In the third installment of the “Mastering the GuruFocus Site” series, we detail two history-related features available on the GuruFocus All-in-One Screener – the historical search feature and the backtesting feature.
The series will consist of 12 short videos (approximately three to five minutes each) meant to provide users with everything they need to know about how to navigate the GuruFocus site quickly, efficiently and to full effect.
Throughout the series, we have made every effort to provide answers to the questions that new users most frequently ask us about. This isn’t a cut-and-dry manufacturer’s instruction book; we have taken the input we have received from GuruFocus users and used it to create a quick and comprehensive introductory series.
In the next episode, “Gurus and Insiders,” we will be taking a look at how to find information about the stock-related activities of big-name investors and company insiders. Stay tuned!
Text version:
Hi, welcome to GuruFocus! This is the third episode of “Mastering the GuruFocus Site,” a series designed to be your one-stop starting point to learning your way around at GuruFocus.com.
In this episode, which is “All About Backtesting,” we will be learning how to use the historical and backtesting tools available on the GuruFocus All-in-One screener.
In our hypothetical search, let’s say we want to look for the stocks of companies that have shown high growth in their revenue and earnings per share while maintaining relatively healthy balance sheets. To do this, we’ll select a lower limit of 10% growth for the five-year, three-year and one-year revenue growth rates as well as the earnings per share without non-recurring items growth rates, and a GuruFocus financial strength rating of at least 7 out of 10. To narrow the results further, let’s only look at stocks with at least $1 billion in market cap.
Full disclosure, these are just random example criteria for demonstration purposes and are not intended as investing advice.
Now, as you may have noticed, there’s a tab up here in the top right corner with blue text. This is the historical tab, where we can choose to screen for stocks that met specific criteria during a certain time in the past. I’ve selected July of 2015, but we have historical data going all the way back to 2006.
Now, to see how successful these criteria are at selecting stocks in general, we can utilize GuruFocus’ bactesting tool.
Scrolling down, we see that we have “active filters” selected, which just means that we are viewing stocks that meet our selected screening criteria. Directly to the right is backtesting.
First we set the parameters. Say we want our portfolio to only hold 20 stocks at a time, with preference to the stocks from our screening that have the highest financial strength, so we’ll select “Rank by Financial Strength” and “descending.” For the time frame, we’ll do July of 2015 through today, with a rebalance every six months and an initial investment of a million dollars. This amount doesn’t really matter to the backtesting results, unless you want to visualize how much your own investment funds could grow.
We can tab over the gains and losses for each rebalancing period here, with the performance at the end, including comparisons to several benchmarks. The results of this particular search show that our screening portfolio had slightly better gains than the S&P 500 and the Dow, but it underperformed the Nasdaq.
One important thing to note is that the bactesting feature is not intended to identify the next big trading algorithm – those are far more complex. If we changed the rebalancing period for this search to 12 months instead of 6, the portfolio might very well underperform every index! Rather, the backtesting feature can help us get a general idea of which types of companies are good investments and which aren’t based on our individual investing styles, as well as which stocks met specific criteria back in the day before going on to become either great investments or complete flops.
That’s all for this video! Next time, we’ll be taking a look at data from investing gurus and company insiders, so stay tuned.
If you want to see more from GuruFocus, make sure to subscribe to our YouTube channel, or find us on social media. Thanks for watching!
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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