I got a question from a reader this week. He wanted to know whether the Piotroski score only works for Small Caps or not.
I’ve checked Piotroski’s initial paper, which you can find here, and found the following table, which sums up the main results from his research.
What does the table show us?
The values in the table for the columns MEAN and MEDIAN are correlation values. A 1 means that it’s perfectly positively correlated, i.e. high Piotroski score equals high return, -1 means low Piotroski score equals low return, and 0 means there is no correlation, i.e. Piotroski score gives you no information on returns.
A reader, Algirdas, recently left several questions below a post, and I thought the answers might interest most of you, so I decided to answer with another post.
> You said: “Right now, stocks and bonds are pretty expensive. It’s not a good idea to invest all of your money into either category right now, because there could be a big decline soon” How to know when stock market reached the bubble or had a big decline? Maybe you can share a source where you can look the current stock market situation considering the whole stock market performance history? How do you know when stocks are expensive? Or in a bubble?(more…)
I’ve been asked by a reader how to get started, and noticed that I haven’t yet talked about this in a general way, because most of the posts here are about specific investment strategies. So here is a more general approach for those who are still looking at how to get started.
# Starting to invest
Earn more money than you spend
Save the difference so you have something to invest with
Invest that money
This is the first, basic set of instructions on how to begin. Before moving on, make sure these three steps are checked off on your list. It’s no use to invest when you spend every dime you earn. Never invest borrowed money! (more…)
Maybe all the work you do screening stocks, reading up on quantitative stock picking strategies and other investment details is wasted. Did you ever think about that? John Bogle thinks that Index ETFs are the only way to go for ‘normal people’, i.e. you and me. And he’s smart, really smart (Princeton guy, founded Vanguard) so what he says should be listened to.
I’ve been talking a lot about different investing strategies on this blog, and I’m currently using a portfolio made up of 35% bonds / gold and 65% stocks chosen using the Trending Value strategy (+Piotroski F-Score) presented by O’Shaughnessy. Maybe everything I do is worthless, and the return of my portfolio can be entirely explained by the underlying asset allocation. (more…)
I am into reading and learning about investing, and obviously you, my reader, is to, otherwise you wouldn’t have found this blog. And while it is fun to talk about how different investing strategies do, and what the ‘best one’ out there is, it is important to not loose sight of the basics. We tend to get caught up in minor details. Of course, when people talk about money, most want to get the highest possible return.
But peace of mind is also worth a lot.
After all, for many people, more money is the same as peace of mind, because it means they don’t need to worry about losing a job, paying their bills or defaulting on their loans. (more…)
I’ve discovered a real gem: Piotroski’s F-score. It’s a 9-point score that tests a given stock using 9 fundamental measures supposed to indicate financial health. Stocks can be classified into the 9 score groups from 1 to 9 and, although the effect is strongest at both extremes of the scale, low-scoring stocks can be expected to decline in value, while high-scoring ones can be expected to increase in market value.
This post is the first of a series about the Piotroski stock-picking methodology and its real-life application:(more…)