Examining The Performance of A Value Investing Heuristic: Evidence From The S&P/Tsx 60 From 2001-2011

Authors : Eben Otuteye, Mohammad Siddiquee

Pages : 67-81

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Publication Date : 2013-12-01

Article Type : Other

Abstract :Heuristics are useful practical tools for cutting through the complex confluence of uncertainty, limited information and bounded rationality. We develop a simple heuristic for making value investing decisions based on profitability, financial stability, susceptibility to bankruptcy, and margin of safety. As an empirical test, we apply this heuristic to the S&P/TSX 60 group of companies of the Toronto Stock Exchange. Analysis of the data shows that the portfolio that is picked from the S&P/TSX 60 by the heuristic has desirable characteristics required of value portfolios. Thus the heuristic can be viewed as a reliable set of value investing decision criteria.
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