Summary
- Forensic value portfolios using four top algorithms have consistently outperformed the S&P 500 since 2017, with negative portfolios showing higher returns and volatility.
- Negative forensic stocks, despite high bankruptcy and manipulation risk, have averaged +44.38% returns, while positive forensic stocks averaged +32.77% over four years.
- Positive forensic stocks typically offer stable, lower-risk returns, reflecting strong fundamentals and low probability of financial irregularities, making them attractive for conservative investors.
- Combining forensic models with momentum timing signals further enhances returns, and ongoing research aims to refine these strategies for 2025 and beyond.
- This multi-year study demonstrates the value of forensic analysis for detecting financial irregularities, offering investors unique tools to improve risk-adjusted returns in 2025.
Introduction
This is a fundamental value study that offers two new forensic portfolios for 2025 to continue testing the top four forensic algorithms applied to detect bankruptcy risk, earnings manipulation, and financial irregularities. This forward testing study makes portfolio selections from the highest positive and highest negative scoring stocks across the U.S. stock exchanges to measure performance variances between portfolios and benchmark indexes.
Over the past 8 years from 2017 on Seeking Alpha, I have published 52 different portfolios in one-year test periods. As a result of this long term analysis we are seeing strong differentiation in results between negative and positive forensic portfolios. Most notably, the delisting of stock symbols (merger, acquisition, leaving the exchange) are approximately 10x higher among negative forensic stock selections than for positive forensic stocks. We see that average price behavior for positive forensic stocks is more stable, but that greater individual returns are coming from the negative portfolios. Overall the negative forensic stocks are producing much higher returns, with larger variability and at a much higher rate of mergers/delisting. Another important factor about these test portfolios is that they can reveal market conditions, investor risk appetite, and style rotations as investors often shift year-to-year in search of new ways to find gains.
Forensic Value Portfolios
These are the most recent Forensic portfolios over the past 4 years released every 6 months to members of our investment group. All the 2024 portfolios are positive not adjusted for dividends with extremely strong gains in the most recent July portfolios. Over the past 4 years including the current January 2025 portfolios with partial 6 months returns:
- Negative Forensic average: +44.38%
- Positive Forensic average: +32.77%
- S&P 500 Index average: +11.69%
Studies show that these standard buy/hold returns can be further enhanced by following our proprietary Momentum Gauge signals and avoiding the worst downturns in the markets.
Each of the prior portfolio selection articles is available for members in the Analysis Section of Value & Momentum Breakouts service as well as in the Members’ Library organized by investment type.
This is a fundamental value study that continues a series of multi-year tests using the top four forensic algorithms applied to detect bankruptcy risk, earnings manipulation, and financial irregularities. This live forward testing makes portfolio selections from the highest positive and highest negative scoring stocks across the U.S. stock exchanges to measure performance variances between portfolios and the S&P 500 benchmark indexes.
