GuruFocus launched the new Backtesting feature within the All-in-One Guru Screener on June 20, allowing users to model an investing strategy’s performance relative to the Standard & Poor’s 500 index, one of the most commonly used benchmarks.
An introduction to Backtesting
To access Backtesting, first launch the All-in-One Guru Screener and set up the filters for your investing strategy. With more than 250 different filters, the All-in-One Guru Screener gives you abundant control over which stocks appear in the results area. For more information about how to use the All-in-One Guru screener, you can watch the following YouTube tutorial.
Once you finish generating your investing strategy, click the “Backtesting” tab inside the gray ribbon located above “Total Records.” As of Aug. 30, this tab is conveniently listed in orange. The following screen appears once you click “Backtesting.”
The Backtesting page offers five dropdown menus: screen date, rebalance frequency, rank by (filter) (ASC or DESC) and number of stocks. Each of these dropdown menus allows you to customize the backtesting process and result layout. The following article gives more information about how to set up the backtesting.
Once you click on the blue “Backtesting” button, the website runs the backtesting and produces the results screen. By default, you will first see two charts, one that displays the portfolio performance relative to three benchmarks and one that displays the portfolio value throughout the backtesting period. You can view the detailed performance and annual performances by scrolling down. To view the stocks in the model portfolio, click on the “Results” tab located on the left.
Dividend yield strategies generate strong portfolio returns
Based on an analysis of 17 different value screeners, investing strategies that screen for high dividend stocks have the highest portfolio returns relative to the S&P 500 exchange-traded fund. Even though it had modest short-term portfolio returns, the “High Dividend Yield and ROE” investing strategy had the strongest all-time portfolio return among all value strategies. Additionally, the “Dividend Growth Stock” investing strategy had good short- and long-term portfolio returns, as displayed in the following table.
| Investing Strategy | Three months | Year to Date | All time | All time Rank |
| Ben Graham's Lost Formula | 0.47% | 10.88% | 12.61% | 16 |
| Dividend Growth Stocks | 11.15% | 8.07% | 621.79% | 2 |
| Fast Growers | 2.09% | 49.00% | 95.30% | 8 |
| High Quality | 1.27% | 5.07% | 86.12% | 9 |
| High Quality, Low CapEx | 7.12% | 8.67% | 70.73% | 13 |
| Mega Caps | 8.13% | 11.02% | -11.88% | 17 |
| Peter Lynch Growth | 4.30% | 17.14% | 114.94% | 7 |
| Piotroski Score Screener | 6.75% | 1.17% | 575.85% | 3 |
| Predictable Companies | 6.84% | 14.49% | 38.18% | 15 |
| Profitable Predictable Margin Expanders | 1.13% | 9.66% | 261.05% | 4 |
| The "Good Companies" Screener | 11.19% | 16.27% | 85.56% | 10 |
| Stalwarts | -0.16% | 10.94% | 116.13% | 6 |
| Walter Schloss | 8.53% | 11.42% | -39.74% | 18 |
| Strong Stocks 2016 | 11.87% | 20.86% | 59.10% | 14 |
| Yacktman Strong Stocks | 13.25% | 16.15% | 76.10% | 11 |
| High Dividend Yield and ROE | 3.79% | 14.09% | 1322.36% | 1 |
| Rolfe's Retail Picks | 2.46% | 8.62% | 134.52% | 5 |
| S&P 500 ETF | 3.76% | 6.80% | 74.87% | 12 |
Company stocks like National Research Corp. (NRCIB, Financial) (NRCIA, Financial), Automatic Data Processing Inc. (ADP, Financial), Lockheed Martin Corp. (LMT, Financial) and NACCO Industries Inc. (NC, Financial) likely led to high returns for these two strategies. As observed in the results screen, NRC gained 943.57% in 2013, representing the highest single gain among all stocks in the model portfolio as of January 2013. Likely due to a spinoff from NRCIB May 23, 2013, NRCIA significantly increased its value from $324,620 to more than $2.68 million by the year's end.
The medical diagnostics and research company currently has a financial strength rank of 8, implying a strong financial outlook. Since July 2013, National Research has almost no distress: its Altman Z-score seldom dropped below 12. Additionally, the company’s interest coverage of 132.48 is significantly higher than Ben Graham’s benchmark of 5.
National Research’s trailing dividend yield currently outperforms 95% of global diagnostics and research companies. Additionally, the yield is near a three-year high, which is usually a good sign of potential growth. The dividend yield was 12.91% at the time when the model portfolio added National Research during the backtesting.
The “Dividend Growth Stocks” model portfolio held NACCO Industries from January 2006 to January 2009, when the trailing dividend yield ranged from about 1.53% to a high of 14.77%. As observed in the results screen, NACCO’s dividend yield peaked at 17.03% in 2009. The model portfolio closed the NACCO position in January 2010.
Conclusions and see also
As mentioned earlier, the backtesting feature offers three parameters, each with a separate drop down box: screen date, rebalance frequency and number of stocks. The above statistics assume that we only use the “default” settings for each of the above parameters: earliest screen date, 12-month rebalancing and 10 stocks. Further articles will explore the effect of changing each of these parameters one by one.
While premium members have full access to all the value screeners and can find good investments using them, premium members can only backtest up to three years. To backtest up to 10 years, you will need to upgrade to Premium Plus, which also allows access to 4,000-plus guru portfolios and the Manual of Stocks for all U.S. companies. Please review the membership benefits and sign up for a free seven-day trial.
Disclosure: The author has no position in any of the stocks mentioned in this article.
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