Value Line's Timeliness Ranking System Failing Miserably

Value Line published their own numbers for the nine-month period Dec. 31, 2008 through Sep. 30, 2009 in today's new issue.

Here are their figures:

Strategy.................................... % Change 12/31/08 - 9/30/09

Low Price/Sales ......................................... 127.3%

Low Market Cap ......................................... 112.1%

Low Price/Book Value ................................. 102.8%

Low Price/Earnings ....................................... 39.5%

Value Line Group 1 (Timeliness) .................. 1.0%

Value Line (Geometric) Average ..................... 33.4%

Almost any strategy would have done better than buying and holding their most recommended issues.

Comments

[Robert Mart...:]

Paul,
I used to work at Value Line, and their Timliness system is basically price and earnings momentum.

Unfortunately, these systems are having a bad year since the liquidity bubble is pushing up some awful stocks, whether or not they have a solid earnings outlook. In this environment, reported earnings are a lagging indicator, and an earnings momentum model will fail to capture it.

All systems have their periods of underperformance. The key for investors is to know what kind of environment we are in, and to use a stock selection tool that is appropriate for that type of environment.
Rob

Oct 27 10:24 AM

[Tom Armistead:]

Agree with Rob, first one thing works, then another. 2009 has been a strange year, who would have thought that p/b or p/s would work as well as they have.

Going forward there are a lot of large companies with relatively steady earnings that seem to be undervalued.

Oct 27 12:52 PM