Studies of Life

Learning by doing.

Quantitative Investing: Trust Your Model!

04 March 2015 by Jim

As you know, I’m all about systematic, i.e. quantitative investing. I’ve started out with intuition as well, buying Apple stock 6 or 7 years ago, and making a huge profit (30% or so). I would never invest the kind of money I have in my portfolio now based on intuition. Instead, I now use models like the Piotroski F-Score filter and O’Shaughnessy’s Trending Value for my own portfolio’s stock portion.

Specifically regarding the Piotroski stock selection method, I have to say I started systematically using it last year, but I still looked at the stocks it listed to make my own decision on whether or not to invest in a particular stock. During the middle of the 2014, I was basically going sideways.

Then, on January 1 this year, I chose to heed the advice of many authors of investment books like O’Shaughnessy himself and Joel Greenblatt who state that the model is much better at doing its job that human intuition can ever be. Have a look at this blog post for some more context. And suddenly, I was again beating stock indexes with my stocks (excluding my other portfolio components). And I did so by a wide margin.

The stocks I bought are 90% US stocks and about 10% Canadian and European. So the best comparison should be to the SP500. Here’s what that looks like this year so far (+2.2%):

20150228 Screen Shot 2015-02-28 at 19.52.07

And here’s how my selection did (+10.5%):

20150228 Screen Shot 2015-02-28 at 19.52.25

That’s quite stellar performance so far I think. If you want to know what stocks I currently hold in my portfolio, have a look at the list that I published when I laid out my plan to test different investing strategies this year. The strategy used to pick them has also been described there. They’re 23 stocks overall. Especially the volatility looks quite good for my 23 compared to the 500 of the SP500.

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