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Premium Model

Small Cap Growth (US)

This trading model focus on small caps that have been demonstrating strong growth and are estimated to continue to grow, with a healthy ratio to net free cash flow. The rank is based on growth and volatility, since volatility is an opportunity when fundamentals are solid and the company is trading below what it should trade.

Stocks estimated to deliver strong growth are the first to be penalized when they don’t meet expectations or when the market starts getting nervous, so market timing rules are enabled to mitigate market risks associated with a market crash due to recession.

This is a high turnover model, and rebalance is done weekly. It holds up to 10 stocks. It contains US stocks and it excludes OTC exchange. It may contain mid cap occasionally, but it’s focus on small and micro cap stocks. 

The model takes into account average trading volume to ensure reasonable liquidity for micro and small caps, and fundamental metrics to enhance the probabilities of further growth. By holding up to 10 stocks, the model provides adequate diversification for potential growth.

This is a mechanical model that chooses what to buy and sell based on a set of rules. Therefore, there will be losing trades from time to time. By no means it reflects a broken strategy. No model can outperform at all times, so it’s paramount to have the proper temperament to stick what a strategy that is aligned to your goals and risk tolerance.

Following below are several backtesting results to evaluate how these rules would have worked since last 5 and 10 years, and no market timing during simulation to reduce past bias:

Model summary, including variable slippage (starting capital was $10,000) and commission of 1 cent per share:

 

Detailed performance summary which provides max drawdown and % stock invested periods (log scale):

 

Stats information below, with winners, losers and how long typically these stocks are held for:

 

Below are various risk indicators as well:

 

Since the model typically holds positions for 6 months on average, the following histogram was run, to evaluate how consistently the model would perform if it started at different periods (roling offset was set to 1 week, while the performance period was set to 6 months); below is the histogram excess performance when compared to the benchmark (TSX):

 

Model return vs benchmark (small cap ETF) return;

 

 

The first screening criteria is related to the market timing, to either be in equities or cash.  This market timing rules use data from micro-elements (earnings and price movement trends for the whole market) as well as macro-elements, such as economic indicators (which might drive prices lower, regardless of solid fundamentals) to issue a sell all signal (move to cash) or buy according to the rules of this model.

The next screening criteria (buying rules as per the rules of this model) narrows down the Universe to stocks with reasonable liquidity and strong fundamentals, such as recent earnings growth, estimate for higher earnings and cash flow.

Once a list of stocks are found, then they are ranked from best to worse, where only the top ranked are chosen. The ranking is based on several quality, growth and momentum metrics.

A stock will be sold if the ranking deteriorates for a given stock, or if their market cap increases by a threshold after being acquired, in order to work either as a stop loss or a lock profit mechanism.

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Performance Info:

 

(last updated on September 25, 2022)

 

 

Stats Info:

 

(last updated on September 25, 2022)

 

 

Risk Info:

 

(last updated on September 25, 2022)

 

 

 

Current Holdings Allocation:

 

(last updated on September 25, 2022)

 

 

Cost of this model:  $33 / month. Cancel anytime.

Interested in subscribing to multiple models? Discounts are available when subscribing to 2 or more models. Simply subscribe to your first model and then let us know which model you want to subscribe next, and we’ll send you a discount coupon.

Discount rates:

1st model full price
2nd model 10% discount (applied to the 2nd model)
3rd model 20% discount (applied to the 3rd model)
4th model 30% discount (applied to the 4th model)
5th model 40% discount (applied to the 5th model)
6th model 50% discount (applied to the 6th model)
7th model 60% discount (applied to the 7th model)
8th model 70% discount (applied to the 8th model)

Got questions?  Check our Frequently Asked Questions for Premium models or contact us.

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