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author Olivier Dambrine - November 9, 2019

A question we get asked quite often is: do you have a point-in-time database and do you allow backtesting? The short answer is, no. We don't support this functionality, and there's very good reasons why.

First of all, backtesting is complicated and requires a very high quality point-in-time database and sufficient expertise and time to analyse the results correctly. Whilst our database is of the highest quality and allows you to recreate screens based on the latest available data, it can never produce the same level of quality for historic data. The reason for this is that even high quality data vendors make quite a few mistakes in their quarterly income statement or balance sheet updated. They correct these mistakes later on but these errors would not get corrected if we were to create a snapshot of the data on a daily basis. Other quant investing websites who claim that they can provide a quality point-in-time database and backtesting functionality at a similar price point as ValueSignals are misleading their potential customers. The fact that they see no issues in providing this functionality on unreliable data should raise some red flags about their integrity.

Secondly, in order to properly backtest, you don't just need an accurate point-in-time database. It's also absolutely critical that the screening algorithms are executed correctly. A significant problem all other screens suffer from is that they calculate relative ratios across the entire stock universe. This goes against what the authors intended. In order to get the correct results, relative ratios such as the Greenblatt Magic Formula should be calculated on the specific stock universe in which you can invest. To our knowledge, ValueSignals is the only stock screener able to run screens based on relative ratios against your specific stock universe. The reason why it can do this is that we significantly tuned the engine so it's able to run calculations such as the Magic Formula or Value Composites in real-time. Other stock screeners are not able to offer this capability and run their screens overnight, across the entire stock universe.

At ValueSignals, data quality and stock screener reliability come first and we're not willing to compromise in this area. We invested a significant portion of our time in making our backend processing more transparent and we applied artificial intelligence to monitor the accuracy of our data. This remains our focus. We didn't waste time in trying to create a backtesting tool as we don't feel it can be done at this price point. We're strongly convinced of the fact that backtesting requires a different specialised toolset and should only be performed by professionals in the form of a proper research paper. Claiming that you can do the same in a stock screener at a click-of-a-button is just plain nonsense. After all, garbage in, garbage out.

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