{"id":1019,"date":"2025-05-20T14:00:00","date_gmt":"2025-05-20T14:00:00","guid":{"rendered":"https:\/\/www.tejwin.com\/en\/insights\/michael-murphys-risk-assessment-rules-for-investing-in-high-tech-stocks\/"},"modified":"2025-05-20T14:00:00","modified_gmt":"2025-05-20T14:00:00","slug":"michael-murphys-risk-assessment-rules-for-investing-in-high-tech-stocks","status":"publish","type":"insight","link":"https:\/\/www.tejwin.com\/en\/insights\/michael-murphys-risk-assessment-rules-for-investing-in-high-tech-stocks\/","title":{"rendered":"Michael Murphy&#8217;s Risk Assessment Rules for Investing in High-Tech Stocks"},"content":{"rendered":"<figure class=\"wp-block-image aligncenter size-full caption-align-center\"><img loading=\"lazy\" decoding=\"async\" alt=\"Michael Murphy\" class=\"wp-image-35187\" height=\"683\" src=\"https:\/\/www.tejwin.com\/en\/wp-content\/uploads\/2026\/08\/opt-lasers-7NvkRlTzLZE-unsplash-1024x683-2.jpg\" width=\"1024\"\/><\/figure>\n<h2 class=\"wp-block-heading\"><strong>Key Takeaways<\/strong><\/h2>\n<p class=\"wp-block-paragraph\">Article Difficulty: \u2605\u2605\u2606\u2606\u2606<br \/>A stock selection strategy for high-tech companies.<br \/>The Michael Murphy strategy is backtested using TQuant Lab to evaluate the performance of its investment factors.<\/p>\n<h2 class=\"wp-block-heading\">Preface<\/h2>\n<p class=\"wp-block-paragraph\">With the rapid development of the high-tech industry, technology stocks have increasingly become the focus of the market. While these stocks offer significant growth potential, they also come with high volatility and substantial investment risk. Investors seeking high returns may face major losses if they fail to properly assess the associated risks. Therefore, effectively measuring and managing the downside risk of high-tech stocks has become a crucial component of sound investment decision-making.<\/p>\n<h2 class=\"wp-block-heading\">How to Calculate Factors &amp; Screen Stocks Using Factors<\/h2>\n<h3 class=\"wp-block-heading\"><strong>Stock Selection<\/strong><\/h3>\n<p class=\"wp-block-paragraph\">In TQuant Lab, we begin by selecting stocks from the\u00a0<strong>electronics industry<\/strong>\u00a0as our stock universe. Users can customize the specific technology sectors based on their individual needs.<\/p>\n<h3 class=\"wp-block-heading\"><strong>Factor Calculation: Downside Risk Value &amp; Deviation Value<\/strong><\/h3>\n<p class=\"wp-block-paragraph\">All the following data fields are derived from the\u00a0<strong>TQuant Lab dataset<\/strong>.<\/p>\n<ul class=\"wp-block-list\">\n<li><strong>A: Revenue per Share<\/strong><br \/>= Accumulated revenue over the past 12 months (in thousands) \/ Shares outstanding<\/li>\n<li><strong>B: Book Value per Share<\/strong><br \/>= Total shareholder equity (quarterly) \/ Shares outstanding<\/li>\n<li><strong>C: 3-Year Average Pretax Profit Growth Rate<\/strong><br \/>= Growth rate of pretax profit, using the quarterly value labeled as sequence number 1. Pivot the data to matrix format and apply\u00a0<code>rolling(12).mean<\/code>.<\/li>\n<li><strong>D: Earnings per Share over the Last 4 Quarters (EPS TTM)<\/strong><br \/>= Book value per share over the trailing twelve months<\/li>\n<li><strong>E: Downside Risk Value (DRV)<\/strong><br \/>= ( A + 1.5 \u00d7 B + C \u00d7 D \u00d7 1\/3 ) \/ 3<\/li>\n<\/ul>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">If\u00a0<strong>C<\/strong>\u00a0or\u00a0<strong>D<\/strong>\u00a0is negative, replace the value with\u00a0<strong>0<\/strong>.<\/p>\n<\/blockquote>\n<p class=\"wp-block-paragraph\"><strong>Deviation Value<\/strong><br \/>= ( Current Price \u2013 Downside Risk Value ) \/ Current Price<\/p>\n<p class=\"wp-block-paragraph\"><strong>Relationship Between Deviation Value and Risk<\/strong><\/p>\n<p class=\"wp-block-paragraph\">A\u00a0<strong>positive deviation value<\/strong>\u00a0indicates a\u00a0<strong>higher risk of sharp decline<\/strong>. The larger the positive value, the higher the risk.<\/p>\n<p class=\"wp-block-paragraph\">A\u00a0<strong>negative deviation value<\/strong>\u00a0suggests the stock is\u00a0<strong>suitable for investment<\/strong>, and the more negative it is, the\u00a0<strong>safer<\/strong>\u00a0the investment.<\/p>\n<h3 class=\"wp-block-heading\">Trading Logic<\/h3>\n<ul class=\"wp-block-list\">\n<li><strong>Trading Frequency<\/strong>: Trades are executed on the\u00a0<strong>15th of each month<\/strong>. If the 15th is not a trading day, the trade is postponed to the next market open day.<\/li>\n<li><strong>Cancel all unfilled orders<\/strong>\u00a0to prevent them from interfering with new trades.<\/li>\n<li><strong>Sell all holdings<\/strong>\u00a0that are\u00a0<strong>not selected in the current period<\/strong>.<\/li>\n<li><strong>Hold positions<\/strong>\u00a0that are selected in both the current and previous periods to\u00a0<strong>reduce transaction costs<\/strong>.<\/li>\n<li>Select the\u00a0<strong>top 40 stocks with the lowest deviation values<\/strong>\u00a0as the buy targets.<\/li>\n<\/ul>\n<h3 class=\"wp-block-heading\">Capital Allocation<\/h3>\n<ul class=\"wp-block-list\">\n<li><strong>Capital per trade<\/strong>\u00a0= 100% of total capital<\/li>\n<li><strong>Equal-weight allocation<\/strong>: Capital is equally distributed among all selected stocks.<\/li>\n<\/ul>\n<h3 class=\"wp-block-heading\">Performance Chart<\/h3>\n<figure class=\"wp-block-table\">\n<table class=\"has-fixed-layout\">\n<thead>\n<tr>\n<th><strong>Performance Metric \/ Strategy<\/strong><\/th>\n<th><strong>Market Benchmark<\/strong><\/th>\n<th><strong>Michael Murphy Investment Strategy<\/strong><\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Annualized Return<\/td>\n<td>16.275%<\/td>\n<td>15.767%<\/td>\n<\/tr>\n<tr>\n<td>Cumulative Return<\/td>\n<td>177.386%<\/td>\n<td>169.287%<\/td>\n<\/tr>\n<tr>\n<td>Annualized Volatility<\/td>\n<td>17.279%<\/td>\n<td>19.856%<\/td>\n<\/tr>\n<tr>\n<td>Sharpe Ratio<\/td>\n<td>0.96<\/td>\n<td>0.84<\/td>\n<\/tr>\n<tr>\n<td>Calmar Ratio<\/td>\n<td>0.57<\/td>\n<td>0.45<\/td>\n<\/tr>\n<tr>\n<td>Maximum Drawdown (During Period)<\/td>\n<td>-28.553%<\/td>\n<td>-35.045%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n<p class=\"wp-block-paragraph\">From the overall performance indicators, although the\u00a0<strong>Michael Murphy Investment Strategy<\/strong>\u00a0achieves an annualized return of\u00a0<strong>15.767%<\/strong>\u00a0and a cumulative return of\u00a0<strong>169.287%<\/strong>, which are only slightly below the benchmark (16.275% and 177.386%, respectively), its performance in\u00a0<strong>risk control is relatively weaker<\/strong>.<\/p>\n<p class=\"wp-block-paragraph\">The strategy exhibits a higher annualized volatility of\u00a0<strong>19.856%<\/strong>\u00a0compared to the market\u2019s\u00a0<strong>17.279%<\/strong>, and a lower Sharpe ratio of\u00a0<strong>0.84<\/strong>\u00a0versus the benchmark\u2019s\u00a0<strong>0.96<\/strong>, indicating that its\u00a0<strong>risk-adjusted return is inferior to the market<\/strong>\u00a0despite taking on greater risk. In addition, the\u00a0<strong>maximum drawdown<\/strong>\u00a0during the period reaches\u00a0<strong>-35.045%<\/strong>, which is larger than the benchmark\u2019s\u00a0<strong>-28.553%<\/strong>, suggesting the strategy is more vulnerable to capital loss during market downturns.<strong>Overall<\/strong>, while the Michael Murphy strategy demonstrates a reasonable return potential, it still\u00a0<strong>underperforms the benchmark in terms of risk-adjusted performance and capital preservation<\/strong>.<\/p>\n<figure class=\"wp-block-image aligncenter size-full caption-align-center\"><img loading=\"lazy\" decoding=\"async\" alt=\"Michael Murphy\" class=\"wp-image-35189\" height=\"714\" src=\"https:\/\/www.tejwin.com\/en\/wp-content\/uploads\/2026\/08\/image-689-1024x714-1.png\" width=\"1024\"\/><\/figure>\n<p class=\"wp-block-paragraph\">The\u00a0<strong>annualized return chart<\/strong>\u00a0shows that the strategy performs well in most years, with particularly impressive performance in\u00a0<strong>2023<\/strong>, where the annual return exceeded\u00a0<strong>40%<\/strong>. This highlights the strategy\u2019s\u00a0<strong>strong profit potential under favorable market conditions<\/strong>. Although the strategy experienced\u00a0<strong>negative returns in 2018 and 2022<\/strong>, such losses can be managed through\u00a0<strong>appropriate take-profit and stop-loss settings<\/strong>.<\/p>\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n<p class=\"wp-block-paragraph\">This strategy focuses on the\u00a0<strong>high-tech industry<\/strong>, selecting the\u00a0<strong>top 40 stocks with the smallest deviation values<\/strong>. A\u00a0<strong>lower deviation value<\/strong>\u00a0indicates that a stock\u2019s price deviates less from its downside risk benchmark, reflecting\u00a0<strong>more stable pricing and lower downside risk<\/strong>.<br \/>While the tech sector offers high growth potential, it also comes with high volatility and risk. This strategy effectively identifies\u00a0<strong>relatively stable investment targets<\/strong>\u00a0in such a high-risk environment.<\/p>\n<p class=\"wp-block-paragraph\">Backtesting results show that the strategy delivers\u00a0<strong>returns comparable to the overall market<\/strong>\u00a0while also demonstrating\u00a0<strong>solid risk control<\/strong>. However, by prioritizing stability and downside protection, the strategy may\u00a0<strong>filter out high-growth \u201crocket stocks\u201d<\/strong>, leading to\u00a0<strong>underperformance in strong bull markets<\/strong>\u00a0where broader indices trend upward more sharply.<\/p>\n<p class=\"wp-block-paragraph\"><strong>Important Reminder<\/strong>: This analysis is for reference only and does not constitute any product or investment advice.<\/p>\n<p class=\"wp-block-paragraph\">We welcome readers interested in various trading strategies to consider purchasing relevant solutions from\u00a0<a class=\"ek-link\" href=\"\/en\/solution\/quantitative-finance-solution\/\"><strong><mark class=\"has-inline-color\" style=\"background-color:#ffdf88\">Quantitative Finance Solution<\/mark><\/strong><\/a>. With our high-quality databases, you can construct a trading strategy that suits your needs.<\/p>\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button has-custom-width wp-block-button__width-100 has-custom-font-size\" style=\"font-size:22px\"><a class=\"wp-block-button__link has-background wp-element-button\" href=\"\/en\/databank-solution\/financial-data\/\" style=\"border-radius:16px;background:linear-gradient(135deg,rgb(243,224,131) 0%,rgb(102,197,166) 50%,rgb(51,132,181) 100%)\"><strong>Access to Comprehensive Quantitative Data<\/strong><br \/><strong>Start Building Portfolios That Outperform the Market Today!<\/strong><\/a><\/div>\n<\/div>\n<div aria-hidden=\"true\" class=\"wp-block-spacer\" style=\"height:22px\"><\/div>\n<p class=\"has-text-align-center wp-block-paragraph\" style=\"font-size:32px\"><mark class=\"has-inline-color has-vivid-cyan-blue-color\" style=\"background-color:rgba(0, 0, 0, 0)\"><strong><em>\u201cTaiwan stock market data, TEJ collect it all.\u201d<\/em><\/strong><\/mark><\/p>\n<p class=\"wp-block-paragraph\">The characteristics of the Taiwan stock market differ from those of other European and American markets. Especially in the first quarter of 2024, with the <strong><mark class=\"has-inline-color\" style=\"background-color:rgba(0, 0, 0, 0);color:#c05d5d\">Taiwan Stock Exchange reaching a new high of 20,000 points<\/mark><\/strong> due to the rise in TSMC\u2019s stock price, global institutional investors are paying more attention to the performance of the Taiwan stock market.\u00a0<\/p>\n<p class=\"wp-block-paragraph\"><strong><mark class=\"has-inline-color\" style=\"background-color:rgba(0, 0, 0, 0);color:#0978b8\">Taiwan Economical Journal (TEJ)<\/mark><\/strong>, a financial database established in Taiwan for over 30 years, serves local financial institutions and academic institutions, and has long-term cooperation with internationally renowned data providers, providing high-quality financial data for five financial markets in Asia.\u00a0<\/p>\n<ul class=\"wp-block-list\">\n<li><strong><mark class=\"has-inline-color has-black-color\" style=\"background-color:#ebc766\">Complete Coverage<\/mark><\/strong>: Includes all listed companies on stock markets in Taiwan, China, Hong Kong, Japan, Korea, etc.\u00a0<\/li>\n<li><strong><mark class=\"has-inline-color\" style=\"background-color:#ebc766\">Comprehensive Analysis of Enterprises<\/mark><\/strong>: Operational aspects, financial aspects, securities market performance, ESG sustainability, etc.\u00a0<\/li>\n<li><strong><mark class=\"has-inline-color\" style=\"background-color:#ebc766\">High-Quality Database<\/mark><\/strong>: TEJ data is cleaned, checked, enhanced, and integrated to ensure it meets the information needs of financial and market analysis.\u00a0<\/li>\n<\/ul>\n<p class=\"wp-block-paragraph\">With TEJ\u2019s assistance, you can access relevant information about major stock markets in Asia, such as securities market, financials data, enterprise operations, board of directors, sustainability data, etc., providing investors with timely and high-quality content. Additionally, TEJ offers advisory services to help solve problems in theoretical practice and financial management!<\/p>\n<div class=\"wp-block-buttons is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-3e41869c wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button has-custom-width wp-block-button__width-100 has-custom-font-size\" style=\"font-size:21px\"><a class=\"wp-block-button__link has-background has-text-align-center wp-element-button\" href=\"\/en\/contact\/\" style=\"border-radius:16px;background:linear-gradient(135deg,rgb(160,209,216) 0%,rgb(51,145,181) 50%,rgb(50,95,191) 100%)\"><strong>Want to Learn More About Our Databases and Solutions?<br \/>Contact Us and Get the Free Trial Today!<\/strong><\/a><\/div>\n<\/div>\n<h2 class=\"wp-block-heading\">GitHub Source Code<\/h2>\n<p class=\"wp-block-paragraph\"><a href=\"https:\/\/github.com\/tejtw\/TEJAPI_Python_Medium_Application\/blob\/main\/%E5%8B%95%E8%83%BD%E5%9B%A0%E5%AD%90.ipynb\" rel=\"noopener\" target=\"_blank\">Click here to visit GitHub<\/a><\/p>\n<h2 class=\"wp-block-heading\">Further Reading<\/h2>\n<ul class=\"wp-block-list\">\n<li><a href=\"\/en\/insight\/tquant-lab-supertrend-strategy\/\">SuperTrend Strategy: Buy Low, Sell High to Profit from Market Swings<\/a><\/li>\n<li><strong><a href=\"\/en\/insight\/lstm-stock-price-prediction-part-2\/\">Verifying LSTM Stock Price Prediction Effectiveness Using TQuant Lab (Part 2)<\/a><\/strong><\/li>\n<\/ul>\n<h2 class=\"wp-block-heading\">Related Links<\/h2>\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/github.com\/tejtw\/TQuant-Lab\" rel=\"noopener\" target=\"_blank\">TQuant Lab GitHub<\/a><\/li>\n<li><a href=\"https:\/\/tquant.tejwin.com\/\" rel=\"noopener\" target=\"_blank\">TQuant Lab Homepage<\/a><\/li>\n<\/ul>\n<p class=\"wp-block-paragraph\">\n","protected":false},"excerpt":{"rendered":"<p>With the rapid development of the high-tech industry, technology stocks have increasingly become the focus of the market. While these stocks offer significant growth potential, they also come with high volatility and substantial investment risk. Investors seeking high returns may face major losses if they fail to properly assess the associated risks. Therefore, effectively measuring and managing the downside risk of high-tech stocks has become a crucial component of sound investment decision-making.<\/p>\n","protected":false},"featured_media":1018,"template":"","tags":[65,70,71],"insight_category":[13],"class_list":["post-1019","insight","type-insight","status-publish","has-post-thumbnail","hentry","tag-python","tag-tej-api","tag-quantitative-strategy","insight_category-quant-research"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight\/1019","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight"}],"about":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/types\/insight"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/media\/1018"}],"wp:attachment":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/media?parent=1019"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/tags?post=1019"},{"taxonomy":"insight_category","embeddable":true,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight_category?post=1019"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}