A Value Stock Strategy Based on Book Value, Insider Ownership, and Debt

Summary

The article translates Michael Price’s value investing principles into a quantitative A-share selection process. Its three central considerations are buying below asset value, favoring companies with substantial management ownership, and preferring balance sheets with less debt. In the proposed local adaptation, stocks are screened by price-to-book value and relative debt, while the ownership condition is omitted because the article says that data is unavailable. The lowest price-to-book candidates are narrowed to a portfolio, which is rebalanced monthly.

The article also describes two exit rules: selling an individual holding after it falls below its cost by a set amount, or liquidating all positions after a sharp market decline over a short period. It reports a historical backtest spanning 2014 to 2017, including annualized return, benchmark return, maximum drawdown, win rate, and average holdings. These are historical figures from the article, not evidence of future performance; the short test window and omitted ownership factor limit what can be inferred.

Key ideas

• The strategy seeks stocks trading at a discount to book value and with lower debt.
• Management ownership is part of the original principles but omitted from the A-share implementation for lack of data.
• The proposed portfolio is selected by relative price-to-book ranking and rebalanced monthly.
• The article specifies both position-level and broad-market exit rules.
• Its reported backtest covers a limited historical period and does not establish future results.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.