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Subscribe to RSS feed My BeatTheMarket Strategy

By evankoh posted on 29 Sep 2016  -  5,420 views


BeatTheMarket is a mini-game that I built in SGXcafe.

The idea is simple: you will be given facts of an anonymous stock on a historical date. Based on the information, you will choose whether to invest or ignore that stock. Once you've decided, SGXcafe will immediately tell you on the next screen if that stock beat the index one year later. If you have not tried it, I encourage you to try it now :)

While it is not a perfect way for you to test how well your stock picking strategy works, it does provides some objective feedback.

In the spirit of sharing and learning from each other, I wanted to share my BeatTheMarket strategy. After 325 rounds, my all-time score is at 70%, with a 30-round best of 96.7%.

My strategy is as follows:

  1. Ignore any stocks with a high PE. A PE that is beyond 20 is out. Between 15-20 is borderline and if so, other metrics need to be good for me to choose the "Invest" option.

  2. Ignore any stocks that have a dividend strength lower than 70%. Even 70-80% is only so-so to me. Good would be >80%.

  3. Finally, I have a Screener with the following metrics:

    • Price Over Earnings (Lower is better)

    • Return On Equity (Higher is better)

    • Median Yield (Higher is better)

    • 5 Year EPS Growth (Higher is better)

    • Total Return / PE (Higher is better)

    • Dividend Strength (Higher is better)

    • NAV / Price (Higher is better)

    Ideally, I would want them to be all green (i.e. better than sector median). Of course, they are rarely all green but if they are, I choose the "Invest Big Big" option :)
    Typically, if 3-4 is green with others not too bad, I choose the "Invest" option.

    Tip: Personalized metrics show up in your BeatTheMarket game if you saved it in Screener.

My original stock picking strategy was similar to this but using feedback from BeatTheMarket game, I was able to refine it as it became clearer and more quantifiable. This has now become my general guideline in stock picking in the real stock market.

I hope you also did (or will) learn something from playing BeatTheMarket game.

I believe we all have different strategies and I would love to learn about yours! You can share it with everyone on the forum. I am looking forward to reading your strategy!

Happy investing!


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11 comments

wil - tried it and almost all stocks underperformed.
29 Sep 2016 13:39:54

wil - Just a suggestion. Since you have the tools, why don't you backtest the screener by walkthru' of different years and time frame and see whether it outperformed the STI index. and while you are at it, why dont you also do a monte carlo :)

And... another suggestion, a sample size of 5 is not statistically significant , rite? Can we have the minimum sample size of 30 ?
29 Sep 2016 13:43:05

wil - Another suggestion. The invest button could also be duplicated and placed just right before or after the screener. That way , we don't have to scroll all the way down to guess.
29 Sep 2016 13:51:15

wil - Ok, tried a few more times. I think we can say pretty confidently, I am almost always correct when I say AVOID when the stock does not meet the screener criteria. SO this screener could be a pretty good filter for lousy stocks to avoid. And yes, comparing it to the SECTOR Median is very useful.
29 Sep 2016 13:58:38

wil - So excited. Ok, played > 20 rounds i think.. Now, Suggestion. Could you create a screener using you set of criterias to filter out stocks that do not meet at least 5 out of the 7 criterias and those ratios must be greater than the market median. This screener will then only leave us with the good stocks and you could use another screener (maybe a momentum one) to select the one with higher chance of a spurt up.
29 Sep 2016 14:08:48

evankoh - Since you have the tools, why don't you backtest the screener by walkthru' of different years and time frame and see whether it outperformed the STI index. and while you are at it, why dont you also do a monte carlo :)

=> This is in the pipeline but I kept getting distracted :) Was thinking of creating "BeatTheMarket Strength" like "Dividend Strength".

"a sample size of 5 is not statistically significant , rite? Can we have the minimum sample size of 30?"

=> This is more for making the game bite size. Easier to make 5 guesses then having to do it 30 times.

"The invest button could also be duplicated and placed just right before or after the screener. That way , we don't have to scroll all the way down to guess."

=> This is done for mobile but not desktop as I assumed it is easy and fast to scroll in desktop. Will do.

Cheers,
Evan
29 Sep 2016 14:09:04

evankoh - "...greater than the market median." => Do note that it is comparing against sector median instead of market.

"Could you create a screener using you set of criterias to filter out stocks" => Filtering capability in Screener is also in pipeline queue but its priority kept being pushed down by other features :)
29 Sep 2016 14:16:00

wil - Play the mini games a few more times.. but this time.. i removed a few criterias as it does not seem to add any more accuracy to my guess. So now my narrow down criterias of PE, ROE, Median Yield and Dividend Strength produce as good a result as your original beat the market criterias. You can give it a try.
30 Sep 2016 12:34:47

evankoh - Ha.. Okie.. Will try. Although if you are going to do it for the real market, I suggest more criteria is usually better :) Generally, while more criteria will reduce the number of times it triggers, it will also reduce the number of false positive.
30 Sep 2016 13:23:16

wil - True. Anyway, I would coined the strategy - Avoid the Losers. IT does not identify outperforming stocks but you can with high accuracy avoid the losing stocks.

Could you try to see whether you can add an indicator call Price Momentum. The trend is your friend, what you want to see after the criterias meet would be to see the Price momentum increasing over 1m and 3m.

Also, in the stock market, it is generally true that Sector Rotation is prevalent. It would be good if you could have a sector momentum indicator. That way, when this sector is moving (they dont move 1 month, usually rotation will be at least 3 months) 1 wk and 1 mth, you can be sure there is a higher probability of the stocks inside that sector moving with an upward bias.
30 Sep 2016 13:58:15

evankoh - Both of these features requests were also in the feature queue with the "Add a variety of technical features into Screener" being top of the list as voted by Friends of SGXcafe. So, most likely will be adding that in the upcoming days.
30 Sep 2016 14:36:41



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