Multi dimensional value investing strategy

This is a discussion on Multi dimensional value investing strategy within the Economic & Fundamental Analysis forums, part of the Methods category; I am trying to create a multidimensional value investing strategy on Excel. For example: For a one-dimensional factor like P/E, ...

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Old Nov 24, 2011, 6:25pm   #1
 
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Joined Nov 2010
Multi dimensional value investing strategy

I am trying to create a multidimensional value investing strategy on Excel.

For example:
For a one-dimensional factor like P/E, I rank all FTSE 100 stocks from the lowest P/E to the highest P/E, and then divide into 5 separate quintiles to get my portfolios - supposedly the most under-valued to the most over-valued. Assuming P/E ratio does work in identifying undervalued stocks.


Does anyhow know how I can produce a similar back-test, but with 2 factors instead, such as P/E ratio and dividend yield, on Excel?
i.e. Ranking the Ftse 100 stocks based on low(increasing) P/E ratios and high(decreasing) dividend yields.

Please bare with me as I get more ambitious.
What if this same strategy is implemented with 3 or more factors?
-P/E, P/Book value, Dividend yields, P/Cash flow, etc

Anyone has any idea?
siukingyiu is offline   Reply With Quote
Old Dec 1, 2011, 7:49pm   #2
Joined Jun 2008
Re: Multi dimensional value investing strategy

RANK function
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Old May 28, 2012, 10:59pm   #3
 
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Joined May 2012
Re: Multi dimensional value investing strategy

You should use a stock screener

The idea is good, but many of the proposed principes of value investing no longer hold. There is a multitude of stocks laying around, so you should screen thoroughly and have high standards.

For example you could construct a model that:
* Checks for 52wk change%
* 5yr Rev/Net growth
* P/E
* P/tangible book
Then look into recent news and annual reports.

There are many viable sets of fundamental buy/sell indicators.
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Old Jun 19, 2012, 5:01pm   #4
Joined Aug 2011
Re: Multi dimensional value investing strategy

Can I just say, PE ratio is meaningless when you compare companies in totally different sectors with each other. Its apples and oranges.

Compare like for like. You need look at a company's PE ratio in relation to its peers.

Utilities will generally have lower PE ratios in relation to Internet and Software companies but from that you cannot deduce that Utilities are undervalued, must look at the sector average in each
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Old Jun 19, 2012, 5:04pm   #5
Joined Aug 2011
Re: Multi dimensional value investing strategy

that also goes for dividend yield too. look at the historical for the company (if any) and look at peer comparison
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