// STUDY RESULT · 1998-01 TO 2026-09

Gross Profitability

TRADE-OFF

Gross profits / assets predicts returns about as well as book-to-market. Profitable firms earn more despite higher valuations, so the strategy is a growth tilt that hedges value.

How this run differs from the source: Long only, the 20 most profitable names, re-formed monthly; the paper's premium is a quintile long-short spread.

	THE STRATEGY	$SPXTR BUY & HOLD
CAGR	11.3%	9.3%
Sharpe ratio	0.59	0.66
Max drawdown	-52.5%	-50.9%

// GROWTH OF $1, LOG SCALE

AMBER: THE STRATEGY · GREY: $SPXTR BUY & HOLD

Out-of-sample (from the split): CAGR 8.6% against 14.0% for the benchmark; Sharpe 0.68 in-sample, 0.47 out-of-sample.

After 25 bps of trading costs: 10.6% a year. WITHIN RANDOM

// DECADE BY DECADE

ERA	STRATEGY	BENCHMARK
1990s	10.2%	20.9%
2000s	12.4%	-0.8%
2010s	16.5%	14.0%
2020s	2.7%	15.2%

// YEAR BY YEAR, LOSING YEARS IN RED

1998*17.0%27.2%

19998.1%21.0%

200014.2%-9.1%

20015.9%-11.9%

20021.5%-22.1%

200389.4%28.7%

200418.2%10.9%

200512.3%4.9%

200615.0%15.8%

2007-11.6%5.5%

2008-25.2%-37.0%

200940.7%26.5%

201041.1%15.1%

20118.6%2.1%

2012-1.5%16.0%

201340.0%32.4%

2014-2.0%13.7%

20154.5%1.4%

201615.7%12.0%

201736.8%21.8%

20186.0%-4.4%

201920.8%31.5%

202037.9%18.4%

2021-7.0%28.7%

2022-25.0%-18.1%

2023-7.5%26.3%

202419.7%25.0%

202523.9%17.9%

2026*-10.6%11.8%

Losing years: 2007 (-11.6%), 2008 (-25.2%), 2012 (-1.5%), 2014 (-2.0%), 2021 (-7.0%), 2022 (-25.0%), 2023 (-7.5%), 2026 (-10.6%). Each cell: the strategy, then the benchmark below it. * a part year.

// THE IDEA, AS PUBLISHED

Novy-Marx (2013), JFE · 2013

Gross profitability = (revenue - COGS) / total assets, annual data
Exclude financials; sort each June into quintiles on NYSE breakpoints
Long top quintile, short bottom, value weighted; pairs well with value

RUN IT YOURSELF ▸ IN THE LIBRARY

A real computation on the QuantGPT warehouse, walk-forward. A study across the whole market includes only part of the companies that later delisted from 1998 (survivors only before); a study on your own list of tickers is not affected. Gross returns, no costs except where stated. Past performance is not a promise. Findings, not advice. COMPUTED 2026-11-08 14:21 ON THE QUANTGPT WAREHOUSE. COMPANIES THAT LATER DELISTED ARE ONLY PARTLY IN THIS UNIVERSE (A FIX IS IN PROGRESS), SO THE RESULT LEANS TOWARD SURVIVORS. FUNDAMENTALS BY FILING DATE. NOT INVESTMENT ADVICE. PRIVACY