A 3-step ranking system to beat the market

Temperament and the right tools win the game

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On Tuesday, we showed you our investor portal and what we want to do with it in the weeks and months to come.

I wanted to hone in on the TOP 15 and how you’ll be able to use it.

As we run a modified Peter Lynch strategy, our goal is to turn over a lot of rocks. But I would like to use the magic that is software to help us hunt faster.

And we have an idea for a tool that will help us with that ⬇️

Over the past year, I’ve been going through several research papers and books to identify the factors or criteria that are specific to multibagger stocks. But a lot of these papers are theoretical. We’ve identified the factors that contribute the most to multi-baggers' returns. One key insight is that each factor does not provide outperformance on its own.

It’s a 1+1 = 3 story.

The combination of these factors at a certain weighting is essential.

Here’s how we can use that information and put it to work

Step 1: Use the information in a screener

This is the first thing you can do. Much like our 100-bagger checklist, you can use certain criteria like ROIC, FCF Yield, growth metrics, etc, to create a screen.

Once you have the results of that screen, you’ll get a short list of companies. Most software tools will allow you to sort the list or filter it. Like this ⬇️

Image Finchat.io

Note: Finchat is doing their 25% off, but it’s only available until tomorrow. You can use the link below if you’re interested.

A screener on itself is limited.

You’ll need to dig through it to find some interesting ideas. I don’t think it’s the best way to use what science tells us about finding multibaggers.

Let’s go to the next level

Step 2: Ranking stocks

Let’s say you're a US investor. There are about 6000 publicly traded stocks in the US. What if you could rank them based on certain criteria?

This means assigning a weight to each factor, be it value, growth, or something else. Then, instead of getting a screen, you’ll get the entire list of stocks, ranked from 1 to 6000.

Now that’s better.

We could pick a TOP list of those.

There’s only 1 problem. It’s still a static list, a photo taken in time.

Remember our article on ROIC

To boldly go, beyond ROIC: what to do?

An improvement upon this ranking system is to make it more dynamic.

Let’s go to step 3

Step 3: Timed stock ranking

Imagine you’ve got a company. Today it’s ranked 651 out of those 6000. Not bad, but it might not be on your radar. You’re probably more interested in the TOP 20. But 3 months later, it suddenly ranks 599. And at the end of the year, it was ranked 431.

Now it gets interesting.

Instead of looking at a photo, you’re looking at a movie. You’re seeing stocks get better over time compared to all the other stocks in the universe.

That’s a signal.

And that’s exactly what we’re building and want to offer you within the investor portal.

The goal is to offer:

• A TOP 15

• The fastest risers

• Allow for filtering by sector

Imagine you’re mainly hunting for tech and IT, the idea is to offer you the same outcome, but within that sector.

You could even make a top list of fastest-falling stars.

Additional features

Now we can go further. How are your current holdings ranking compared to all other companies out there?

I think it’s useful to know.

So we’ll add a way for you to enter your stocks and get their ranking. But more importantly, to see how their ranking evolves.

A last feature is to differentiate between businesses and investments.

• Ranking businesses means excluding criteria like price or yield. You’re ranking purely on business performance as if the company were private

• Ranking investments takes into account valuation.

In the investor portal, you’ll be able to distinguish between these two.

And if you have other ideas, please fill out the survey below.

Current development

This functionality brings with it a considerable investment (in time and money). Disregarding the development time needed to get the front and back end running on the website, there is the problem of data quality.

You can only get reliable rankings if you have a high-quality dataset. The data you can get as a retail investor won’t do. We need institutional-grade data.

We talked about data in the past and its importance for quality.

So it all boils down to:

• Doing the development

• Buying high-quality data at a high price

Our goal is not only to offer you a newsletter but to build tools that can help you make better investment decisions. This does mean that the price of a standard subscription will increase in the future as our cost base increases.

But since these features don’t exist yet, you can still grab a subscription at a discount. There are 4 days left.

But only if you think our newsletter and our tools can benefit you.

May the markets be with you, always!

Kevin