Quantitative value investing deserves your serious attention

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Quantitative value investing deserves your serious attention

 

 

Are you a classic value investor?

Do you get excited the lower the share price of an undervalued good company falls?

Do you love sifting through the 52-week low, lowest PE or highest dividend yield list?

Something I used to do

I’m also a hard-core value investor but this is not something I do any more as I found an even better way to generate market beating returns – with quantitative value investing.

Lead me explain.

Started the worst way possible

If you are a long time reader of my newsletters you will know that I started investing in the worst possible way. Because of this I made every possible mistake an investor can make.

I started using technical analysis and lost money. I then followed brokers recommendations (traded a lot) but never made any real money until I discovered value investing which I have been studying and practicing over more than the past 20 years.

A new way of looking at value investing

However last year my approach to investing changed substantially. It changed because of an ambitious project a friend and I completed.

We wanted to find the investment strategy that would have given you the best returns over the past 12 years in the European markets. From June 1999 to June 2011

It was a horrible time

As you know 2000 to 2012 was probably the most difficult time for any investor (not just in Europe) as this period included both the bursting of the Internet bubble (2000) the financial crisis (2007 and 2008) as well as the European sovereign debt crisis (2010 and continuing).

We called the study is called Quantitative Value Investing in Europe: What Works for Achieving Alpha.

And it can be found by either clicking on the image or the name of the study (subscribers to the newsletter get the study for free)

Astounding results +1157%

I’m sure what we found will also astound you.

The best performing strategy we found returned 1157% over the 12 year period.

In fact the top 10 strategies we tested had an average return of 881%, a return I’m sure you will also be proud of even if you subtract dealing costs and capital gains taxes which were not included in the above numbers.

What will surprise you

The thing about the study that will surprise you as a value investors is that valuation ratios were not the most important factor in any the best performing strategies.

Valuation is still very important but is not the first factor you should look at.

 

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What we found that was even more important than valuation was share price momentum.

With momentum simply defined as the share price change over a period of six or 12 months. (Current share price / share price six or 12 months ago).

You would have gotten the best returns if you first looked for the 20% of companies with the best price momentum over six or 12 months and then from this group invested in the most undervalued companies.

If I didn’t do it myself I wouldn’t have believed it

As a hard-core value investor these results were very difficult for me to accept but due to the endless hours spent looking at the numbers and writing the study I was able to convince myself of the value of first looking at price momentum.

We even started a newsletter

We were so convinced of the results of the research study that we started an quantitative value investing newsletter which has generated very good returns as you can see by clicking on the link below.

Quant Value Newsletter

Should you become a completely quantitative investor?

You may be asking if the research study changed me from classical value investor to a completely quantitative value investor. The answer is I became a bit of both, and I suggest you do as well.

I still enjoy analysing companies and have of course remained a value investor but I make sure all of the ideas I analyse come from one of the top 10 investment strategies in the research study.

Digging in the richest vein

This means that I’m digging in probably the richest vein of gold for market beating investment ideas. But I’ve also become a quantitative value investor investing part of my portfolio in a lot of investment ideas that are quantitatively generated.

How can you profit?

If you would like to have a look at and even implement the best strategies from the research study in your portfolio we have made it very easy for you to do.

Simply click the link below and you will be taken to the separate website of a newsletter we publish based on only the best strategies we found in the study: Quant Value

Your quantitative value analyst, wishing you profitable investing