Over the past few months, I have been experimenting with which metrics are best at predicting fluctuations in stock price. I developed a computer algorithm that ranked a small database of 183 high cap stocks of mostly Fortune 500 companies, and then used a set of decision rules to pick a portfolio of stocks from the database. With only taking long positions, the algorithm generated a return of 0.96 percent from the close of July 27th to the close of September 16th, while the market has dropped 6.95 percent, beating the market by an annualized 47.4 percent. Some of the stock picks made from the beginning that are still held by the program are Constellation Energy Group (CEG), First Energy (FE), Nike (NKE), Amazon.com (AMZN), and Visa (V).
The algorithm takes several metrics that I have used to value stocks and then compares each stock's metrics to those of other stocks by using a propriatary ranking algorithm that I created when I researched ranking algorithms in 2009. Because many of the companies I evaluate have different accounting rules, including MLPs, Financial Institutions, service companies, and retailers, most of the metrics that I use assess stocks based on analyst opinion and trading activity instead of financial statement analysis.
I am not claiming that my ranking algorithm is foolproof. I will continue to experiment with it over the coming months and write articles about my findings. I believe that writing about these rankings adds value to my readers because it gives insight on which stocks look the best from analyst and trader perspectives. In addition, I will give my own opinions for each stock that I rank in order to add additional value to my articles about my rankings. If you have any questions or advice about ranking in general or about making stock picks through ranking algorithms, please feel free to contact me as I really want to share my findings and test more metrics.
How I "Rank" Stocks
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