Public ModelBased on Graham (Canada)
Benjamin Graham is the father of value investing, and the success of his strategy was based on value and company fundamental strength with an emphasis on survivability and stability. The approach was initially created over 80 years ago when the Graham and Dodd’s college textbook “Security Analysis” was published.
Graham’s approach focuses on the idea of an intrinsic value which is justified by a firm’s assets, earnings, dividends, and financial robustness. Focusing on this value, he felt, would prevent an investor from being misled by the misjudgement frequently made by the market in times of deep pessimism or euphoria.
This strategy is well described on his book “The Intelligent Investor,” first written in 1947.
First, it’s important to note that this is not an optimized model – it simply screens stocks as per Graham’s rules and have them ranked in a more optimal level. Therefore, I view this public model as an active investing model, rather than a more elaborated trading one.
This is a low-turnover model; although purchased stocks are hold for at least 4 weeks, the model is rebalanced weekly (screening for additional stocks to buy as per the published rules).
This model is based mostly on fundamentals, and it has been revised in December 2020 to not use any market timing rules – the model only uses the buy and sell rules, besides momentum criteria for the ranking. According to backtests, the model might not avoid major drawdowns, however the model only buys when all buy rules are met and it sells when the stocks falls under the top quintile. The decision to remove market timing rules on this model was based on the underlying factors for earnings calculation, which are done differently and no longer represent the original timer created for this model. The ETF model has been revised and it contains portfolios solely based on market timing, which can be used as a hedge (for all models).
This model has been revised to not include companies that have been subject of a recent acquisition or merge, since acquired companies have a defined shared price for the acquisition and in many cases shares would be delisted shortly after the acquisition complete.
In March 2022 the model was adjusted due to the new taxonomy series from portfolio123 to integrate US and Canada as one North America region as per plan to expand and integrate with Asia and Europe data. This affected how the ranking is constructed, so instead of selling when rank < 80, the model now sells when rank < 75 to maintain similar performance and adjusted risk return ratio as before.
Backtest summary performance with current market timing rules applied (updated as December 2020 with no market timing):
Detailed backtest performance shows maximum drawdown as well as % of invested stocks across different periods (log scale and revised as December 2020 with no market timing):
Backtest performance info (revised as December 2020 with no market timing):
Backtest stats info (revised as December 2020 with no market timing):
Backtest risk info (revised as December 2020 with no market timing):
Backtest Histogram Excess performance (holding for 4 months, which is the average duration for the stocks sold for a loss, rotating it weekly, revised on December 2020 with no market timing):
Backtest Histogram Portfolio performance (same period, revised on December 2020 with no market timing):
The universe for this model are the stocks in TSX only – so no Venture Exchange companies.
– Price > $5 (no penny stocks);
– Current ratio is at least 1.5;
– Long term debt is less than 110% of working capital;
– Last 4 quarters of EPS above breakeven;
– Last 5 years of EPS above breakeven;
– Annual EPS grew over past year and past 5 years;
– Company has paid dividends within past year.
– Rank >= 80
– Average daily total (price * volume) from last 60 days > 100,000
The top 10 companies of the ranking are selected.
– Ranking < 75
The ranking is built by having equal weight distribution (25%) to the following criteria: Value, Growth, Quality and Momentum.
Value: 65% based on income stream (Current Fiscal Year Projected P/E Ratio, Projected Price/Earnings to Long Term Growth Rate and Market Cap to Adjusted earnings) and 35% based on others (Enterprise Value to Sales, Enterprise Value to Enterprise Asset and a conditional PB that will be applied only if 5-year ROE is above the industry average). These parameters consists the new ranking, updated for November 2015 rebalance, and described here.
Growth: 75% based on EPS growth (change per quarter, TTM and 5 years) and acceleration (formula for recent and long term acceleration ratio) and 25% based on sales growth and acceleration (same interval as EPS growth and acceleration).
Quality: 25% based on operating margin % (TTM and 5-year average), 25% based on asset turnover, 25% based on ROI and ROE (TTM and 5-year average) and 25% based on Finances (current ratio, interest coverage, total debt to capital ratio).
Momentum: 65% based on price changes (ratio between today and different past periods) and 35% based on technical indicators (up down ratio for different periods).
Market Timing rules:
In December 2020 this model was revised to no longer use market timing rules, since the original formulas and calculation no longer works, given how estimated data and underlying data set is used by the new platform provider. Buy rules are always screening for new buys and sell rules will screen to meet selling conditions. The model is only in cash if all stocks were sold as per sell rules and no criteria was met on buy rules. It will keep screening every week until a stock meets all rules. If one wants to incorporate market timing, the ETF models have been revised to include portfolios solely based on market timing, which can be used as a hedge.
Next rebalance date:
February 12, 2023
Last signals (February 5, 2023):
Current holdings (February 5, 2023):
Below is how the holdings should look like AFTER the rebalance. This portfolio has an equal weight distribution, so you might want to consider buying / selling shares (where commissions make sense) to achieve the weight below, as a guideline. It’s ok if you cannot achieve the exact number. Weight below means how much of the portfolio is on that stock.
|Ticker||Weight||Return %||Avg Share Cost*||Days Held||Yield||Sector|
(last updated on February 5, 2023)
Ranking Information (before rebalance):
(last updated on February 5, 2023)
Market Timing indicator (oscillator based on earnings):
The underlying factors for the earnings timer have changed with the new platform provider and calculation, invalidating the original timer. This model has switched to not use any market timer (native as part of the model), and it’s always invested (unless all stocks were sold via sell rules and nothing could be found via buy rules OR the external macro model which tracks recession probabilities crosses the threshold for highest probability of recession confirmation). The ETF models have been revised to include portfolios solely based on market timer as a hedge.