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Growing by Shrinking
Vishal Patel Ma6 Liu Chris:ne Jeon Oscar Bejarano
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Background
• Book Value Growth
• Share Count Shrinking/Slow Growth
• Not the same as increasing BV per share
• Why does it work?
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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
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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.
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2000 2009
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2000 2009
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2000 2009
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2000 2009
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2000 2009
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2009
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Main Takeaways
• Don’t listen to O’Shaughnessy
• You can beat the market
• Rebalancing less could yield be6er results?
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Ques:ons?