Wednesday, February 12, 2014

What Streetfighter II has taught me about finance.

For the past week, I've been trying to game the Bloomberg machines at the Central Library. Patrons are limited to 1 hour of use per day. This really reminds me of the time I had to queue for a Streetfighter II machine at the NCO club which was next to Raffles City about 20 years ago.

Time flies, but some things ever change. My Blanka would not last every long against the kids and Bengs who were very good at the game. Similarly, the Blooomberg machine has shed some harsh truths about the various investment strategies used by fundamental analysts.

My objective for getting the Bloomberg machine is to first myself in its use and then to see if I can derive some interesting insight on Singapore markets.

As I'm still pretty new at Bloomberg, I was able to use the stock filters and do some back-testing on local stocks. Try not to use some of the results I present here as investment advice but possibly as something which can lead to better insights on fundamental analysis in the future.

All numbers take the top 10% percentile of stocks in the Singapore universe. Portfolio is equally weighted among different stocks and rebalanced annually and backtested over 10 years.

Lowest P/B ratio gave mean return of 42.79% with standard deviation of 20.46%
Lowest P/S ratio gave mean return of 38.51% with standard deviation of 22%
Lowest P/FCF ratio gave mean return of 30.57% with standard deviation of 19.75%
Lowest P/E ratio gave mean return of 29.05 with standard deviation of 19.43%
Highest dividend yield gave mean return of 23.37% with standard deviation of 15.02%
Highest dividend growth over 5 years gave mean return of 16.67% with standard deviation of 16.66%.
Highest ROIC gave mean return of 19.59% with standard deviation of 18.84%

Here's the best part, if you design an equally weighted portfolio of Singapore stocks you will get a mean return of 32% with a standard deviation of 20.06%

The only decent conclusion so far is that an equally weighted portfolio would result in a fairly decent performance against other strategies which includes my favorite high yield strategy ( which has merit only because of it's low volatility ).

Over the next few weeks, I will be refining my filters to cover multiple criteria and expanding my backtest to cover 20% percentile of stocks since employing only 10% of the universe results in a higher volatility.

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