Generating 15% Returns Using The Growth Rating System

The Growth Score Introduction

The backtests for this Growth Score show that it’s another winner at 15.3%.

Previously I showed the Quality Score generating 16.8% and the Value Score achieving 16.7%.

Creating the Growth rating was harder than I thought as I don’t have much of a typical “growth” mindset.

My interpretation and focus on growth has to do with the qualitative side.

“Growth” questions I ask myself are things like;

  • what other industries or creative ways is the company executing to grow?
  • is the industry large enough to accommodate more growth by the company?
  • is the industry also growing or shrinking?
  • (sample questions you can add to your own checklist)

I look for stocks that are solid fundamentally and in a position to grow. I don’t search for stocks based on how much revenue, earnings or other numbers have grown over the past years.

Relative strength and other technical indicators are beyond me also.

That’s the approach I took here as well.

Rather than search for high flyers, what the Growth Rating really represents are stocks with positive growth who are growing by utilizing their assets well.

I’m going to share the full details with you. Just don’t focus too much on the 15.3% returns.

The 15.3% returns from the backtest is just theoretical proof that this works on paper.

In other words, the strategy itself is a winner. But what I really want to show is how and why this works.

Analyzing the Results

First the numbers on a yearly basis.


As I pointed out in the quality score, I focused on reducing drawdown as much as possible.

Drawdowns are a huge problem with mechanical strategies and since you end up buying stocks you don’t know, it’s easy to give up.

And since I create tests and strategies based on 1 year holding periods, the drawdowns are larger than trading systems where you buy and sell about 20 stocks a day.

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Disclosure: Long GILD.

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