Joseph Piotroski

Joseph Piotroski

The High F-Score strategy was developed by American accounting professor Joseph Piotroski. The accomplished academic and investor now teaches at Stanford and is regularly cited in the business press. His background led him to examine how accounting and financial reporting information could be used to come up with company valuations around the world. His High F-Score system uses nine criteria to evaluate companies, awarding them a point for each test they pass.

Summary

Piotroski’s testing and research has shown that a high book-to-market investor could have increased their returns by 7.5% annually over a period of 20 years (1976-1996) using the High F-Score. However, by buying the top stocks and shorting the worst stocks, the annual gains could have been as high as 23%, more than double the returns on the S&P 500 broad market index. In short, his findings show that the higher the financial score, the higher the return.

Success Formula High F-Score

Piotroski’s High F-Score investment strategy states that eight or nine criteria must be met in order to purchase.

 

MktCapM is >= US$ 300 million (basis year 2000) adjusted yearly

 

A. Profitability

 

1. Return on Asset (ROA%) for latest FY is > 0 = Score 1
2. Operating Cash Flow for latest FY is > Operating Cash Flow from 1 year ago ( FY-1) = Score 1
3. Return on Assets (ROA%) for latest FY is > FY prior = Score 1
4. Operating Cash Flow for latest FY is > Net Income (before extraordinary items) for latest FY = Score 1

 

B. Leverage, liquidity and source of funds

 

5. Long-term Debt to asset growth over 1 year is < 0 = Score 1
6. Current Ratio growth over 1 year is > 0 = Score 1
7. No New Shares Issues in the preceding FY = Score 1

 

C. Operating efficiency

 

8. Gross Margin growth over 1 year is > 0 = Score 1
9. Asset Turnover growth over 1 year is > 0 = Score 1

Hypothetical performance back-tested

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical monthly relative performance

How to read this graph:
A green bar shows how much the guru strategy outperformed the benchmark index in a particular month. A red bar shows how much the guru strategy underperformed the benchmark index in a particular month.

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical portfolio turnover

Data source: Bloomberg, Calculations: meetinvest

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