Do Quality scores for stocks offer any value for the average investor?

If you have been playing with analytics dashboards for stocks, or using them seriously for regular monitoring of your stocks, it’s very likely you have come across some kind of “quality score” column for those stocks.

That sounds great on paper and very re-assuring for investors so they don’t feel alone when they make investment decisions, but the reality is those scores are never tested scientifically to meet the claim they make.

And how could they? One because we don’t really know what they are measuring.

Are they measuring quality? or future performance? or a mix of both?

And how do you measure those specifically?

Because too often those score metrics are calculated with a proprietary and obscure formula with no peer review or independent testing.

They are built at the discretion of the analytics vendor team as some kind of “secret formula”.

Even if you could test those quality score metrics in a fair and transparent way, there are so many ways to do things, and different definitions and formulas for them, it wouldn’t mean anything scientifically without some kind of comparisons with other similar quality metrics.

So it comes down to what would happen as a sign of faith if you bought those stocks with the high score.

Did they bring a performance advantage over the S&P 500?

Did they not lose money when the S&P 500 was crashing?

Did anyone tested the performance impact of those scores as a group under different market conditions?

Of course not, nobody did and certainly not the analytics vendors. If they did, it would bring too many questions.

So nobody is testing those scores and yet as an investor you might follow them without knowing why exactly. Just because there is nothing else to hold your hand in those dashboards. Not really a very effective way to elevate your investment skills.

For us, they are as effective as scoring labels on food packages or warning labels on packs of cigarettes. We might take a quick glance but immediately forget what they are.

This is why we prefer to structure a strict deal flow to find “quality” and “future performance” in stocks. Because it’s the timing of the data flow that matters, not a random score that could change anytime without notice at the discretion of a vendor.

And of course, we will test scientifically that deal flow to make sure it delivers what it promises. Because it’s the only way to elevate our investment playbook.

The deal flow is not going to be perfect, this is why we will include losers too. We want to test all performance anomalies and the scientifically significant impact they have on the workflow.

What a better way to test a deal flow than publish the performance publicly as a market index.

This is exactly what we did with the US MidCap 500 Value Advantage Index when it went live in March 2019 with our scientifically tested deal workflow.

The results over 15 years are very significant.

Don’t just believe us, see it yourself. Live data for the index is publicly available and calculated daily on those market data platforms: Bloomberg and Reuters [ .WMVA ]

VCs typically hope to 2x-4x their funds after Year 10. You could do better than that with a semi-passive market index that follows a scientifically tested deal flow that could be compatible with a Custom Indexing strategy.

What do you think? Are you following some kind of quality scores for your stocks before you make investment decisions?

If you want to make investment decisions without the need of quality scores, just click ​here​ to start a scientifically tested workflow to elevate your investment skills.