Increasing net income over the past five years

Stocks that have increasing net income over the past five years

 

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This screen is nothing special. It looks for companies whose net income has been steadily growing over the past five years, and at year 5, the net income was greater than 0. That’s it. So how does this long term momentum style strategy actually fare in the markets since the year 2000?

 

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Not too shabby. Though, when I think about it, if I were going to implement this style of strategy into my portfolio I’d buy and hold for far longer than the quarter rebalance that I have set on this strategy. I’m going to add a new tab stating that once you buy into a stock you will hold that position forever using the time_min_hold operator that was recently added to the Equities Lab system.

 

How does it affect the strategy’s return?

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A little bit better. Here you are earning 11% annually compared to the 10% annually in the original strategy. However, while you are making a bit more annually you are also consistently building your asset pool and thus your overall long term wealth.

 

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Now to go through the validation of this screen to make sure that these results can actually be trusted. Here is the positions heat map containing every position sorted by return taken on by the strategy since 2000. This results in a success rate of 66.67%. Though not perfect, not bad for an undeveloped strategy.

 

You can recreate this strategy with little to no effort. That being said, this strategy isn’t super investable as it stands. There are over 200 results at any point in time and unless you run a fund, that isn’t super feasible. So if you are interested in using this in your future investments, I’d suggest playing around with the parameters a bit, and making the strategy yours. If you have any questions on how to build an investment strategy or how to validate the strategy once it’s built, we have articles on both here on our blog.

About Tyler McCain

A student of finance at Georgia State University, Tyler has had a passion for the world of finance for as long as he can remember. Joining the Equities Lab team in 2015 he attempts to juggle the perfect mix of school, work, and giving back to the community. When he isn't working at Equities Lab he can often be found helping teach programs at the Rosen Family Foundation - a non-profit that teaches financial literacy to middle and high school students.

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1 Comment

  1. […] I posted an article exploring a single parameter – whether or not a year-after-year increases in net income for the past five years was an investable i…. Lo’ and behold, it was. However, it wasn’t the most appetizing investment, and, as stated in […]

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