I stumbled across something called "Magic Formula Investing" today:
https://en.wikipedia.org/wiki/Magic_formula_investing
Interestingly, a HK academic, in a paper yet to be published, did some back-testing with it against the Hang Seng Index over the period 2001 to 2014:
http://www.sef.hku.hk/~chunxia/magic_investing.pdf
One conclusion was that:
"As we separate the stocks in half accordingto their market capitalization, we find the top 30% of the large stocks with high magicformula measure would earn an annualized return of 20.26% while the bottom 30% with lowmagic formula measure would earn only 5.65% annually. Similarly for the small stocks, theportfolio of stocks with high magic formula measure has 6.04% more return annually thanthe portfolio with low magic formula measure"
One thing the study did not do, as far as I could see, was compare the formula's performance with that of the actual index. How does one work out the annualized return of the HSI for the period 2001 to 2014? From a Yahoo site, I found that the HSI was at 16102.35 on Jan 1st 2001, and 23605.04 on Dec 31st 2014. Is annualized return the same as the Compound Annual Growth Rate which one website, given the start and end values of the HSI values for the given date range, calculates it to be only 2.77% ???