It should be noted that the return vs risk relationship between fundamental grades is opposite to what one would normally expect. Normally, one would expect risk to increase as return increases. However, here risk is reduced as return increases. This is a powerful feature of our unique method for performing fundamental analysis and building risk-managed, alpha-generating portfolios.
The Risk-Managed Fundamental Grade ”A” portfolio outperformed the benchmark 60% of the time on a monthly basis, 75% on a rolling 12 month basis, and 99% of the time on a rolling 36 month basis. This would imply that it is ideal for longer term strategies.
Conclusion
Analysis of financial statement data is the sole input to the algorithmic model that yielded the performance described in this paper. The model had no knowledge of stock price, analysts’ opinion, or other external data. Consistent with the Financial Accounting Standard Board (FASB)’s position on the objectives of financial reporting, we believe, and have demonstrated empirically, that GAAP financial statements have predictive value, providing information that is critical to making investment (resource allocation) decisions, including whether to buy, sell, or hold a company’s stock.
Valspresso is not a registered investment advisor, legal or tax advisor, or broker/dealer. Performance summary was generated by the Valspresso simulation system from 1/1/2010 to 9/30/2020. The Valspresso simulation utilizes a hypothetical reconstruction of how a specific account might have performed using the firm’s strategy. Returns do not represent actual trading of a client’s assets but were achieved by applying a model. Returns do not include transaction cost, fees, and dividends. Simulated returns have inherent limitations, especially the fact that they do not represent actual trading.
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