RiskGrade Update

I have posted before about how the practice of buying only stocks that have a RiskGrade below a certain maximum may improve portfolio performance. When I began the practice of narrowing the list of stocks for potential purchase on the basis of the RiskGrades, the annualized standard deviation of my US stocks as noted on the Covestor site was a little over 37. Today the standard deviation is down to 34.5 but that is still much higher than the current standard deviation of 21.7 for the S&P 500.

The maximum RiskGrade value that should be used in stock selection may depend on the stock screen. I am currently buying US stocks almost exclusively based on a Nasdaq filter that I have developed. It is much too early to tell, but it appears that the maximum RiskGrade cut-off that I should use is around 400. For some other stock filters, a maximum RiskGrade of 250 seems to work well and for an ETF filter that I use the maximum RiskGrade of 150 is looking good.

It will take another two or three years before I have enough data to make sound conclusions about the value of using RiskGrades as a stock selection tool but I like what I have seen thus far.