Qi Value Investment Strategy Back Test - 2023 update

Discover how the Qi Value investment strategy skyrocketed returns by 1481% since 2001. Learn how you can implement this strategy in your own portfolio for exceptional growth.

When we tested the Qi Value investment strategy in the first half of 2015 (and I started using it in my own portfolio) I honestly did not think it would work this well.

 

+1481% Over 23 Years

Over the 22.7 year period from April 2001 to December 2023 we tested the Qi Value investment strategy across markets worldwide and it returned an astounding 1481.0%!

That is just under eight times the 192.7% the market (MSCI World Index USD) returned over the same period.

Before I tell you exactly how you can implement this strategy in your portfolio, first some background information.

 

Composite Ratios Work Best

All the testing and research we do have made us big supporters of combining different ratios to find undervalued companies. The thing is, using more than one ratio helps you find undervalued companies from different points of view, for example based on earnings (EBITDA) and cash flow.

The first such indicator you can read about was the Value Composite One (included in the screener) developed by James O'Shaughnessy.

 

Price to Book Has a Problem

The problem with the Value Composite One indicator is that it includes the Price to Book ratio.

I do not have anything against you using the price to book ratio to find undervalued companies (it works best after a large correction), the problem is it also underperforms the market for long periods of times.

You can read more about problems with the price to book ratio here: Be careful of this time tested value ratio.

 

Solving the Price to Book Problem

Because of this problem we developed our own composite valuation indicator, which we called Q.i. Value.

Not only does it exclude the Price to Book ratio, it also includes all the best valuation ratios we have tested, including the work from the research paper Quantitative Value Investing in Europe: What Works for Achieving Alpha.

Qi Value ranks all the companies (around 22,000) in the stock screener using four valuation ratios and thus helps you to select the most undervalued companies from different points of view.

 

To start using Qi Value in your portfolio now - Click here

 

 

How is Qi Value calculated?

Qi Value is calculated with the following ratios:

EBITDA Yield:

Which is calculated as: Earnings before interest, taxes, depreciation and amortisation (EBITDA) / Enterprise Value

Earnings Yield:

Calculated as Operating Income or earnings before interest and taxes (EBIT) / Enterprise Value (Read more about earnings yield here: A simple ratio beats the world’s best value funds)

FCF Yield:

FCF (Free cash flow) Yield is calculated as Free Cash Flow / Enterprise Value – here free cash flow is equal to cash from operations minus capital expenditure

Liquidity (Q.i.):

Liquidity (Q.i) is calculated as Adjusted Profits / Yearly trading value.

It thus gives you an indication of how high a company’s yearly traded value per share is compared to its profits. A high value thus means low traded value compared to profits and thus a larger chance of the company’s shares being miss-priced.

A low value means high traded value to profits which, most likely, means more analysts follow the company giving you a smaller chance that it may be miss-priced.

Liquidity (Q.i) thus helps you find companies with large controlling shareholders or a stable base of shareholders. Traded value is low and thus less analyst interest because they cannot make money trading the company’s shares.

In the following article can read about our back test of Qi Liquidity: This overlooked ratio, large funds and hedge funds can’t use, gives you higher returns

 

Results of the First Back Test

In the first half of 2015 we tested Qi Value against six other investment strategies as well as the market over the 14 year period from April 2001 to February 2015.

The following table summarises the results:

Qi_value_14yr_backtest

Click table to enlarge
CAGR (Compound Annual Growth Rate)
Market = MSCI World Index

 

We tested the Qi Value against the following six ratios:

  • Earnings Yield (EY) = Earnings Before Earnings and Taxes / Enterprise Value
  • Price to Free Cash Flow (P/FCF)
  • Price to Earnings (PE)
  • Earnings before interest, taxes, depreciation and amortisation / Enterprise value (EBITDA Yield)
  • Price to Sales (PS)
  • Price to Book (BP)

 

Qi Value is a Lot Better

As you can see Qi Value performed better than all the other ratios, except the average return of the Price to Sales ratio was higher.

Apart from that the Qi Value had a:

  • The highest total return +477.6%
  • The highest compound annual growth rate (CAGR) over the 14 year period
  • The lowest standard deviation which means Qi Value returns were not as volatile as the other ratios
  • The highest Sharpe ratio (higher is better) which means it would have given you higher risk adjusted returns. Here is the Sharpe ratio definition.

 

To start using Qi Value in your portfolio now - Click here

 

 

Second Back Test 2016 to 2023

We have continued tracking the results of the Qi Value to make sure our back test remains valid.

Here are the updated results:

Qi Value back test 2021 to 2023

CAGR (Compound Annual Growth Rate)

 

As you can see Qi Value continues to do well with consistently good returns. Not always the best, but as you know no strategy outperforms every year.

 

Eight Times Better Than the Market

In spite of that Qi Value’s total return of +1481% was the highest, 7.7 times that of the market and 200% better than Price to Book the second best performing strategy.

 

Not all Strategies Tested Again

Just in case you were wondering - we are not selectively showing the results of other strategies so that Qi Value looks best, we simply do not test all the strategies all the time as it is a lot of work.

 

 

How to Use Qi Value In Your Portfolio

Here are the exact steps how you can start using Qi Value in your portfolio.

 

Where can you find it?

Q.i. Value indicator, like all ratios and indicators in the screener, is very easy to find and use. You can select it in any one of the four sliders (or factors) as shown below.

Qi Value is one of the last items under heading Valuation

Qi Value new screener

 

Find most undervalued companies

To select the most undervalued companies set the slider from 0% to as far as you would like to go. The top 30% most undervalued companies are selected in the image below.

QI Value new screener range

 

 

How to Combine Qi Value with Other Ratios

Once you have selected undervalued companies with Qi Value you can also add your favourite ratios or indicators – here are a few suggestions:

 

Momentum

Combine Qi Value with the following indicators to find companies with an upward moving share price – this is a good way to avoid value trap companies. The following are all good indicators to use:

 

You can find the exact definition of all the ratios in thescreener here: Glossary.

You can find out more about why and how momentum works here:

10 myths about momentum investing, squashed

How to find stocks on the move with a better momentum indicator - exponential regression

 

To start using Qi Value in your portfolio now - Click here

 

Piotroski F-Score

The Piotroski F-Score is a great indicator you can use to only select good quality companies – I include it all the screens I use.

You can read more about the Piotroski F-Score and why it is a great indicator here:

Can the Piotroski F-Score also improve your investment strategy?

Use the Piotroski F-Score to seriously improve your returns

This academic can help you make better investment decisions – Piotroski F-Score

 

This is how you can combine Qi Value and the Piotroski F-Score in the screener: 

Qi Value Poitroski new screener

 

Market Leaders (large companies on steroids)

If you prefer investing in large companies there is a great universe to look for ideas called Market Leaders. It is a list of large companies worldwide in terms of sales and Free Cash Flow generation.

You can read more about what exactly market leading companies are and where to find it in the screener here: Large companies on steroids – Market Leaders

 

This is how you can combine Market leaders, Qi Value and the Piotroski F-Score in the screener: 

market leaders Qi Value Piotroski new
Click image to enlarge

 

 

The Best Valuation Ratio You Can Use

From all the above research I am sure you will agree that Qi Value is a great indicator to use because it finds undervalued companies using a number of proven ratios that it combines into a single ranking value.

Its results speak for themselves, higher returns with lower volatility, something I am sure you are also interested in.

 

PS To get access to the Qi Value indicator calculated for over 22,000 companies worldwide as well as more than 110 other ratios and indicators why not sign up right now, it costs less than an inexpensive lunch for two, just click here: Sign up right now!

PPS It’s so easy to put things off and forget, why not sign up now to start improving your investment returns.

 

 

To start using Qi Value in your portfolio now - Click here