GuruFocus Back-testing Tool Explained: Test Before You Invest

Back Testing Methodology - Back testing involves using pre-existing screeners, such as a high-quality screener, with filters already set [1] - The process includes selecting a number of stocks, exemplified by selecting 20 stocks in this case [2] - Ranking is based on factors like return on equity and 10-year median, with options for largest or smallest values over the last three years [3] - Rebalancing can be set at intervals, such as every 12 months [3] - The system calculates performance over each rebalance period, generating performance charts [3] Performance Metrics - The back testing tool calculates alpha, beta, and Sharpe ratio [4] - Parameters can be adjusted based on existing screeners, allowing for modification [4]