Sunday, December 9, 2018

Ultimate Scorecard Will Have A Revamp!

This follows my previous post on back-testing.

Ever since I started back-testing and read this article, I kept thinking about how I could further improve Ultimate Scorecard.

Some of the improvements I feel that Ultimate Scorecard should achieve:
- Too many choices may not be able to give the users the best choices
- Different combination of criteria may not result in the best choices

Furthermore, for such a year like 2018, the probability of choosing a company that will make a gain, after keeping for at least 4 months, has dropped very low to below 50%.

In addition, I believe the timeline to keep the companies has rise from 4 months to more than 1 year.

Imagine you bought the company on Dec 2017, there is a high probability you are still "out of money" after keeping for almost 1 year.

So how do I intend improve Ultimate Scorecard?

Before I proceed, it is important to note that I will keep Ultimate Scorecard "as it is". This is because other than providing the value score, Ultimate Scorecard breakdowns the company into different areas as stated in this post. Thus, it will also highlights the area which the company is lacking.

The first improvement will be call "The Top 5 Criteria" test.

This test reduces the number of Criteria to only 5 different ones. This test will eventually pick companies that are able to produce free cash flow constantly with a very low gearing ratio, that are undervalued at that moment. Dividend not taken into account.

A back test is done to look at the probability of choosing the right company rather the total gain. 

Do note that there are 2 different versions to "The Top 5 Criteria" test.

HK Market

JAPAN Market

SG Market

US Market

As you see from the picture, do note the following:
1. These 2 tests significantly limit the number of companies that pass.
2. Although years 2008, 2009 and 2010 are taken out, but some years are still missing from the pictures. This meant that there are years that no company will pass the test!
3. Holding period is deem to be at least 1 year.
4. The possibility of choosing a company that pass the test and make a gain after a 1 year holding period range from 0% to 100% for any particular year (This sound super stupid but it is important to note this!)
5. The "Top 5 Criteria" test only works for SG Market and Japan Market.
6. For SG Market, the possibility of choosing a company that pass the test and make a gain after a 1 year, and keeping to this strategy for a period of over 7 years, is significantly high at 73% to 80%!
7. For Japan Market, the possibility of choosing a company that pass the test and make a gain after a 1 year, and keeping to this strategy for a period of over 7 years, is significantly high at 86% to 100%!
8. The amazing thing is the Top 5 Criteria Test Version 1 achieved a 100% for the Japan Market in choosing a company that will pass the test and make a gain after a 1 year!

The second improvement is TUB Score, which I mention in the previous post.

Do note that there are also 2 different versions to "TUB Score" test. 

HK Market

JAPAN Market

SG Market

US Market
As you see from the picture, do note the following:
1. This test will be used for Hongkong, Japan, Singapore and USA Market. 
2. TUB Score Version 1 allows more companies to pass than TUB Score Version 2.
3. Although years 2008, 2009 and 2010 are taken out, but some years have no company that pass the test!
4. Holding period is deem to be at least 1 year.
5. The possibility of choosing a company that pass the test and make a gain after a 1 year holding period range from 0% to 100% for any particular year.
6. TUB Score Version 2 does not work for US Markets and HK Markets.
7. Excluding the above, the possibility of choosing a company that pass the test and make a gain after a 1 year, and keeping to this strategy for a period of over 7 years, range from 57.65% to 89.47%!
8. TUB Score works especially well for Japan Market ~ over 70% for both version.

In Short

With these improvements, the ultimate scorecard will eventually have a few tests:
- The Value Stock Scorecard
- The Estimation Valuation
- The Top 5 Criteria Test Version 1 *New and Only for SG and Japan Markets
- The Top 5 Criteria Test Version 2 *New and Only for SG and Japan Markets
- TUB Score Version 1 *New and for SG, US, Japan, HK Markets
- TUB Score Version 2 *New and for SG and Japan Markets

Thus, just imagine if a company passes all the test, it will definitely shouts "BUY ME!". 

Eventually, I believe a good scorecard provide only the best choices for its users, especially those "In the face" choices!

But at the end of the day, I must emphasize that any company that passes the scorecard must still go through additional due diligence by the user, such as understanding the business and reading of annual report.

This upgrade will be in Ultimate Scorecard next year!

If you are interested to know more about The Ultimate Scorecard or Full Analysis, do visit the Fundamental Scorecard website for more information! 

We have also released the Moat Scorecard with InvestingNote. Do take a look!

Oh... and do remember, please like our Facebook page (T.U.B Investing) and follow me on InvestingNote.

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