Investment Strategies

What They Are

How to Use

Backtesting Details

What They Are

Searching for Patterns

Like quantitative hedge funds - large investment firms that usually manage the money of very rich individuals - Portfolio Strategies find stocks by searching for patterns in the financial performance of companies.

For example, imagine that you looked at historical data and found that, on average, stocks that pay high dividends as a percentage of their current price tend to outperform those that pay low dividends as a percentage of price (this actually is true based on data from the past 30 years). You could write a computer program that looks at the ratio of Dividend Per Share divided by Price and gives you the top companies based on that ratio.

How YCharts Strategies Uncover Patterns

We spend lots of time researching what worked in the past¹ and can look at much more complex relationships than simple ratios. Once we find a good strategy, we program it into our system. Every day, our system checks the world of stocks for ones that meet the strategy's requirements, and we create a list of the top companies for every strategy.

The result is that you always have lists of stocks that fit strategies that worked in the past.

There are currently five Portfolio Strategies:

• Large Cap Value
• Dividend Power
• Peter Lynch Universe
• Ben Graham Formula
• Growth at a Reasonable Price

^{(1) Note that what worked in the past is never guaranteed to work in the future. We have done our best to only share strategies that outperform over long periods of time, but you should never expect results identical to those that occurred historically.}

How to Use

The Details Matter

Pro strategies were tested in a very specific way. Some people who look at the historical performance believe that every stock that our strategies select will perform well. That is not true. This information will tell you reasonable ways to use strategies.

Reasonable Uses

There are two reasonable ways to use them, but either way, read the “watch out for” section below carefully.

1. Use the portfolios to generate ideas for good stocks to research more deeply
2. Follow the entire portfolio, not trying to distinguish between individual good and bad picks

When using, remember that strategies were tested over long periods of time (20 to 30 year periods), but there are strings of months where every strategy lost money. We judge returns over years, not days. Do not expect instant results, and focus on earning large amounts slowly.

Watch out for: Four very important issues.

1. Every strategy was tested as a portfolio - Individual stocks within the strategy were not checked for performance. Therefore, never assume that every stock will behave as the portfolio did - in fact, they are usually much more risky individually. Some will win, and some will lose. If you want to see approximate probabilities, check the winning percentage statistic for each portfolio.
2. Performance statistics are historical and no guarantee of future returns - We aim to give you an edge based on history and feel that there is much to be learned from how our strategies performed in the past, but you must decide if you believe such strategies will continue to work over the long haul.
3. Volume - Throughout certain periods, stocks may enter portfolio strategies that have low daily trading volume. This means that trading the whole portfolio may prove complicated, especially with large amounts of money. Proceed with caution.
4. Transactions Costs - People with small amounts of money to manage will find that transactions costs from trading many positions may outweigh the benefits of investing in backtested portfolios of this nature. Please consider the costs carefully.

Backtesting Details