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arXiv · 2606.24575

Quant Convergence: Bridging Classical Value Investing and Modern Factor Models for Systematic Equity Selection

Augusto Eiji Yamazaki·Hugo Garrido-Lestache Belinchon
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Abstract

Modern finance relies heavily on complex machine learning models to find patterns in the stock market. However, as these AI models get more complicated, they often memorize short-term market noise instead of finding companies with real, lasting value. We designed this research to test if Benjamin Graham's classic value investing rules could act as a mathematical "low-pass filter" to keep these modern models in check. We built three different sets of features - pure Graham rules, modern market factors, and a mix of both - and tested them against highly complex models (XGBoost and AutoGluon) using 20 years of S&P 500 data. By applying a strict buy-and-hold strategy over a four-year test period (March 2022 to March 2026), the results showed that more complex algorithms do not always win. While the AutoGluon model captured high returns (222.68%), it suffered a substantial 39.78% drop because it bought volatile tech stocks right before the market crashed. On the other hand, the pure Graham Random Forest achieved the highest overall return (232.13%) with much less risk (1.38 Calmar Ratio). Furthermore, the Combined Random Forest successfully mixed momentum with Graham's rules, making a 202.91% return while keeping the lowest maximum drop (34.53%) of any model tested. Ultimately, this research proves that Graham's "margin of safety" isn't outdated; it is actually a highly effective way to prevent modern AI from taking on too much risk.

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Augusto Eiji Yamazaki, Hugo Garrido-Lestache Belinchon. 2026-06-23. Quant Convergence: Bridging Classical Value Investing and Modern Factor Models for Systematic Equity Selection. https://arxiv.org/abs/2606.24575

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