Profitable strategies - Stock scores | Summary and Q&A

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December 22, 2023
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Building Freedom
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Profitable strategies - Stock scores

TL;DR

Learn how to invest using stock scores, specifically focusing on the value and quality scores, to generate consistent and potentially profitable returns.

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Key Insights

  • 💯 Investing with stock scores, specifically value and quality scores, has historically generated above-average returns compared to the S&P 500.
  • 💪 The value strategy focuses on finding undervalued stocks, while the quality strategy focuses on stocks with strong financial health and stability.
  • 💯 Combining multiple strategies and diversifying across different stock scores can further enhance returns and reduce risk.

Transcript

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Questions & Answers

Q: How are stock scores determined?

Stock scores are determined by evaluating various components of a company, such as price-earnings ratio, price-book ratio, and free cash flow. Each component is ranked on a scale of 1 to 100, and the average score is calculated to determine the overall value or quality score.

Q: How often should the strategies be applied?

The strategies should be applied monthly. For the value strategy, select the top 15 stocks based on value scores and hold them for a month. For the quality strategy, select the top 15 stocks based on quality scores and hold them for a month. Re-evaluate and adjust positions at the beginning of each month.

Q: What is the maximum drawdown of the strategies?

The value strategy has a maximum drawdown of 67%, while the quality strategy has a maximum drawdown of 47%. These drawdowns represent the largest decline experienced by the strategies at any point in time.

Q: Can these strategies be combined?

Yes, the strategies can be combined to potentially enhance returns and reduce risk. By allocating a portion of your portfolio to both the value and quality strategies, you can diversify across different stock scores and increase the potential for consistent returns.

Summary & Key Takeaways

  • The content discusses investing with stock scores, specifically focusing on value and quality scores.

  • Stock scores help evaluate different components of a company, such as price-earnings ratio, price-book ratio, and free cash flow, to determine value and quality.

  • The value strategy, which looks for stocks with favorable value scores, has historically yielded an annual return of 16.11%, outperforming the S&P 500.

  • The quality strategy, which focuses on stocks with strong quality scores, has historically yielded an annual return of 14.4%, also outperforming the S&P 500.

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