I’m studying up on the book What Works on Wall Street for equity investments strategies.
While the book is very insightful, essentially it seems to be a system of filtering (say by market cap or price to book value for example) and then ranking all stocks in your universe by some fundamental indicator (return on equity, or momentum say). The author then invests long in the stocks in the top decile from the ranking, rebalancing yearly and produces a table of backtest results with Sharpe ratio, average annual returns beta etc.
The various strategies all seem to work in the very long term (the author backtests from 1964 or even 1927 in a lot of cases) and beat the market i.e achieve higher sharpe ratio or higher absolute returns than the S&P500 in the same period.
My background is in statistics and computer science, so my approach when analysing investments is usually to analyse the time series of individual stock returns and try to build a predictive modelling framework (which is near impossible, needless to say). So when I came across this book which implements such simple rules yet achieves remarkable results, I found it too good to be true - which is usually the case in the investing world.
Are the results in this book feasible for a retail investor to achieve in the long term?
Of course, investing in micro caps or holding only 20-50 stocks in your portfolio (both strategies the author implements) may not be possible for large asset managers due to lack of diversification, liquidity or other constraints, but that should not be an issue for the small amounts of capital a retail investor would invest.