Request for Ideas: A Quantitative CAPS Strategy
My copy of Barron’s never showed up yesterday, so I had to pay $5.50 for it at the CVS. After that indignity, there were only a couple of articles that actually caught my attention, but none that seemed like “must-read” material (although the interview with Mr. Grundlach, a bond fund manager at TCW, looks instructive).
On to a different topic. Today I am soliciting from the CAPS community suggestions for a quantitative approach to CAPS. I’d like to put together a systematic strategy for making CAPS picks based on a sorting algorithm. This is what I’m looking for: I’d probably start with the 500 constituent stocks in the S&P 500 (a good starting point, in my opinion, since the CAPS benchmark is the S&P 500). The idea is then to rank the 500 stocks based on one or multiple criteria. Finally, I would pick the top decile to ‘outperform’ and the bottom decile to ‘underperform’. Of course, the key in this strategy is the choice of your ranking criteria. I’m leaning towards a fundamental approach, rather than a technical approach (although there are momentum effects in the short-term), but I’m ready to look at all suggestions.
I have found a few books on Amazon on quantitative approaches to equity portfolio management that may be useful, but I’d be interested to know what CAPS members would suggest. I’d be glad to get references for academic papers, books or ideas that the members have toyed with.
Thanks for your suggestions!
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Time: 10.75 minutes (w/o spellcheck)
*** The above text was written (and spell-checked) in ten minutes. As a result, some of it may not stand up to rational scrutiny. I apologize preemptively for any errors, omissions and misrepresentations. ***