Tiny Titans 2

O’Shaughnessy believes that value and momentum are two powerful themes in investing and that micro-caps can perform well. Tiny Titans incorporates these schools of thought into one simple strategy that has outperformed the market for some time. The strategy has the benefit of picking stocks with little to no analyst coverage so they are often overlooked with their current valuations. These stocks would therefore have a low correlation with the broad market so they can be included in an investment portfolio to add diversification. More specifically, the Tiny Titans strategy on Stock Mixology from James O’Shaughnessy’s screens for: Market cap > $25 million Market cap < $250 million Price-to-Sales ratio < 1.0 Like other strategies that use a screener followed by a ranking system, Tiny Titans takes the pool of undervalued stocks that remain after the above conditions are applied, and then ranks them according to their price movements. Although stocks’ prices here will not have likely increased too much because of the value criteria scanned just before, there is still room for some movement to the upside because some will have moved more than others in the screen. Also, besides the price moving, this also could pick up stocks that have had a recent change in the underlying fundamentals for the better which improved the valuation. For example, if the Price-to-Sales ratio favorably went down, maybe the price went up a bit, but the sales may have improved drastically more. In his book, O’Shaughnessy claims that the strategy returned 19% from 1951-2004. When backtesting with 10 instead of 25 stocks per year, we similarly found it to have returned 18.4% annualized from 2000-2021. Then, when we smoothed out the sales to omit companies with inconsistent sales figures that would allow for short term surges that aren’t repeatable, and filtered out companies actively being shorted, the results skyrocketed to over 30% CAGR!