Financial statements analyzed by the AVIstocks program over the past 10 years of each company’s operations may contain errors or falsifications. We have no real way to verify this. Therefore, we simply take the financial statement figures from the U.S. Securities and Exchange Commission (SEC) database. We assume that such inaccuracies are rare. After all, financial statements are prepared by professional, law-abiding, and competent people.
4 hypotheses
Our algorithmic approach is based on 4 key hypotheses:
1
Accuracy of the source data
2
Good companies remain good
By selecting good companies based on their past financial statements, we assume that in the future, for some period of time, most of them will continue to remain good companies. This hypothesis is based on the idea that a company’s business changes relatively slowly — both in terms of improvement and deterioration of a particular business.
3
Stocks of good companies grow faster
We also assume that if a company’s performance is improving year after year — if revenue, annual profit, and the company’s assets grow faster than the market average — then sooner or later the market will reflect this improvement in the company’s performance indicators: revenue, profit, and equity volume. Therefore, the stock of such a company will grow faster than the market average.
4
There are more good companies in the list than weak ones
Of course, the future is unpredictable, and market participants are influenced by emotions. Fear and greed drive market volatility. Some companies selected according to our AVI strategies may not always show strong stock price growth in the future. However, we assume that fundamental analysis works, and overall, stocks of good companies grow faster than the market average. We have thoroughly tested this hypothesis and believe that it works.