Several years ago I was a disappointed P123 user. There seemed to be a disconnect between my backtest results and my real-world investing results. My technique then involved holding 4 stocks at a time, picked weekly (every Sunday night) by P123. Needless to say, this resulted in a lot of turnover. Frustrated, I let my P123 subscription expire, but recently I decided to give P123 another shot. Shortly after retiring earlier this year I spent $1,000 for a one-year subscription to the individual “backtest” plan of P123.
At first there were some subtle anomalies in the way I was implementing my screen, but Yuval set me straight and now my screen is picking stocks correctly. I am using a new ranking system but have added some “secret sauce” from my old system.
Now I am happy to report that in the four months I’ve been using P123 again, it has way more than paid for itself. I have more than recouped the original $1,000 subscription price, even after the market dip of the past few weeks.
Now, instead of my previous rapid-fire, high-turnover method, I’m more into letting my profits run, keeping in mind that Warren Buffett’s favorite holding period is “forever”. Some of my positions are what I call “tax locked”, i.e. the gain is such that I would rather hold onto the position than sell and incur a CG tax liability, even if the stock is no longer among my screen picks.
great to hear your success story. I started off in P123 with way to high turnover strategies as well, but over time learned to pick quality stocks and hold them for longer. In my two DMs the average holding period is 127 and 110 days, leading to 12 month returns of 75 and 51%, respectively. I also found a larger number of holdings as a plus, leading to overall lower volatility.
Wishing you fruitful investments for the years to come!
I’m also doing well. I developed my system 2 years ago and now I only spend 10-15 min per week to rebalance portfolio.
10% in 2021, and 15% YTD above benchmark (of course I’m trading micro caps).
I presume most that of the premia comes from low liquidity anomaly but anyway at the end $$$ is in my pocket
I believe this year is in general very good for multi-factor models.
Congrats Chris! And others who have stuck it out w/ P123.
The rewards that quant investing can offer are there for those who work at it. Quant investing is often marketed as “passive”, which implies it doesn’t take much work. Plug into a strategy, buy top ranked stocks, rebalance in 1 year, and that’s it. Phew, if it was only that easy.
I too went through a similar experience. I was “lucky” in hindsight in some serious bull markets; I bought into a deep value strategy at the bottom of the late 2015/early 2016 bear/bull market, and my picks just soared. This was also followed by the “Trump Bump” in late 2016 early 2017. The strategy then bombed in 2017 thru 2019. I also developed some of my own strategies based on some other high flyer strategies, only to find in hindsight that they were highly optimized for a very specific set of market conditions. While the market was going up, I was losing money. I had exhausted all of the traditional factors and was having no luck, so I gave up (but still kept my account going).
I dabbled in real estate (physical investing, not REITs), which is a story in itself I’ll save for another time. Suffice it to say, I returned to quant investing and P123, but started at the bottom and worked my way up again, reading more higher level papers and research that were more timely than some of the introductory quant material (as much as I love Greenblatt and O’Shaugnessy, their systems are quite dated for today’s market, IMHO).
Quant investing takes work, just because the market is always changing. What worked last year may not be effective today, and may not be effective for some time (if at all). This was a very hard lesson for me, as it was ingrained in me that markets behave the same “over long periods of time”, which has some truth to it, but is a very complicated matter.
All of that said, congrats Chris, and good luck to you in your future quant investing. I believe you’ve passed the toughest hurdle.
In the past I was holding my system’s top 4 picks each week. I would typically get 3 new picks each week and one stock carried over to the next week. If I turned over 3 stocks per week x 52 weeks = 156 sales per year, so my tax returns were quite ponderous.
My new system turns over much less frequently and I no longer mechanically sell stocks as they drop out of the top picks. I am more selective about selling, harvesting tax losses and letting profitable positions run. As this is quant investing, I don’t pay much attention to a company’s story; it is decidedly a paint-by-numbers approach, the opposite of what Peter Lynch preaches. Lynch makes beating the market seem facile, which we all know it isn’t.
I won’t disclose my system, but with the moderators’ permission I will share a couple of picks which are working out well so far:
I am not clear whether you are buy more stocks or holding longer.
Personally, I am buying more stocks–which for me personally–fits well with a quant investing style. We look to get an edge with each investment. That edge may not be huge. But it will be realized with larger samples over time.
I have stopped telling non-investor friends about my investments, unless I take the time to at least look up the name that goes with the ticker. Maybe the industry and what the company does if I am going to make a big story of it.
Who among us can resist tinkering with P123 systems, that dreaded disease called “system tinkeritis”?
I was tinkering with P123 and came up with a system that’s kind of unorthodox (for me) but harkens back to my first experience with P123: five stocks traded weekly (my previous system used four stocks traded weekly). The stocks are traded mechanically. The top five stocks as ranked by the system are held each week. Stocks not in the top five are sold. Very simple.
The backtest results look very appealing, BUT! I’m not going to jump right in and start trading it right away with real money. Instead, I’m going to PAPER TRADE it first. Once burnt and twice shy. Before I start trading it with real money I want to see if there is still a “disconnect” between the backtested results and real-time trading. I’ve set up a Google sheet to record the picks and their returns. We’ll see.
I currently use discretion with my P123 picks as regards selling, often letting profits run and not exiting profitable positions. This new system will be followed mechanically as described above. In addition, if I elect to trade this system it will be with a smaller amount of money in my IRA account to simplify tax and recordkeeping issues, rather than my taxable margin account.