Systematic Equity Screening

It's been a while since I've shown any work on equities. So today I'll show some tests that I've done, using some old-but-good screeners. The screener is useful to find ideas in a systematic way. Then the schools of thought diverge: on one side, there are the believers in pure systematic investing; on the other side there's the group that believes in a more thorough understanding of the screen's results. It's already clear though, that going more in-depth will not necessarily enhance results...it might however build further confidence in the screener.

So here are a few easy screens to cut your teeth with, if looking to invest some capital in equities.

1. Deep Value Investing

Let's start with a classic filter: screen all US equities (non ADR, non-chinese firms, non-otc) for stocks with TTM P/E less than 5. Hold for 1 year. Limit to 30 stocks (let's keep things realistic).

As you can see, the screen can produce great results BUT the drawdowns can also be tremendous.

In equities, it DOES seem that filtering the market state (bull/bear) is important, and there's where "discretion" can be applied, to smooth the equity curve.

2. Piotrosky's Best Criteria

I appeal to Piotrosky's general thoughts and his main screening system. However, I must agree with the studies done by Old School Value: amongst 9 criteria, which ones really make a difference? 

Well, here's what came out:

We should note the drawdowns are much less pronounced than

on the classic P/E screener. Hence, the sharp ratio of this pure 

systematic screen is much higher.

Again, the portfolio was limited the 30 stocks, and a yearly rebalancing.

3. Graham's Number

Finally, onto the last screener for today: the good old Graham Number.

Here are the criteria:

Again, quite a simple screener, that yields impressive results.

Again, the portfolio was limited the 30 stocks, and a yearly rebalancing.

I would suggest doing your own homework on these screens, viewing the selection of stocks that the screen would have chosen each year...get to know the nature of the beast...then apply common sense for decision making.