Profitable Value
TRADE-OFFCombine a conventional value screen with gross profitability, because profitable firms can be attractive even when their book-to-market alone does not identify them. The combination avoids treating all cheap firms as equivalent.
| THE STRATEGY | $SPX BUY & HOLD | |
|---|---|---|
| Growth a year (CAGR) | 11.3% | 8.9% |
| Return per unit of risk (Sharpe) | 0.62 | 0.65 |
| Worst fall (max drawdown) | -60.9% | -52.6% |
// GROWTH OF $1, LOG SCALE
Tested on years it never saw (from the split): 13.9% a year against 12.4% for the benchmark; Sharpe 0.58 in the training years, 0.68 after.
After 25 bps of trading costs: 10.1% a year. WITHIN RANDOM
// DECADE BY DECADE
| ERA | STRATEGY | BENCHMARK |
|---|---|---|
| 1990s | 6.3% | 19.1% |
| 2000s | 10.9% | -2.6% |
| 2010s | 10.8% | 11.6% |
| 2020s | 17.9% | 14.1% |
// THE IDEA, AS PUBLISHED
Robert Novy-Marx (2013), Journal of Financial Economics · 2013
- Calculate book-to-market using accounting book equity and market capitalization.
- Calculate gross profitability as gross profits divided by total assets.
- Select stocks that are relatively high in book-to-market and gross profitability, then rebalance on a stated schedule.
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 20:49 ON THE QUANTGPT WAREHOUSE. COMPANIES THAT LATER DELISTED ARE NOT IN THIS UNIVERSE YET (A FIX IS IN PROGRESS), SO THE RESULT LEANS TOWARD SURVIVORS. FUNDAMENTALS BY FILING DATE. NOT INVESTMENT ADVICE.