Transparency and Back Testing
At DYF Investing, we are committed to full transparency in our operations and clarity in our investment strategies. Today, we’re excited to share with you the insights from our recent back-testing results, showcasing the effectiveness of our investment strategy.
Our Methodology Explained
Before we delve into the numbers, let’s take a moment to understand the ‘why’ and ‘how’ of our back-testing methodology. At the heart of DYF Investing is our dedication to value investing principles. We believe the safest and most reliable investment strategy is to identify companies that are exceptional in quality and undervalued in the market.
We assess this through two critical metrics:
DYF Score: This measures how remarkable a company is, based on a range of qualitative and quantitative factors.
Fair Value Estimate: This evaluates whether a company’s stock price reflects its true intrinsic value.
These metrics serve as our compass in navigating the investment landscape, helping us pinpoint the best candidates for sustained long-term growth.
In our back-testing, we simulated investments using these metrics, focusing on companies with a DYF score around 72 and a minimum 20% safety margin. This approach was iteratively tested to fine-tune our investment strategy.
Choosing the Right Company and Portfolio Size
Our preference for company size leans towards firms with a market capitalization of at least $500 million. This threshold is strategically chosen to find a balance between risk mitigation and tapping into growth potentials.
For portfolio construction, we settled on a manageable yet diversified set of 10 companies. This size strikes the right balance, providing diversification benefits without diluting potential returns. Our analyses suggest that while larger portfolios tend to dilute returns, the impact is minimal, allowing for an optimal mix of risk management and return potential.
Back-Testing Results Visualized
Our back-testing journey began in 2016, utilizing a comprehensive dataset starting from 2008. This period includes roughly two economic cycles, providing a robust test for our investment strategy.
We adopted a buy-and-hold strategy, annually selecting the top 10 companies fitting our criteria. Parallelly, we tracked an equivalent investment in the S&P 500 for comparison. The results are extraordinary:
| Investment Yr. | Portfolio Begin | Portfolio End | S&P 500 Begin | S&P 500 End |
| 2016 | $10,000.00 | $50,297.84 | $10,000.00 | $25,312.94 |
| 2017 | $10,000.00 | $48,130.87 | $10,000.00 | $22,945.38 |
| 2018 | $10,000.00 | $25,643.92 | $10,000.00 | $19,214.02 |
| 2019 | $10,000.00 | $30,031.73 | $10,000.00 | $20,119.27 |
| 2020 | $10,000.00 | $20,329.11 | $10,000.00 | $16,646.20 |
| 2021 | $10,000.00 | $15,745.12 | $10,000.00 | $14,490.23 |
| 2022 | $10,000.00 | $12,319.41 | $10,000.00 | $10,966.33 |
| 2023 | $10,000.00 | $19,060.35 | $10,000.00 | $13,289.37 |
| $80,000.00 | $221,558.35 | $80,000.00 | $142,983.74 |
| Investment Yr. | Portfolio Return | S&P Return | Portfolio CAGR* | S&P 500 CAGR* | Difference |
| 2016 | 402.98% | 153.13% | 21.85% | 12.03% | 9.82% |
| 2017 | 381.31% | 129.45% | 24.48% | 12.27% | 12.21% |
| 2018 | 156.44% | 92.14% | 16.47% | 11.16% | 5.32% |
| 2019 | 200.32% | 101.19% | 23.68% | 14.46% | 9.21% |
| 2020 | 103.29% | 66.46% | 18.52% | 12.98% | 5.54% |
| 2021 | 57.45% | 44.90% | 15.37% | 12.39% | 2.98% |
| 2022 | 23.19% | 9.66% | 10.07% | 4.33% | 5.73% |
| 2023 | 90.60% | 32.89% | 73.14% | 27.38% | 45.76% |
| Average | 25.45% | 13.38% | 12.07% |
Deep Dive into Our Analysis
The numbers speak volumes. Our strategy consistently outperformed the S&P 500, yielding an average annual return of approximately 25% over the period, compared to the S&P’s 13.38%. This translates to a significant 12.07% average outperformance margin.
While 2023 showed exceptional results, even excluding this outlier year, our strategy demonstrated a robust average return of 18.63%, significantly above the S&P 500’s 11.38%. This consistent overperformance underscores the effectiveness of our value-driven, analytical investment approach.
Reflecting on Our Journey
Our back-testing not only reaffirms our investment philosophy but also highlights the potential for investors to achieve substantial long-term gains by adhering to disciplined, value-centric investing principles. It’s a testament to the power of our DYF Score and Fair Value Estimate in uncovering truly undervalued investment opportunities.
Looking Ahead
We are inspired by these results and are more committed than ever to refining our methodologies, enhancing our investment strategies, and continuing to deliver transparency and value to our users. We invite you to join us on this journey of investment excellence, where we strive not just for returns, but for smart, informed, and sustainable investing.
