Best investment strategies we have tested


Below is a list of the most profitable investment strategies we found in the 50 page research paper called Quantitative Value Investing in Europe: What Works for Achieving Alpha as well as all our research and back testing since then.

Easy to implement

Don't worry if some investment strategies look complicated, they are all easy to implement with the Quant Investing stock screener. In most cases we have already saved the screen so you can use it with a few mouse clicks.

If you have a question, help is just an email away.

Don’t choose the highest return, find the right strategy for you

All these investment strategies have great returns BUT your goal here is not to choose the investment strategy with the highest return.

Your goal is to choose the investment strategy that matches your investment style. This will also be the strategy you feel most comfortable with and lets you to sleep well.

Read this article first

This article helps you find the best investment strategy for you: How to find your best investment strategy – not the one you expect

Back test your own strategy

You can also back test your own investment strategy, this article shows you how: How to back test your investment strategy

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Quality, Value and Momentum Investment Strategy - Europe

This investment strategy combines of quality, value and momentum, all the factors we have found that can give you the highest possible investment returns.

This is how the companies are selected:


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How are the companies selected?



The first thing we do is remove all the low quality companies from the list of possible investment ideas.

Firstly remove companies that generate a low level of free cash flow to total debt (a company must generate cash profits in order to repay its debt). Use the FCF to debt ratio in one of the sliders in the screener and select 0% to 70%

Secondly remove companies that have a low return on assets. Research has shown that companies with a low return on assets don't generate high returns.  Use the Gross Margin (Marx) ratio and select 0% to 70% with the slider.

Thirdly remove companies where there's a big difference between accounting profits and the free cash flow the company generates. Do this because research has shown that companies with free cash flow nearly equal to profits (low level of accruals) give you much higher returns.  Use the ratio Accrual Ratio CF and select 30% to 100% with the slider.



After removing all the low quality companies select the top 20% of companies with the highest Earnings Yield (EBIT to enterprise value). Use the ratio Earnings Yield and select 0% to 20% with the slider.

The simplest ideas lead to the best results, this is definitely true of Earnings Yield numerous research studies have shown that this is the most effective valuation ratio you can use to find high return investments.



If there's one fact that came out of the above-mentioned research study it is that if you want high returns you have to consider share price momentum.

To select investment ideas for the QVM strategy combine 3 month (Price Index 3m) and 6 months (Price Index 6m) share price momentum so that only companies with an upward moving share price are selected.

For both 3 and 6 month Price Index select the 50% of companies with the best momentum.

To do this you must export the above results to Microsoft Excel.


Best 20 ideas

After you have selected all the above-mentioned criteria, select the 20 most undervalued companies based on a Value Composite One rank as defined by James O'Shaughnessy in the fourth edition of his excellent book What Works on Wall Street.

To do this simply sort your results by the Value Composite One column in Excel.


In summary a simple idea

Even though this may seem really complicated the investment strategy boils down to the following simple principles:

  • Remove bad quality companies
  • Look for undervalued companies
  • That have good share price momentum
  • Choose only the most undervalued companies


How did the strategy perform?


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Yearly performance

The table below shows the yearly returns of the QVM strategy compared to the European STOXX Total Return index (which includes dividends):


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(*) Inception date 29-06-2001
(**) End date 22-08-2014


Growth of your investment in the strategy

This chart shows the growth of investing €1 in the QVM strategy compared to if you invested in the European STOXX 600 Index (dividends included).


€1 grown to €12 index only €1.57

As you can see in the chart below your €1 investment in the QVM Strategy would have grown to just less than €12.

Compare this to if you invested €1 in the index you would have only had €1.57 after 13 years.


Your €10 000 grown to €114 180

This means if you invested €10 000 in this investment strategy after just more than 13 years you would have had €114 180 in your bank account.

If you invested the same €1 000 in the index you would have only had €1 572 after 13 years.

This is what your returns would have looked like:



Returns logarithmic scale

This chart below also shows your return of investing €1 in the QVM Strategy and the index but it shows a logarithmic scale to show that the index was even more volatile than the QVM Strategy.




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Jun 2001 - Aug 2014

+3.5% pa +57.2% 13yr

+21.1% pa +1141.8% 13yr