I do exactly as you ask using Zacks fundamental backtester.I currently do not employ any maket timing and do not come anywhere near 68% returns on pure fundamental scans.Even if i curve fit,I cant duplicate it.... Whats even more impressive is Alpha is predominantly a midcap stock trader as opposed to small and micro cap. I would venture to say that > 50 percent of Alphas perormance is due to timing and technicals.With the returns and volatilty he presented ,I ballparked a Sharpe of apx 3. That is highly improbable if not impossible to do on fundamentals only
Very interesting and very impressive.... Would the portfolio be affected if one bought a set number of shares, say 500, instead of 5% of each stock? SteveD
Buying a set number of shares sounds reckless! Using a fixed fractional allocation is pretty conservative. Another approach is to size the allocation based on volatility. That way, the more volatile stocks don't kill you when they drop suddenly. It's a 2 edged sword since you wouldn't make a big killing on a sudden jump in your favor either. But at least the risk is more evenly distributed across the portfolio.
To answer some questions: Hamlet - Most of the return are from fundamentals, not TA. There is more to FA than PE ratios and earnings growth. And yes, stocks get hugely affected by fundamentals in the short term. Look at any major overnight move, it will always be due to some fundamental factor. The problem is that as soon as you mention FA people think Warren Buffet and 10 year holding periods based on things like management, liabilities, and inventories. Buying a basket of 20 stocks with 20 day holds show similar performance in the backtest. But in reality doing so would not allow me to cherry pick and search for the best of the lot, plus you loose the cost averaging effect of the portfolio. By the way I am not dissing TA, just saying that the core of this strategy is fundamental in nature. Diesel - Yes I have read that book and most others worth reading. I did experiment with CANSLIM a while back, but didn't really get anywhere. O'Neil is a smart man and I am sure the CANSLIM method works great for some. Best books I read: PitBull, Wizards, and reminiscence of a Stock Operator. taowave - My friend you are incorrect, technicals is a minor part of this strategy, and no you can not duplicate it with Zacks alone as I use other sources as well. SteveD - Yes, the portfolio will be hugely affected by buying a set amount of shares. By only allocating 5% to each positions you stay diversified so that a major move in one stock won't affect the portfolio that much. In fact if one of the stocks go down 50% it would only shave off 2.5% of the total return. That is a major part of risk control and the reason why I can get away with not using stops. I think that about sums it up...
I'm a bit confused as to why you made this statement since in fact this year so far has been tame relative to prior years and especially since the most recent four months have been flat or in a drawdown period. If anything, I would say that the most recent performance already suggests the point you were trying to make, instead of looking "too good".
Hi alphastocks, I wanted to know the min amount of money would I need to allocate to say thinkorswim to be able to do both the long and short portion of your hedge strategy. I currently trade futures. I don't plan to go long anything in Sept since this is normally the worse month of the year. Also, please note that I also do computer work including setting up web sites with ecomerce included so that if you want to included a subscription service in the future where people can subscribe to your system, let me know. --- oraclewizard77
I was referring to the most recent exits on this forum, especially CKCM that returned 54% in 16 days. Your point is well made and my previous comment probably unnecessary.
I would say 10k ($500 in each position), depends a bit on what broker you use. I use Interactive Brokers as well as Tradestation and I pay 1 c per share, min $1 per trade. With commissions this low it doesn't hurt the performance and odd lots are not really a problem. Not sure if you have been following this thread, but it is primarily about a long only strategy. I mentioned hedging, but I do not currently post any of my hedging trades. I might do so in the near future.