Dark-Liquidity's Instablog

Consensus: Stocks Pass The Most Screens After One Year Holding Period

Mon, 05 Dec 2011 22:40:15 -0500

This is a follow up to a previous article published April 24, 2011 on an AAII article published in their December 2010 issue listing stocks that passed 4 or more of the 60 stock selection screens that they track. Many of these screening methodologies are based upon the principles of well know investors such as Warren Buffett, William O'Neil, John Neff, Peter Lynch, John Templeton and Martin Zweig, with other screens being based on basic investing principles such as a low PE ratio or improving earnings estimates. The December 2010 list was created based on financial data dated November 12, 2010.

At selection time, China Automotive (CAAS) was tied with MWI Veterinary Supply (MWIV) and EZ Corp (EZPW) for first place, each passing 6 different screens. Seemingly, these stocks should be the best of the best since there is consensus in the multiple differing stock screen selection methods. In the prior portfolio performance review conducted about 6 months after the AAII list was created, MWI Veterinary Supply and EZ Corp. had performed well, rising 41% and 25% respectively. However, China Automotive had declined almost 40%.

After a one year holding period both MWI Veterinary Supply and EZ Corporation have lost some of their prior gains but still easily outperformed the overall market rising 18.9% and 16.8% respectively.

At the time of the prior review China Automotive then commanded first place in the number of screens passed with a total of 10 screens. Although, we warned then that it was still probably wasn’t a ‘buy’ as it was still trending downwards. Indeed, China Automotive (CAAS) continued to decline and is down almost 70% after a one year holding period.

So, would it have been a good strategy to create a portfolio of all 25 stocks based on these mainly fundamental qualitative selection methods? Not this year. The portfolio as a whole has underperformed the overall market with a drop of 10.43% compared to an increase in the S&P 500 of 4.83% and 8.95% for the Nasdaq over the same period.

This method of stock selection produced about 36% market beating winners and 45% miserable losers. Relatively few stocks seemed to simply follow in line with the general market performance. Here is a listing of the individual stock performance with the winners at the top.

Double click on the chart to enlarge it.

Magic Formula Investing

Sat, 03 Dec 2011 19:13:06 -0500

In August we began monitoring the performance of the strategy described in Joel Greenblatt's book "The little book that still Beats the Market". The stock screener on the Magic Formula Website is used to select a portfolio of 30 stocks with a market cap of 50 million dollars on the first trading day of each month. Each basket of stocks will be held for a one year period after which they are sold. (The system is designed to maximize after-tax returns for gains to become long-term by holding them for a year, and selling any losses before the one year holding period is reached.) The performance of each of the monthly basket of stocks is compared to the S&P 500 and Nasdaq indices at the end of each month in the charts below.

At the end of November, the August 1st portfolio shown was down 17.49% compared to the S&P 500 and Nasdaq which were only down -5.61% and -4.82% respectively. The September portfolio is similarly underperforming the market although has recovered after being down 17.26% after the first month.

The October portfolio was beating the market indices handily at the end of November.

The November portfolio also beat the market after the first month.

The stocks held in each portfolio and the current performance can be viewed on the strategies page under the “Magic Formula” link at dark-liquidity.com.

2011 Stock Picks Update

Wed, 07 Sep 2011 12:40:40 -0400

This is an update to the 2011 stock pick portfolios for SmartMoney, Money, Fortune, Kiplinger and Barrons publications and also brokers, J P Morgan, Morgan Stanley and Goldman Sachs.

The stock pickers have held roughly their same standings since our last report with the exception of Kiplinger, which has moved up from sixth to second place. Goldman Sachs easily maintains first place and Fortune still holds last place.

As of September 2, we now only have one of the eight stock pickers beating both the S&P and the Nasdaq. Fortune and J.P.Morgan’s losses are now approximately three times the market indexes.

The year to date performance of the portfolios plotted with Friday market closing performances is shown below;

The top ten stock picks as of 9-7-11 are as follows;

Company	Ticker	Purchase Price	Price Now	Gain / Loss	Stock Picker
VF Corp.	VFC	$86.63	$114.34	31.99%	Kiplinger
Visa	V	$70.40	$87.88	24.83%	Money Magazine
Starbucks	SBUX	$32.49	$39.22	20.71%	Goldman Sachs
Polo Ralph Lauren	RL	$112.08	$135.08	20.52%	Kiplinger
TJX	TJX	$44.57	$52.94	18.78%	SmartMoney
Apple	AAPL	$325.64	$383.65	17.81%	Fortune / Goldman Sachs / J.P.Morgan / Morgan Stanley
McDonald's	MCD	$77.10	$89.03	15.47%	Kiplinger
Precision Cast Parts	PCP	$140.38	$159.02	13.28%	Goldman Sachs
Digital Realty Trust	DLR	$51.96	$58.75	13.07%	Goldman Sachs
Kraft	KFT	$31.76	$34.67	9.16%	J.P.Morgan

The bottom ten stock picks are as follows;

Company	Ticker	Purchase Price	Price Now	Gain / Loss	Stock Picker
Itron	ITRI	$55.94	$37.72	-32.57%	J.P.Morgan
Bank Of New York Mellon	BK	$30.47	$20.38	-33.11%	Money Magazine
MF Global Holdings	MF	$8.43	$5.27	-37.49%	J.P.Morgan
Ford	F	$17.02	$10.44	-38.66%	Morgan Stanley
Rubicon Technology	RBCN	$21.41	$13.08	-38.91%	J.P.Morgan
General Motors	GM	$37.32	$22.60	-39.44%	Barrons
hhgregg	HGG	$21.14	$11.29	-46.59%	Kiplinger
Royal Carribean	RCL	$47.49	$25.03	-47.29%	Fortune
US Steel	X	$59.29	$29.94	-49.50%	J.P.Morgan
Entropic	ENTR	$12.40	$4.48	-63.87%	Fortune

Consensus: Stocks That Pass the Most Screens

Sun, 24 Apr 2011 21:55:15 -0400

AAII published an article in their December 2010 issue listing stocks that passed 4 or more of the 60 stock selection screens that they track. Many of these screening methodologies are based upon the principles of well know investors such as Warren Buffett, William O'Neil, John Neff, Peter Lynch, John Templeton and Martin Zweig. Other screens are based on basic investing principles such as a low PE ratio or improving earnings estimates.

The list was created based on financial data dated November 12, 2010. So, would it have been a good strategy to purchase all these stocks to create a portfolio of 25 stocks based on these mainly fundamental qualitative selection methods?

It has been almost 6 months since the AAII list was created. At the time China Automotive (CAAS) was tied with MWI Veterinary Supply (MWIV) and EZ Corp (EZPW) for first place, each passing 6 screens. Seemingly, these stocks should be the best of the best since their is consensus in the differing stock screen selection methods. MWI Veterinary Supply and EZ Corp. have performed well, rising 41% and 25% respectively. However, China Automotive has declined almost 40% indicating that simply selecting stocks by this method does not guarantee automatic success.

Indeed, if we look at the performance of the whole portfolio (with the exception Psychiatric Solutions (PSYS) which was taken over shortly after the AAII list was published), it has risen 11.6%. This performance is about the same as the market indexes (SPY 12.9% and QQQ 11.3%) during the same time period. See the table below for the individual performances:

What does this tell us? Blindly buying and selling stocks based on this method is not a particularly good idea. It would be easier to buy a market index ETF and obtain similar results with less effort.

As of today's date, China Automotive now commands first place in the number of screens passed with a total of 10 screens. Does this make it a 'buy'? Probably not yet as it appears still to be trending downwards and remains under it's 10, 50 and 200 day moving averages.

We'll update this post after a one year holding period to see if the relative performance improves, degrades or remains the same.

2011 Stock Picks

Sat, 16 Apr 2011 16:13:29 -0400

At the end of every year various personal finance magazines and stock brokers publish their best stock ideas for the upcoming year. Often these are selections are never mentioned again. We decided to track the stock pick portfolios for SmartMoney, Money, Fortune, Kiplinger and Barrons publications and also brokers, J P Morgan, Morgan Stanley and Goldman Sachs.

As of April 15^th, only 3 of the 8 stock pickers are beating the S&P and Nasdaq indexes.

Fortune had an early lead up over 6% in the first 2 weeks but is now in last place. Kiplinger had a bad start, down almost 3% in the first week but has since recovered into positive territory. The chart below shows the portfolios profit / loss plotted weekly at the Friday closing prices.

Goldman Sachs currently holds five of the top ten best performing stocks selected.

Stock Name	Stock Symbol	Profit	Magazine / Broker
Rubicon Technology	RBCN	31.15%	Goldman Sachs
Blackstone	BX	30.48%	Goldman Sachs
Tyco international	TYC	24.07%	Morgan Stanley
Chicago Bridge & Iron	CBI	21.40%	Goldman Sachs
JBHunt	JBHT	17.20%	Goldman Sachs
VF Corp.	VFC	16.53%	Kiplinger
Pfizer	PFE	15.99%	Barrons
Treehouse Foods	THS	15.72%	Goldman Sachs
TJX	TJX	15.37%	Smartmoney
Polo Ralph Lauren	RL	15.10%	Kiplinger

The three bottom stock pickers hold two stocks each from the overall 10 worst performing stocks selected.

Stock Name	Stock Symbol	Profit	Magazine / Broker
hhgregg	HGG	-38.46%	Kiplinger
Entropic	ENTR	-36.61%	Fortune
Royal Carribean	RCL	-19.75%	Fortune
General Motors	GM	-18.97%	Barrons
Cisco Systems	CSCO	-16.72%	Barrons / Smartmoney
Freeport-McMoran	FCX	-16.72%	Smartmoney
US Steel	X	-15.90%	Kiplinger
Ford	F	-14.79%	Goldman Sachs

It is only a little over one quarter the way through the year. We'll publish a mid year update to monitor how they continue to perform.