10 Years Of Back-testing on Different Investing Strategies

The whole of last week I have been back-testing my fundamental scorecard theories.

This exercise allows me to review my scorecard and give me more confidence in my scorecard theories. This also give me additional confidence to address my subscribers and readers about the fundamental scorecard theories.

I have broken down the scorecard theories into the following:
  • Easiest to Pass Ultimate Scorecard Criteria Strategy
  • Cash Strategy
  • Value Investing Strategy
  • Moat Strategy
  • Growth Strategy

Do note that this back-testing is based on at least 1 year of holding period.

These are the findings of the back-testing exercise:

1. Regardless of which strategy you choose, your portfolio will reflect a loss in 2008, and a huge gain 2009 and then a slight gain in 2010. Furthermore, this will be the same regardless of where you invest (Singapore, Hong Kong, Japan or USA). The interesting perspective is that the strategy with the smallest loss in 2008 is Value Investing Strategy.

2. With the above findings, years 2008, 2009 and 2010 will be taken out as they seem to be outliers. Only years 2011 till 2018 are taken into accounts for the pointers below.

3. Scorecard theories works for Singapore market. The lousiest strategy will still at least register at 6% gain per year. It works especially well for cash and value investing strategy, registering at least 10% of gain per year. For Cash Strategy, it is also noted that it will take 2 years to make a gain.

4. For Hong Kong market, it mainly works for Cash, Moat and Growth Strategy with a over 10% gain per year. But it does not work for Easiest to Pass Ultimate Scorecard Criteria and Value Investing Strategy.

5. As for Japan market, Easiest to Pass Ultimate Scorecard Criteria Strategy does not work for them. But everything else create at least a 20% gain. This is a very interesting perspective. We all knew this is probably due to many companies in Japan has been undervalued for the longest time. This signal me that it is time to take a look into Japan companies.

6. Sadly, all strategies except Cash Strategy, does not work for US market. Many people told me US market is a different creature and this probably explains why. A further understanding is that for US market, it seems that it will be hard to make a reasonable gain if we do not consider companies taking on leverage. I will take note of this in future when assessing US companies.

7. For each strategy, it is important to note that there are companies making losses as well as making gains each year. I also realize the lesser criteria I inputted, the better the gains. This is because there are more choices. This is bad in a certain way because you may end up picking the wrong company despite a good strategy. Therefore, fundamental scorecard theories may restrict choices, but I guess it is for the better as it tries to allow the user to choose the best companies.

In Short

Regardless of the amount of back-testing that was done this week and the indication of the gains I could achieve, I will also like to express that there are limitations in all back-testing. Back-testing is mainly based on an ideal situation that the investor will act in a certain way however the market changes. However, for the average investors, this will not happen.

As investors, we are always affected by our emotions and experience. For example, some of us believe a major crisis will arrive soon and has went 100% cash. For me, I do not like leverage and avoid high leverage companies. This is based on experience and each of our investing theories.

The most important factor is that we stick to our investing strategies. In time, you will be able to achieve good returns.

As per Simple Investor once said, it is better to be “roughly correct than exactly wrong”.

Finally, I had also created a new scoring system which I deem as TUB Score. It is still under testing and will probably be revealed in due time.

If you are interested to know more about The Ultimate Scorecard or Full Analysis, do visit the Fundamental Scorecard website for more information! 

We have also released the Moat Scorecard with InvestingNote. Do take a look!

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