Building a portfolio - factors affecting stock returns
We think that the chart patterns we see are the reason for stock prices increasing, or decreasing. Or sometimes we beleive in the power of the technical indicators like the Relative Strength Index, or Moving Averages Convergence / Divergence etc. We also like to think of Support and Resistance Lines and believe that they are the reason why price moves within a certain range.
We will use AI tools to discover the various factors that affect stock returns, and why these matter to building a portfolio.
These factors include:
Size : By far the most important factor that predicts stock returns
Valuation: Whether the stock is valued fairly, under or over valued
Market risk: The risk of staying invested in the stock market
Momentum: Stocks that show an increase, vs those that show a decrease in price
Profitability: Whether the underlying business is operationally profitable
Investment: Whether the business needs additional investments to grow its revenue
The factors that are listed above are very well known, but we will look at two additional factors:
Integrity & Health Factor: Does the business walk the talk, and whether its financial health is worth our long term investment.
Eco Efficiency Factor: Is the company likely to face lawsuits? Is the company's financial growth, at the expense of the environment or society in general? If so, what is the risk to its balance sheet?
We will then look at how to build a portfolio, considering these factors.
How to align the factors in a hierarchical fashion, and how to sequence the assessment.