Sunday, February 08, 2015
Thinking About My Simple Formula
I was thinking about my simple formula this morning. It is (as readers will recall) to take from the official MFI list all stocks with market cap > $600m and dividend yields >2.4% ==> then randomly pick 5 stocks. This has worked pretty well going back through all my tracking portfolios. However, this does not consider inflation.
So as time goes on, it is a lower and lower bar to be in the stocks greater than $100m market cap and it is a lower and lower bar to be in the $600m+ range. So I am going to introduce an inflation factor. Once a year I will bump up the $100m and the $600m marks by the amount the stock market has gone up in that year.
I thought about back testing this as well, I have started the work (I pulled in R3K and have present valued all market caps). But I can not fully do it, as I have kept my $100m threshhold for the pull since the beginning. So I can only present value market cap, not my criteria for the pull.
I do not think it is that critical, as I show over time (year by year) that my approach has worked. But this does show that even simple may not be that simple.
Posted by Marsh_Gerda at 8:00 AM