A) 15 or so stocks instead of 40 for the 5-year-sales-growth criterion only?
B) Rebalancing once per year only (monthly seems to be your standard), for 40 stocks and for 15 or so?
As requested, all figures below are purely ranked on five year sales growth, no momentum test.
Some other hidden criteria:
- It has to have been a stock covered by Value Line;
- It has to have been listed in the US, or the database I’m checking wouldn’t have the price data;
- It has to be at least 5 years old at the time (because it’s a 5-year sales growth rate);
- …and there are no banks, thrifts, or funds allowed.
The meaning of revenue for a bank is not the same as revenue for a product or service firm: it’s more like gross margin.
As a reminder to investors of this, Value Line does not publish revenue or revenue growth numbers for banks.
So they can never appear on this screen.
One other quirk: the rate of sales growth is calculated for each stock only once per year, using the annual statements I believe.
So the figure is often quite stale. Surprisingly, this isn’t a big problem; it cuts down on pointless trading a lot.
I think (?) the figure might also be smoothed a bit.
Period of analysis is 1997-05-05 through 2022-04-04, a hair under 25 years.
All figures include dividends (reinvested in the stock in question on the ex-date)
and trading costs estimated at 0.4% round trip per trade. No provision for tax.
S&P 500 total return 9.11%
40 stocks monthly with trading costs 17.51%
15 stocks monthly with trading costs 15.08%
40 stocks monthly with trading costs, replacing only those ranked below 45 17.56%
15 stocks monthly with trading costs, replacing only those ranked below 25 15.46%
40 stocks quarterly with trading costs 18.74%
15 stocks quarterly with trading costs 16.59%
40 stocks each 6 months with trading costs 19.39%
15 stocks each 6 months with trading costs 17.24%
40 stocks annually with trading costs 19.19%
15 stocks annually with trading costs 19.29%
Note: as the hold period lengthens, the statistical strength of this test falls.
So the progression of returns with hold period length is only indicative, not definitive.
It is one possible set of trades, out of many many possible such sets of trades.
Add grains of salt in proportion to the number of months held : )
If you decided to go with annually, don’t buy them all the same day.
e.g., buy several each month or two or three, and hold those for a year.
So, it’s like a few mini-portfolios, each one with annual holds, but staggered through time.
You don’t want all your trading to take place on a single day each year that might be very atypical,
with (for example) growth stocks wildly out of fashion or right on the cusp of a leadership rotation.
Jim