Method and apparatus for choosing a stock portfolio, based on patent indicators

• US 6,175,824 B1
• Filed: 07/14/1999
• Issued: 01/16/2001
• Est. Priority Date: 07/14/1999
• Status: Expired due to Fees

• Current Assignee: Chi Research Incorporated
• Original Assignee: Chi Research Incorporated
• Inventors: Breitzman, Anthony F., Narin, Francis
• Primary Examiner(s): Swann, Tod R.
• Assistant Examiner(s): PATEL, JAGDISH
• Application Number:
  US09/353,613
• Time in Patent Office: 552 Days
• Field of Search: 705/36, 705/10, 705/35, 705/37
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A portfolio selector technique is described for selecting publicly traded companies to include in a stock market portfolio. The technique is based on a technology score derived from the patent indicators of a set of technology companies with significant patent portfolios. Typical patent indicators may include citation indicators that measure the impact of patented technology on later technology, Technology Cycle Time that measures the speed of innovation of companies, and science linkage that measures leading edge tendencies of companies. Patent indicators measure the effect of quality technology on the company'"'"'s future performance. The selector technique creates a scoring equation that weights each indicator such that the companies can be scored and ranked based on a combination of patent indicators. The score is then used to select the top ranked companies for inclusion in a stock portfolio. After a fixed period of time, as new patents are issued, the scores are recomputed such that the companies can be re-ranked and the portfolio adjusted to include new companies with higher scores and to eliminate companies in the current portfolio which have dropped in score. A portfolio of the top 10-25 companies using this method and a relatively simple scoring equation has been shown to greatly exceed the S&P 500 and other indexes in price gain over a ten year period.

Claims

1. A computer-implemented method of selecting a portfolio of company stocks for a client which is predicted to have future performance that achieves a predesired financial outcome, the method comprising:

(a) calculating a score for a plurality of companies whose stock may be potentially selected to be in the portfolio by using the equation;

$\mathrm{score}=\underset{i=0}{\overset{k-1}{\sum <br><br>}}<br><br>{\mathrm{\alpha <br><br>}}_i<br><br>x_i^{\mathrm{\beta <br><br>}<br><br>i}$

 

wherein x_i are company indicators which include industry normalized patent indicators, α

_i are weighting coefficients for the respective company indicators, at least one of the weighting coefficients being non-zero, the weighting coefficients being selected so that companies which receive a high score are predicted to contribute to achieving the predesired financial outcome, and β

_i are weighting exponents, and that companies which receive a low score are predicted to not contribute to achieving the predesired financial outcome, each company being assigned to a predefined industry;

(b) ranking the calculated scores from highest to lowest and generating recommendations of which company stock to purchase for the portfolio based upon the ranking; and

(c) displaying the recommendations on a summary report for review by the client or the client'"'"'s financial manager, or buying amounts of company stock for the portfolio in accordance with the recommendations, or selling amounts of company stock from the portfolio in accordance with the recommendations.

2. A method according to claim 1 wherein the weighting coefficients used in the equation of step (a) are determined by:

(i) choosing a set of companies and determining one or more indicators for the set of companies, including one or more industry normalized patent indicators;

(ii) choosing a set of weighting coefficients for the indicators and calculating a score for each company in the set of companies;

(iii) determining how well the scores for the set of companies achieve the predesired financial outcome in a predetermined historical time period;

(iv) repeating steps (ii) and (iii) for a plurality of different sets of weighting coefficients; and

(v) selecting the set of weighting coefficients which selects the set of companies most closely achieving the predesired financial outcome in the predetermined historical time period, and using the selected set of weighting coefficients in the equation of step (a).

3. A method according to claim 2 wherein a Monte Carlo method is used to determine the weighting coefficients.

4. A method according to claim 2 wherein a fitting algorithm is used to determine the weighting coefficients.

5. A method according to claim 2 wherein an optimization method is used to determine the weighting coefficients.

6. A method according to claim 1 wherein the recommendations of which company stock to purchase for the portfolio is based upon the companies having the highest scores.

7. A method according to claim 1 wherein β

=1 for i=0 to i=k−

1.

8. A method according to claim 1 wherein the company indicators include only industry normalized patent indicators.

9. A method according to claim 1 wherein the industry normalized patent indicators are selected from the group comprising at least one of:

(i) the number of utility patents granted to the company in a given time period, (ii) the percentage change in the number of patents issued to the company in a given time period, (iii) a current impact index which measures how frequently a company'"'"'s patents are cited by later patents, (iv) a science linkage which measures the average number of citations that a company'"'"'s patents make to scientific papers and similar research publications, and (v) a technology cycle time which is the median age in years of patents cited on the front pages of a company'"'"'s patents.

10. A method according to claim 1 wherein the company indicators include at least one financial indicator.

11. A method according to claim 1 wherein one or more of the industry normalized patent indicators are patent citation indicators.

12. A method according to claim 1 wherein the predesired financial outcome is a return over a predetermined period of time in excess of a predetermined percentage.

13. A method according to claim 1 wherein the predesired financial outcome is optimized for holding stocks for a specified period of time.

14. A method according to claim 1 wherein the predesired financial outcome is a volatility below a predetermined value.

15. A method according to claim 1 wherein the predesired financial outcome is a combination of investment strategy goals.

16. A method according to claim 1 wherein the predesired financial outcome is optimized for purchasing the stocks of a specified number of companies.

17. A method according to claim 1 wherein the predesired financial outcome is change in market-to-book.

18. A computer-implemented system for selecting a portfolio of company stocks for a client which is predicted to have future performance that achieves a predesired financial outcome, the system comprising:

(a) means for calculating a score for a plurality of companies whose stock may be potentially selected to be in the portfolio by using the equation;

$\mathrm{score}=\underset{i=0}{\overset{k-1}{\sum <br><br>}}<br><br>{\mathrm{\alpha <br><br>}}_i<br><br>x_i^{\mathrm{\beta <br><br>}<br><br>i}$

 

wherein x_i are company indicators which include industry normalized patent indicators, α

_i are weighting coefficients for the respective company indicators, at least one of the weighting coefficients being non-zero, the weighting coefficients being selected so that companies which receive a high score are predicted to contribute to achieving the predesired financial outcome, and β

_i are weighting exponents, and that companies which receive a low score are predicted to not contribute to achieving the predesired financial outcome, each company being assigned to a predefined industry;

(b) means for ranking the calculated scores from highest to lowest and generating recommendations of which company stock to purchase for the portfolio based upon the ranking; and

(c) means for displaying the recommendations on a summary report for review by the client or the client'"'"'s financial manager, or means for buying amounts of company stock for the portfolio in accordance with the recommendations, or means for selling amounts of company stock from the portfolio in accordance with the recommendations.

19. A system according to claim 18 further comprising weighting coefficient determining apparatus comprising:

(i) means for choosing a set of companies and determining one or more indicators for the set of companies, including one or more industry normalized patent indicators;

(ii) means for choosing a set of weight coefficients for the indicators and calculating a score for each company in the set of companies; and

(iii) means for determining how well the scores for the set of companies achieve the predesired financial outcome in a predetermined historical time period;

wherein the process performed by elements (ii) and (iii) are repeated for a plurality of different sets of weighting coefficients, the weighting coefficient determining apparatus further comprising;

(iv) means for selecting the set of weighting coefficients which selects the set of companies most closely achieving the predesired financial outcome in the predetermined historical time period, and using the selected set of weighting coefficients in the score equation.

20. A system according to claim 19 wherein a Monte Carlo method is used to determine the weighting coefficients.

21. A system according to claim 19 wherein a fitting algorithm is used to determine the weighting coefficients.

22. A system according to claim 19 wherein an optimization method is used to determine the weighting coefficients.

23. A system according to claim 18 wherein the recommendations of which company stock to purchase for the portfolio is based upon the companies having the highest scores.

24. A system according to claim 18 wherein β

=1 for i=0 to i=k−

1.

25. A system according to claim 18 wherein the company indicators include only industry normalized patent indicators.

26. A system according to claim 18 wherein the industry normalized patent indicators are selected from the group comprising at least one of:

(i) the number of utility patients granted to the company in a given time period, (ii) the percentage change in the number of patents issued to the company in a given time period, (iii) a current impact index which measures how frequently a company'"'"'s patents are cited by later patents, (iv) a science linkage which measures the avenge number of citations that a company'"'"'s patents make to scientific papers and similar research publications, and (v) a technology cycle time which is the median age in year of patents cited on the front pages of a company'"'"'s patents.

27. A system according to claim 18 wherein the company indicators include at least one financial indicator.

28. A system according to claim 18 wherein one or more of the industry normalized patent indicators are patent citation indicators.

29. A system according to claim 18 wherein the predesired financial outcome is a return over a predetermined period of time in excess of a predetermined percentage.

30. A system according to claim 18 wherein the predesired financial outcome is optimized for holding stocks for a specified period of time.

31. A system according to claim 18 wherein the predesired financial outcome is a volatility below a predetermined value.

32. A system according to claim 18 wherein the predesired financial outcome is a combination of investment strategy goals.

33. A system according to claim 18 wherein the predesired financial outcome is optimized for purchasing the stocks of a specified number of companies.

34. A system according to claim 18 wherein the predesired financial outcome is change in market-to-book.

35. An article of manufacture comprising a computer usable medium having computer readable code means therein for selecting a portfolio of company stocks for a client which is predicted to have future performance that achieves a predesired financial outcome, the computer readable program code means in the article of manufacture comprising:

(a) computer readable program code means for calculating a score for a plurality of companies whose stock may be potentially selected to be in the portfolio by using the equation;

$\mathrm{score}=\underset{i=0}{\overset{k-1}{\sum <br><br>}}<br><br>{\mathrm{\alpha <br><br>}}_i<br><br>x_i^{\mathrm{\beta <br><br>}<br><br>i}$

 

wherein x_i are company indicators which include industry normalized patent indicators, α

_i are weighting coefficients for the respective company indicators, at least one of the weighting coefficients being non-zero, the weighting coefficients being selected so that companies which receive a high score are predicted to contribute to achieving the predesired financial outcome, and β

_i are weighting exponents, and that companies which receive a low score are predicted to not contribute to achieving the predesired financial outcome, each company being assigned to a predefined industry;

(b) computer readable program code means for ranking the calculated scores from highest to lowest and generating recommendations of which company stock to purchase for the portfolio based upon the ranking; and

(c) computer readable program code means for displaying the recommendations on a summary report for review by the client or the client'"'"'s financial manager, or a computer readable program code means for buying amounts of company stock for the portfolio in accordance with the recommendations, or computer readable program code means for selling amounts of company stock from the portfolio in accordance with the recommendations.

36. An article of manufacture according to claim 35 further comprising weighting coefficient determining apparatus comprising:

(i) computer readable program code means for choosing a set of companies and determining one or more indicators for the set of companies, including one or more industry normalized patent indicators;

(ii) computer readable program code means for choosing a set of weighting coefficients for the indicators and calculating a score for each company in the set of companies; and

(iii) computer readable program code means for determining how well the scores for the set of companies achieve the predesired facial outcome in a predetermined historical time period;

wherein the process performed by elements (ii) and (iii) are repeated for a plurality of different sets of weighting coefficients, the weighting coefficient determining apparatus further comprising;

(iv) computer readable program code means for selecting the set of weighting coefficients which selects the set of companies most closely achieving the predesired financial outcome in the predetermined historical time period, and using the selected set of weighting coefficients in the score equation.

37. An article of manufacture according to claim 36 wherein a Monte Carlo method is used to determine the weighting coefficients.

38. An article of manufacture according to claim 36 wherein a fitting algorithm is used to determine the weighting coefficients.

39. An article of manufacture according to claim 36 wherein an optimization method is used to determine the weighting coefficients.

40. An article of manufacture according to claim 35 wherein the recommendations of which company stock to purchase for the portfolio is based upon the companies having the highest scores.

41. An article of manufacture according to claim 35 wherein β

=1 for i=0 to i=k−

1.

42. An article of manufacture according to claim 35 wherein the company indicators include only industry normalized patent indicators.

43. An article of manufacture according to claim 35 wherein the industry normalized patent indicators are selected from the group comprising at least one of:

(i) the number of utility patents granted to the company in a given time period, (ii) the percentage change in the number of patents issued to the company in a given time period, (iii) a current impact index which measures how frequently a company'"'"'s patents are cited by later patents, (iv) a science linkage which measures the average number of citations that a company'"'"'s patents make to scientific papers and similar research publications, and (v) a technology cycle time which is the median age in years of patents cited on the front pages of a company'"'"'s patents.

44. An article of manufacture according to claim 35 wherein the company indicators include at least one financial indicator.

45. An article of manufacture according to claim 35 wherein one or more of the industry normalized patent indicators are patent citation indicators.

46. An article of manufacture according to claim 35 wherein the predesired financial outcome is a return over a predetermined period of time in excess of a predetermined percentage.

47. An article of manufacture according to claim 35 wherein the predesired financial outcome is optimized for holding stocks for a specified period of time.

48. An article of manufacture according to claim 35 wherein the predesired financial outcome is a volatility below a predetermined value.

49. An article of manufacture according to claim 35 wherein the predesired financial outcome is a combination of investment strategy goals.

50. An article of manufacture according to claim 35 wherein the predesired financial outcome is optimized for purchasing the stocks of a specified number of companies.

51. An article of manufacture according to claim 35 wherein the predesired financial outcome is change in market-to-book.

52. A computer-implemented method of selecting a portfolio of company stocks for a client which is predicted to have future performance that achieves a predesired financial outcome, the method comprising:

(a) at a first point in time, calculating a score for a plurality of companies whose stock may be potentially selected to be in the portfolio by using the equation;

$\mathrm{score}=\underset{i=0}{\overset{k-1}{\sum <br><br>}}<br><br>{\mathrm{\alpha <br><br>}}_i<br><br>x_i^{\mathrm{\beta <br><br>}<br><br>i}$

 

wherein x_i are company indicators including industry normalized patent indicators, α

_i are weighting coefficients for the respective company indicators, at least one of the weighting coefficients being non-zero, the weighting coefficients being selected so that companies which receive a high score are predicted to contribute to achieving the predesired financial outcome, and β

_i are weighting exponents, and that companies which receive a low score are predicted to not contribute to achieving the predesired financial outcome, each company being assigned to a predefined industry;

(b) ranking the calculated scores from highest to lowest;

(c) repeating steps (a) and (b) at a second point in time;

(d) comparing the change in scores for each of the companies between the first and second points in time, and generating recommendations of which company stock to purchase for the portfolio or to sell from the portfolio based upon the changes in scores between the first and second points in time; and

(e) displaying the recommendations on a summary report for review by the client or the client'"'"'s financial manager, or purchasing company stock for the portfolio based upon the changes in scores, or selling company stock in the portfolio based upon the changes in scores.

53. A method according to claim 52 wherein step (d) comprises generating recommendations of which company stock to purchase for the portfolio based upon the companies having the greatest improvement in scores between the first and second points in time.

54. A method according to claim 52 wherein step (d) comprises generating recommendations of which company stock to purchase for the portfolio based upon the companies showing an improvement in scores between the first and second points in time of at least a fixed amount.

55. A method according to claim 52 wherein step (d) comprises generating recommendations of which company stock to sell if the company stock is in the portfolio based upon the companies which do not show an improvement in scores between the first and second points in time of at least the fixed amount.

56. A system for selecting a portfolio of company stocks for a client which is predicted to have future performance that achieves a predesired financial outcome, the system comprising:

(a) means for calculating a score for a plurality of companies whose stock may be potentially selected to be in the portfolio by using the equation;

$\mathrm{score}=\underset{i=0}{\overset{k-1}{\sum <br><br>}}<br><br>{\mathrm{\alpha <br><br>}}_i<br><br>x_i^{\mathrm{\beta <br><br>}<br><br>i}$

 

wherein x_i are company indicators including industry normalized patent indicators, α

_i are weighting coefficients for the respective company indicators, at least one of the weighting coefficients being non-zero, the weighting coefficients being selected so that companies which receive a high score are predicted to contribute to achieving the predesired financial outcome, and β

_i are weighting exponents, and that companies which receive a low score are predicted to not contribute to achieving the predesired financial outcome, each company being assigned to a predefined industry;

(b) means for ranking the calculated scores from highest to lowest, wherein the means for calculating and means for ranking perform their respective functions at a first and a second point in time;

(c) means for comparing the change in scores for each of the companies between the first and second points in time;

(d) means for generating recommendations of which company stock to purchase for the portfolio or to sell from the portfolio based upon the changes in scores between the first and second points in time; and

(e) means for displaying the recommendations on a summary report for review by the client or the client'"'"'s financial manager, or means for purchasing company stock for the portfolio based upon the changes in scores, or means for selling company stock in the portfolio based upon the changes in scores.

57. A system according to claim 56 wherein the means for generating recommendations of which company stock to purchase for the portfolio generates the recommendations based upon the companies having the greatest improvement in scores between the first and second points in time.

58. A system according to claim 56 wherein the means for generating recommendations of which company stock to purchase for the portfolio generates the recommendations based upon the companies showing an improvement in scores between the first and second points in time of at least a fixed amount.

59. A system according to claim 56 wherein the means for generating recommendations of which company stock to sell if the company stock is in the portfolio generates the recommendations based upon the companies which do not show an improvement in scores between the first and second points in time of at least the fixed amount.

60. An article of manufacture comprising a computer usable medium having computer readable code means therein for selecting a portfolio of company stocks for a client which is predicted to have future performance that achieves a predesired financial outcome, the computer readable program code means in the article of manufacture comprising:

(a) computer readable program code means for calculating a score for a plurality of companies whose stock may be potentially selected to be in the portfolio by using the equation;

$\mathrm{score}=\underset{i=0}{\overset{k-1}{\sum <br><br>}}<br><br>{\mathrm{\alpha <br><br>}}_i<br><br>x_i^{\mathrm{\beta <br><br>}<br><br>i}$

 

wherein x_i are company indicators including industry normalized patent indicators, α

_i are weighting coefficients for the respective company indicators, at least one of the weighting coefficients being non-zero, the weighting coefficients being selected so that companies which receive a high score are predicted to contribute to achieving the predesired financial outcome, and β

_i are weighting exponents, and that companies which receive a low score are predicted to not contribute to achieving the predesired financial outcome, each company being assigned to a predefined industry;

(b) computer readable program code means for ranking the calculated scores from highest to lowest, wherein the means for calculating and means for ranking perform their respective functions at a fist and a second point in time;

(c) computer readable program code means for comparing the change in scores for each of the companies between the first and second points in time;

(d) computer readable program code means for generating recommendations of which company stock to purchase for the portfolio or to sell from the portfolio based upon the changes in scores between the first and second points in time; and

(e) computer readable program code means for displaying the recommendations on a summary report for review by the client or the client'"'"'s financial manager, or computer readable program code means for purchasing company stock for the portfolio based upon the changes in scores, or computer readable program code means for selling company stock in the portfolio based upon the changes in scores.

61. An article of manufacture according to claim 60 wherein the computer readable program code means for generating recommendations of which company stock to purchase for the portfolio generates the recommendations based upon the companies having the greatest improvement in scores between the first and second points in time.

62. An article of manufacture according to claim 60 wherein the computer readable program code means for generating recommendations of which company stock to purchase for the portfolio generates the recommendations based upon the companies showing an improvement in scores between the first and second points in time of at least a fixed amount.

63. An article of manufacture according to claim 60 wherein the computer readable program code means for generating recommendations of which company stock to sell if the company stock is in the portfolio generates the recommendations based upon the companies which do not show an improvement in scores between the first and second points in time of at least the fixed amount.