Category: Red Flags

Measuring the Cost of Red Flags

I’m in the process of updating the AQRM Score Portfolio analysis I did with 2018 data.

Here is the selection criteria for the AQRM 80- Portfolio:

  • Large accelerated filers
  • NYSE or NASDAQ
  • AQRM Score of 80 or below
  • AGR is dropped for missing data

This criteria yields a portfolio of 48 stocks. The stocks were equally weighted in construction of the portfolio.

Here are the results:

AQRM Score 80- Portfolio

As with the similar 2017 portfolio, this portfolio significantly underperformed relative to the market, as you can see in this graph.

Interestingly, the portfolio clearly starts to underperform in the second half of the year, long after the annual reports have been filed (and hence the point at which most of the red flags would have already been known). Before that it tracks the DJIA pretty closely.

  • $1 invested in the DJIA would have been worth $0.91 at the end of the year.
  • $1 invested in the Low AQRM Score Portfolio would have been worth only $0.81 cents at the end of the year.

Red flags cost real money.