Friday, May 25, 2018

Quantamental Investing and the Piotroski F-Score



I don't have much to talk about because I'll be spending the weekend in NLB to crank up more backtests for my next talk which is entitle "F.U. Money". I can't start my marketing blitz until I finalized my contents.

But here's a share on what I've been thinking about of late.

The latest buzzword being bandied around is Quantamental Investing and I did some Googling to find out how professionals do it. Right now, I can't figure out how this is anything new compared to what was done before so it is possible that some people invent a new buzzword to attract more investor money.

What I do know, and struggle with, is to find ways to incorporate the Piotroski F-Score into my  local stocks picks. Joseph Piotroski is an accounting professor who found stocks with low P/B generally fall into two categories - those that are cheap and will eventually go up in value and those that are cheap because its a failing business.

The Piotroski F-Score is designed as a scoring system to distinguish one from the other.

There are 9 tests in the F-Score which results in a score from 0-9. A low P/B stock is a good buy if it can have a F-score above 6.

Here are the nine tests :

  • Is the return of assets (ROA) for the last fiscal year positive?
  • Is the cash flow from operations for the last fiscal year positive?
  • Is the ROA for the last fiscal year better than the ROA for the fiscal year two years ago?
  • Is the cash flow from operations greater than the income after taxes for the last fiscal year?
  • Is the long term debt to assets ratios lower for last fiscal year when compared to that for the fiscal year two years ago?
  • Is the current  ratios higher for last fiscal year when compared to that for the fiscal year two years ago?
  • Is the average number of shares outstanding lower for last fiscal year when compared to that for the fiscal year two years ago?
  • Is the gross margin higher for last fiscal year when compared to that for the fiscal year two years ago?
  • Is the total asset turnover higher for last fiscal year when compared to that for the fiscal year two years ago.
The F-Score is a great way to learn how to read financial statements. More importantly it might be able to supercharge returns of a quantitative strategy involving value metrics like P/B ratio or Dividends yield. 

The problem is getting a tool that can calculate this score for all the counters in SGX. 

If any reader knows of a solution do let me know.





2 comments:

Verseun said...

Hi Chris,

When would your next talk at NLB be ?

Christopher Ng Wai Chung said...

Well I do not have a talk in NLB. My next talk will be a paid event organised by BIGScribe.

You can check out the FB group for details.

I will start pushing to sell tickets once I complete my latest round of backtesting experiments.