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David Trainer
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David is CEO of New Constructs (www.newconstructs.com), an independent research that specializes in unearthing key insights from the Financial Footnotes of Annual Reports. Having analyzed over 50,000 annual reports and their Financial Footnotes, New Constructs research regularly produces Hidden... More
My company:
New Constructs
My blog:
Hidden Gems and Red Flags
My book:
The Valuation Handbook
  • Proof Is In Performance Through 1Q13  0 comments
    Apr 12, 2013 12:18 PM

    There are many ways to define the qual­ity and merit of equity research. One mea­sure stands tallest: per­for­mance of stock rec­om­men­da­tions. And by that mea­sure, New Con­structs' research is of very high quality. See our lat­est Proof Is In Per­for­mance Thru 1Q13 Report for more details.

    As you can see in the post on our stock-picking acco­lades, we have plenty of inde­pen­dent, 3rd-party val­i­da­tion of our stock-picking suc­cess. So, you don't just have to take our word for it.

    Our suc­cess comes from being able to iden­tify groups of stocks that are most likely to be re-priced as the mar­ket, over time, rec­ti­fies mis­per­cep­tions of eco­nomic value cre­ated by investors employ­ing less ana­lyt­i­cal rigor than we. We derive our advan­tage from the in-depth analy­sis of finan­cial state­ments, espe­cially the notes to the finan­cial state­ments, which we apply to the analy­sis of the under­ly­ing eco­nomic value of 3000 firms. We believe our exact­ing approach to research gives us advan­tage in the selec­tion of indi­vid­ual secu­ri­ties for our long and short portfolios.

    In the first quarter of 2013, our Small-Cap Short strategy (-11.5%) beat shorting the S&P 500 by 7.2%, our combined Large- and Small-Cap Short strategy (-7.7%) beat shorting the combined S&P 500 and Russell 2000 in 1Q13 by 2.5%, and our Small-Cap Long strategy (4.8%) outperformed the Russell 2000 in 1Q13 by 0.3%.

    The cumulative returns of our rec­om­men­da­tions since Jan­u­ary 2005:

    Long/Short Strat­egies:

    • Most Attractive/Dangerous (Large and Small stocks): 55.8%
    • Most Attractive/Dangerous (Large cap stocks only): 65.5%
    • Most Attractive/Dangerous (Small cap stocks only): 38.3%

    Long Strat­egies:

    • Most Attrac­tive (Large and Small stocks): 80.3%
    • Most Attrac­tive (Large cap stocks only): 83.9%
    • Most Attrac­tive (Small cap stocks only): 68.8%

    Short Strat­egies:

    • Most Dan­ger­ous (Large and Small stocks): -42.1%
    • Most Dan­ger­ous (Large cap stocks only): -33.6%
    • Most Dan­ger­ous (Small cap stocks only): -52.8%

    These returns com­pare well to the major indices over the same time frame:

    • S&P 500: 32.0%
    • Rus­sell 2000: 50.6%
    • Risk-Free Rate: 15.4%
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