Analysis of value portfolios in the Brazilian market

Abstract

This paper tested a value investing strategy for the Brazilian market, selecting stocks based on the criteria suggested by Graham (2007) so that lower quality companies with potential risks not captured by the traditional risk models were eliminated. Five hundred thirty-two stocks were analyzed in the period from May 2005 to April 2015 and, after applying the Graham selection filters, portfolios with 10-year maturity were obtained. After simulating the portfolios' performances over the analysis period and measuring the Sharpe ratios, it was possible to verify: (i) the validity of the Graham model for selecting stocks in the Brazilian market, (ii) tiering of the Graham filters according to their relevance, and (iii) the ideal composition for a value investing portfolio in the Brazilian market for the period analyzed. The portfolios obtained were able to offer higher risk adjusted returns than the Bovespa Index in the period, as well as lower risk metrics. The results confirmed the validity of the value investing strategy in the domestic market.

Portfolio selection: a fuzzy-ANP approach

“…In the past couple decades, studies of portfolio selection have developed complex mathematical models to consider additional real-world factors. Chunhachinda et al (1997) Sample Reference Factor Analysis/PCA Price-to-book ratio (P/B) Gold and Lebowitz (1999) N o Thakur et al (2018) N o Hilliard and Zhang (2015) N o Palazzo et al (2018) N o Mohapatra and Misra (2019) N o Price-to-earnings ratio (P/E) Zargham and Sayeh (1999) N o Thakur et al (2018) N o Pattipeilohy and Koesrindartoto (2015) N o Thakur et al (2016) N o Sharma and Mehra (2017) N o Net profit margin Huang (2012) N o Silva et al (2015) N o Boonjing and Boongasame (2016) N o Jeong and Kim (2019) N o Ece and Uludag (2017) N o Systematic risk Treynor and Black (1973) N o Li et al (2019a, b) N o Aliu et al (2017) N o Wang et al (2018) N o Guerard Jr et al (2015) N o Earnings per share Hurson and Zopounidis (1997) N o Messaoudi et al (2017) N o Guerard Jr et al 2015N o Thakur et al (2018) N o Vezmelai et al (2015) N o Revenue growth rate Lim et al (2014) N o Silva et al (2015) N o Najafi and Pourahmadi (2016) N o Du et al (2016) N o Maier et al (2016) N o Net profit rate Han et al (2004) N o Silva et al (2015) N o Vezmelai et al (2015) N o Guo et al (2016) N o Lee and Moon (2017) N o Return on asset (ROA) Rachev et al (2005) N o Mashayekhi and Omrani (...…”

A Buffett Approach to Identifying Value Plays: The Case of Martin Marietta

“…Even though Graham ( 2007) proposed a very detailed list of criteria, adjusting the filters to match different circumstances provides increased flexibility to the strategy. Key examples of this flexibility have emerged from studying foreign stock markets, like Palazzo, Reed, Savoia, and Securato (2018) who recently tested Graham's hypothesis in the Brazilian stock market.…”