Yuval - I concur. My thoughts exactly.
When I started on P123 back in 2004 we only had very basic factors to use, extremely limited technical (price-based) factors, and in retrospect, nowhere near enough data. The data ran started in 2001 — and in that year small-cap stocks were questionable for reasons that have been lost to time (or to me at least) — so we had just THREE reliable years upon which to base backtests, and unfortunately, 3/4 of those years were in a bear market. So it wasn’t much to go on, but since data-driven investing was still unknown in those days to 95% of investors, the models actually worked quite well. It was 'easy pickin’s back in the early days.
Since P123’s very primordial start-up years of 2003-2004, Marco has been on an admirable mission to expand the available data set, insure the highest quality PIT data, and expand the capabilities of the platform. The recent capability that allows users to design factors that work from imported external data is a game-changer that opens the P123 platform up to virtually any data set that a strategy designer can imagine.
While some of those most basic factors (PE Ratio, Price/Book, etc.) were long ago worn to a nub by use by everyone and their grandmother, there are virtually unlimited new possibilities from combinations of datasets and indicator configurations that virtually nobody has considered before, and which offer incredible opportunity.
Five years ago, I gravitated to ETFs from stocks because ETFs were not used as much by quantitative professionals as stocks. And for the last few years, I’ve been developing new, complex and sophisticated custom formulas—such as a Custom Series I call the Momentum of Fear Indicator © 2021 ETFOptimize.com, Optimized Investments, Inc.
The Momentum of Fear Indicator is made from a composite of multiple Rate of Change measures of the $VIX data series, i.e., the CBOE Volatility Index — measuring investor’s option bets on increases or decreases in near-term volatility. Here are the signals provided by one version of this Custom Series:
The signal is ‘Risk-Off’ when at 0 and ‘Risk-On’ when at 1. You can see how this one custom indicator provides very accurate signals for when to be long (Risk-On) the S&P 500 ETF (SPY) and when to be in cash or a defensive ETF (Risk-Off).
Moreover, this one indicator, i.e., 'Momentum of Fear’©, is used as part of a composite of multiple other indicators that when combined provide even more highly accurate signals. Other indicators I’ve created, and from which I build various composites for different uncorrelated models, include the 'Trend Channel Indicator’©, Stochastic Close Indicator, 'Trend Momentum Indicator’©, Share Accumulation/Distribution, Volume Accumulation/Distribution, Bollinger Band Signals, MACD Risk Indicator, Breadth Thrust Indicator, Net Advancing Volume Signal, and more than 50 other customized, carefully tested and robust indicators …
In this way, progressive thinkers in the investment community can always stay ahead of the masses if enough investors come along to use and ultimately deteriorate the performance of well-know investment indicators that are today’s equivalent of the P/E Ratio 15 years ago. If an indicator isn’t working well for you, the sky’s the limit for your potential to create a new one that will work.
Creativity and innovation will always be able to provide Portfolio123 users with a competitive advantage if they put innovative ideas to work. And with the capability to use imported external data series that P123 implemented last summer, the potential to always stay ahead of the masses is only limited by the strategy designer’s (YOUR) creativity!