Backtesting fundamentals

M

metz419

Is there any other software out there besides Zacks that gives one the ability to backtest stock picking using fundamentals as opposed to technichal indicators?

Also, Zack's only has data from the last five years. I know there is a Zacks Pro Research Wizard. Anyone have any experience with it? Can it backtest farther than 5 years?
 
Let me save you a lot of time and aggravation...........by backtesting fundamentals as a stock-picking tool, you can expect the fundamentals to be accurate about 50% of the time and wrong the other half of the time. Also, you'll make a dollar when you're right and lose a dollar when you're wrong. Conclusion, fundamentals are irrelevant & useless. If you interested in making money, focus on stock prices instead. If you're a journalism student, take some writing courses.
 
I have never backtested fundamentals but I spent a few days with a really good screener looking for correlations between tradeable moves and fundamentals, never found one.
 
Quote from nazzdack:

Let me save you a lot of time and aggravation...........by backtesting fundamentals as a stock-picking tool, you can expect the fundamentals to be accurate about 50% of the time and wrong the other half of the time. Also, you'll make a dollar when you're right and lose a dollar when you're wrong. Conclusion, fundamentals are irrelevant & useless. If you interested in making money, focus on stock prices instead. If you're a journalism student, take some writing courses.
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It's one thing to prefer one method over another, but to call fundamentals useless makes no sense and shows a lack of understanding. In the LONG run fundamentals win out. A long term investor that keeps to an SP500 index fund will make about 8% a year. 95% of day traders will bust. There are a lot of people that made a lot more money than you in the market that would disagree with you on this issue (Peter Lynch, Warren Buffett, George Soros, etc.).
Quote from maxpi:
I have never backtested fundamentals but I spent a few days with a really good screener looking for correlations between tradeable moves and fundamentals, never found one.
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I don't think fundamentals have much of a correlation with short-term trades. I am thinking in terms of the longer term. For example, over the long run, a well-diversified small cap portfolio will pretty much always beat a large cap portfolio. Additionally, stocks with low p/e's outperofrm thouse with high p/e's (as a whole...not individually).

I just wanted to research more of these correlations if possible. Unfortunatly, five years is hardly enough time to backtest, so I was hoping either the Pro version went back further or there was another company that had a similar product that went back farther.
 
In the long run, do you prefer to make money OR have a strong grasp of fundamentals? Regarding Buffett and Lynch, publically they espouse fundamentals but at a deeper level, they're able to hold onto winning positions that kept escalating in PRICE, regardless of what the fundamentals were at the time. Also keep in mind that both of them are "bull market heroes". I believe BRKA & BRKB haven't advanced in price since 1998. 7 years is a long time to hold a stagnant portfolio. Soros has more of a trading mentality and is willing to pile onto winning positions when markets go "vertical". A better conclusion to derive is that these three guys are good at holding onto winners and getting rid of losers. Knowledge of fundamentals won't do that for you. Focusing on price will put you in a better position to do so.
 
Quote from nazzdack:

In the long run, do you prefer to make money OR have a strong grasp of fundamentals? Regarding Buffett and Lynch, publically they espouse fundamentals but at a deeper level, they're able to hold onto winning positions that kept escalating in PRICE, regardless of what the fundamentals were at the time. Also keep in mind that both of them are "bull market heroes". I believe BRKA & BRKB haven't advanced in price since 1998. 7 years is a long time to hold a stagnant portfolio. Soros has more of a trading mentality and is willing to pile onto winning positions when markets go "vertical". A better conclusion to derive is that these three guys are good at holding onto winners and getting rid of losers. Knowledge of fundamentals won't do that for you. Focusing on price will put you in a better position to do so.
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No, that's not correct. Buffett and Lynch are precisely focused on the fundamentals. They evaluate a company to figure out what they think it's worth. If it's selling for significantly less they buy it. Once the company rises to a value that they feel is an accurate price for the company, they sell. They make their decisions based on fundamentals (Soros uses both fundamentals and TA).

Over the longrun a stock is worth its fundamentals. A lot of TA traders forget they are buying a piece of a company...it does have an intrinsic value.
 
Fundamentals should have an impact on price. But at this moment a stock is worth only the price it last traded at and not what it’s free cash flow or PSR numbers are. I done a study on fundamentals verses technical indicators and TA win hands down. The problem is there may be many companies with great fundamentals but if someone isn’t interested enough to bid them up in price they remain stagnant. One’s probability of win using only fundamentals is less than that of using technical indicators.

The way to incorporate fundamentals into stock selection is to let the institutions do it for you. They have well paid research departments that specialize in that kind of stuff. Why do you think that you can do it better than them? Wait until the institutions become interested in the stock, their footprints are obvious as these stocks breakout on heavy volume which are readily detected using technical indicators and scans.

It is a well-established fact that herding institutions move prices up and down more so that some ratio or growth rate. The elephants can’t hide, so trade with them rather than hoping that someday someone somewhere will wake up to the fact that XYZ stock has these great fundamentals.
 
WolfVector, you did a study on fundamentals? If so, what software did you use? That would probably be what I'm looking for.
 
I used TC2000 for data. Fundamental and technical scan results were archived and performance data computed from 1 day to 12 months into the future after the scan criteria were met. I developed the statistical analysis software in Delphi that also allowed me to included entry/exist strategies as well as commission and slippage. TC2000 is not a historical database for fundamental data; it only provides the current data. One has to save scan results over a period of time (e.g., years) in order to do the analysis.
 
Quote from metz419:

Is there any other software out there besides Zacks that gives one the ability to backtest stock picking using fundamentals as opposed to technical indicators?

Also, Zack's only has data from the last five years. I know there is a Zacks Pro Research Wizard. Anyone have any experience with it? Can it backtest farther than 5 years?
More...

It depends on what you want to backtest.
Look at Businessweek scanner it gives you ability to backtest.
Value Line is one database with past financial.
Reuters also has scanner with financial information. But it does not backtest but you can have a look at their canned scans using financial and their results. Some of them are pretty impressive.

There are number of financial based backtested systems which have a good track record. Most of the well known Quantitative research shops like Ford Equity, Thomas White International, Columbine Capital management, Callard research and Channel Trend use financial variables based model to select equities and institutions are their major customers. So if you look at their model you will find many good ideas to develop financial based trading systems.
 
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