All Investable Stock Screen Backtest

Tobias CarlisleStudy Comments

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Updated July 26, 2016

Chart 1. Returns from January 2, 1999 to July 26, 2016 (Log.)

TAM All Investable Returns to 20160726

We backtested the returns to a theoretical portfolio of stocks selected by The Acquirer’s Multiple® from the All Investable stock screen. The backtest assumed the screen bought and held for a year 30 stocks selected from the All Investable universe (the largest two-thirds of stocks by market capitalization). The portfolios were rebalanced on the first day of the year using the most recent fundamental data. The backtest ran from January 2, 1999 to July 26, 2016.

Over the full sixteen-and-one-half year period, the screen generated a total return of 5705 percent, or a compound growth rate (CAGR) of 25.9 percent per year. This compared favorably with the Russell 3000 TR, which returned a cumulative total of 265 percent, or 5.7 percent compound.

Chart 2. Yearly Returns from January 2, 1999 to July 26, 2016

TAM All Investable Annual Returns to 20160726

On an yearly basis, the model portfolios selected by The Acquirer’s Multiple® have generally outperformed, although underperformed in 1999 (-1.6 percent), 2012 (-5.5 percent), 2014 (-11.1 percent), and 2015 (-19.2 percent).

Chart 3. Rolling Yearly Returns from January 2, 1999 to July 26, 2016

TAM All Investable Rolling Returns to 20160726

The average twelve-month return for any stock selected by The Acquirer’s Multiple® All Investable screen was 22.7 percent, beating out the Russell 3000 TR’s average stock at 6.8 percent by 15.9 percent. Through The Acquirer’s Multiple® portfolios underperformed from mid-2011 through to mid-2012, and then mid-2013 through to date they still slightly outperformed over the full period.

Chart 4. Drawdowns from January 2, 1999 to July 26, 2016

TAM All Investable Drawdowns to 20160726

The worst drawdown for The Acquirer’s Multiple® All Investable screen was -45 percent, which occurred between July 2007 and March 2009. Over the same period, the Russell 3000 TR drew down -56 percent.

The 30-stock portfolios selected by The Acquirer’s Multiple® from the All Investable universe consistently outperformed the broader Russell 3000 TR. The trade off is periodic underperformance–approximately one in four years–and deeper and more frequent drawdowns.

Disclaimer: Backtested performance does not represent actual performance and should not be interpreted as an indication of such performance. Actual performance may be materially lower than that of the backtested portfolios. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investor’s decision-making process if the investor was actually managing money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model portfolios (in this case, The Acquirer’s Multiple®) designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable.

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