Noa Anomaly
In plain terms
When a company's operating assets balloon faster than its lagged total assets, that bloat predicts underperformance. Inverse of the asset-quality story — we short the bloated names.
How it works
Hirshleifer-Hou-Teoh-Zhang 2004 RAS introduce NOA = (TA−cash) − (TL−LTD−STD) scaled by lagged total assets as a balance-sheet bloat diagnostic. High NOA captures cumulative gap between accounting earnings and free cash flow; orthogonal to Sloan's quarterly accruals. Effect: short top decile -6 to -9% ann. underperformance.
Live results
3 times picked on its own · 3 times inside a blend (3 beat the stock) · updated 2026-06-06Data dependencies
- Fundamentals quarterly
Quarterly fundamentals (income, balance, cash-flow) from FMP + SEC.
Expected edge
- Reported return
- 6-9% ann. decile spread; 2-4% OOS
- Tested over
- 1964-2002
Hirshleifer 2004: 6-9% ann. high-vs-low decile; 2-4% post-publication OOS.
Related families
Earnings backed by cash flow are repeatable; earnings backed by accruals (paper changes in receivables/inventory) fade. Short high-accrual names.
Score each company on 9 boring-but-important accounting checks (positive profit, improving margin, no new shares issued, less debt, etc.). Stocks that pass 7-9 of them are quality compounders; stocks that pass 0-2 are distressed. Long the strong, short the weak.
Companies that grow their balance sheet aggressively (lots of new assets, M&A, capex spikes) tend to under-deliver the next 1-3 years — the market trusted the empire-building story too much. Bet on the boring low-growth names instead.
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