrative and tables...but effectively back tests some Factor Based strategies going back to 1963, and in some cases back to the 1920's. I know Ed has given due credit to this book as being one of the influences in the development of the Stock Ranks. The Factors it back tests are a variety of Value (P/E, EV/EBITDA etc etc) and Momentum, ranked and split into Deciles..and then a composite of Value and Momentum called "Trending Value". From 1963 to the end of 2009 the top decile arithmetic return of Trending Value averaged 23.04% pa (so $10k invested in 1963 would be worth over $69m by end of 2009). The top decile beat the average all share return in every rolling 5 year period, without exception.
NickRay...apologies for inadvertently down ticking your really good point in post 9, which I meant to uptick! It is easy to look at those graphs too quickly and see the top decile "seeming" to have a more precipitous decline in market corrections, which would be a schoolboy error of interpretation!
On the original subject of how a stockranks type portfolio might have performed in previous downturns I recently came across this blog at one of Stockopedia's competitiors. I hope the Stockopedia staff won't mind me posting it here.
This is how a version of a QVM portfolio performed in the early years of this century, a period which included two severe market drops.
As we can see the strategy held up well in the dotcom crash, and held up far better than the general market benchmark through the credit crunch downturn. Perhaps more importantly, the QVM portfolio seemed to be able to recover from a downturn muck quicker than the benchmark.
The strategy had a maximum drawdown of 50.8% compared to 58.4% for the benchmark, peak to trough.
That's really helpful Mechanical Bull.
It would be really great though to see a version of the chart rebased on Jan-07 (or is it Feb?) = 100 for each decile, for the period 2007/2008 , that would give a clearer picture of the relative performance of the deciles during the fall itself.
If you've the time to spare I'd be very grateful to see such a view.
Re-reading this thread, I also recall seeing posted a few months ago an excellent graphic showing how the different 'form factors' (that sit behind StockRanks) performed each year over a long period of time; much longer than the existence of SRs and if I remember correctly covering at least two major market downturns.
I cannot though now remember who posted or on what threads (I thought it was one of the NAPS threads but I cannot find it).
Can anyone (perhaps even the original poster) recall where this was? I think it is quite pertinent to this discussion.
