{"id":14196,"date":"2022-07-26T12:53:17","date_gmt":"2022-07-26T16:53:17","guid":{"rendered":"https:\/\/jasonapollovoss.com\/web\/?p=14196"},"modified":"2025-09-05T13:23:09","modified_gmt":"2025-09-05T19:23:09","slug":"d-a-t-a-beats-the-dow","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2022\/07\/26\/d-a-t-a-beats-the-dow\/","title":{"rendered":"D.A.T.A. Beats the Dow"},"content":{"rendered":"

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Using our Deception And Truth Analysis (D.A.T.A.) algorithm we were able to consistently best the performance of the Dow Jones Industrial Average by 37 bps, on average, each year (’09 thru ’21). Using the 30 components of the DJIA we created a simple trading decision rule: at the start of each new year simply do not buy the 10% of firms whose documents scored highest in deception in the previous year, equal-weight the rest.<\/span><\/p>\n

More specifically…<\/span><\/p>\n

Our Methodology<\/strong><\/span><\/h3>\n
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  1. Starting with the 30 DJIA components\u2019 annual 10(k) reports’ and their MD&A sections in 2009, we assess the documents for their levels of deception and truth to create an aggregate D.A.T.A. Score for each firm’s MD&A. [D.A.T.A. Scores range between -100% and +100%, with any negative score indicating a level of deceptiveness and any positive score indicating a level of truthfulness.]<\/span><\/li>\n
  2. On the first trading day of the\u00a0following year<\/em>, 2 January 2010, we purchase the 27 DJIA components with the highest 2009 D.A.T.A. Scores\/those companies whose documents are most truthful, and do not purchase the 3 firms with the lowest D.A.T.A. Score\/those companies whose documents are most deceptive. Each of the 27 purchased\/most truthful companies is equal weighted in a portfolio and held for the entire year.<\/span><\/li>\n
  3. During 2010 each of the 30 DJIA components, of course, issue annual 10(k) reports covering the performance of the prior year. Again, the DJIA component companies 10(k) MD&As are assessed for deceptiveness and truthfulness with the appropriate D.A.T.A. Scores.<\/span><\/li>\n
  4. On 31 December 2010 the portfolio of most truthful 27 equal-weighted DJIA components from 2009 is sold.<\/span><\/li>\n
  5. On 2 January 2011, we purchase the 27 DJIA components with the highest 2010 truthfulness score, and do not purchase the 3 most deceptive firms. Each of the 27 purchased companies is equal weighted in a portfolio.<\/span><\/li>\n
  6. This technique of D.A.T.A. scores being generated for a year, then waiting until the start of the next year to buy the prior year\u2019s 27 most truthful firms, is repeated through until 31 December 2021. On average, the lag between our assessment of MD&A sections of the DJIA components’ 10(k)s for D.A.T.A. Scores and the implementation of the trading rule is 8.03 months.<\/span><\/li>\n<\/ol>\n

    Note: A separate analysis discussed below was done where instead of selling the portfolio of 27 names on 31 December each year, they are held instead for 5 years. But the methodology was identical otherwise.<\/span><\/p>\n

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    Results:<\/strong><\/span><\/h3>\n

    1. Where the strategy is to not buy the 3 firms with the worst D.A.T.A. Scores for their MD&As at the start of each year:<\/span><\/p>\n