Growing  by  Shrinking  

Vishal  Patel  Ma6  Liu  Chris:ne  Jeon  Oscar  Bejarano  

Background  

•  Book  Value  Growth  

•  Share  Count  Shrinking/Slow  Growth  

•  Not  the  same  as  increasing  BV  per  share  

•  Why  does  it  work?  

Methods  

•  Backtested  using  Bloomberg  Factor  Backtester    •  Backtested  over  20  year  period  (1992-­‐Present)  

•  Used  S&P  500  as  our  benchmark,  and  selected  components  of  the  index  

 

Strategies  

•  Created  compound  factor  including  two  components  •  Book  Value  Growth  •  Shares  Outstanding  (Slowing)  Growth  

•  Rebalancing  •  We  want  to  see  how  frequently  we  should  rebalance  to  yield  the  best  results  (i.e.  quarterly,  semi-­‐annually,  annually)  

•  Book  Value  Per  Share  •  How  our  strategy  differs  from  using  the  BVPS  metric  

•  O’Shaughnessy  •  Indicates  that  P/B  is  a  good  ra:o  for  the  value  of  large  cap  stocks.  

2000   2009  

2000   2009  

2000   2009  

2000   2009  

2000   2009  

2009  

Main  Takeaways  

•  Don’t  listen  to  O’Shaughnessy  

•  You  can  beat  the  market  

•  Rebalancing  less  could  yield  be6er  results?    

Ques:ons?