Capital Investment Growth
TRADE-OFFLarge expansions of capital investment can precede disappointing shareholder returns, particularly when managers have latitude to overinvest. The signal is based on investment growth rather than a valuation multiple.
| THE STRATEGY | $SPX BUY & HOLD | |
|---|---|---|
| Growth a year (CAGR) | 10.1% | 9.0% |
| Return per unit of risk (Sharpe) | 0.66 | 0.65 |
| Worst fall (max drawdown) | -54.4% | -52.6% |
// GROWTH OF $1, LOG SCALE
Tested on years it never saw (from the split): 10.4% a year against 12.4% for the benchmark; Sharpe 0.67 in the training years, 0.64 after.
After 25 bps of trading costs: 8.9% a year. EDGE OVER RANDOM
// DECADE BY DECADE
| ERA | STRATEGY | BENCHMARK |
|---|---|---|
| 1990s | 6.4% | 19.7% |
| 2000s | 9.1% | -2.6% |
| 2010s | 12.1% | 11.6% |
| 2020s | 12.0% | 14.1% |
// THE IDEA, AS PUBLISHED
Titman, Wei & Xie (2004), Journal of Financial and Quantitative Analysis · 2004
- CI = last year's capex/sales divided by its average over the prior 3 years, minus 1
- Rank firms annually after the report is public
- Favor low CI, avoid or short high CI; strongest where cash flow is high and debt low
A real computation on the QuantGPT warehouse, survivorship-free, walk-forward. Gross returns, no costs except where stated. Past performance is not a promise. Findings, not advice. COMPUTED 2026-09-24 19:41 ON THE QUANTGPT WAREHOUSE: EVERY DELISTED NAME KEPT, FUNDAMENTALS AS FILED. NOT INVESTMENT ADVICE.