It's time to check back on Validea (www.validea.com), the site that helps you to picks stocks by emulating the strategies of 10 famous gurus such as Joel Greenblatt, author of the best seller, "Magic Formula Investing," and Warren Buffet, who needs no introduction. Besides for the 10 gurus, Validea also includes its own momentum stock picking strategy and a strategy developed by Motley Fool (fool.com) for finding fast growing, small-cap stocks.
What makes Validea most useful is that it tracks each portfolio's returns by year going back to 2003 as well as annualized returns since each portfolio's inception (usually 2003).
If you check those you'll see a lot of year-to-year variability in terms of performance vs. the overall market as gauged by the S&P 500. For instance, in 2013, 10 of the 12 Validea portfolios generated double-digit returns and eight of them beat the S&P's 30% return. By contrast, last year, only three managed to end the year in positive territory and only one of those beat the S&P's 11% number.
Three Best Portfolios
Nevertheless, since their 2003 inception, three Validea portfolios have averaged impressive double-digit annual returns compared to only 7% for the S&P. More on those three in a minute.
You'll need a subscription to see the current portfolios on Validea's site, but you can see eight of them, including the six top returners, for free on the NASDAQ stock exchange site (www.nasdaq.com).
Get there from the NASDAQ home page by selecting Investing and then Guru Screener in the Investing Tools section. Once there, use the "Find Stock Based on Guru Interest" section to pick a specific Guru strategy. Specify "Strong" for interest level to see stocks meeting each Guru's full selection requirements, or "Some" for a larger list of stocks meeting about half of the requirements.
You can also use the section labeled "Find Good Stocks Based on Guru Interest" to see stocks that simultaneously have "strong" or "some" interest" from at least two, and up to five different Guru strategies. However, I've found the best results by specifying "strong interest" from only a single Guru. Now back to the top three portfolios.
Best Returning Portfolios Since 2003: #3
Kenneth Fisher's Price/Sales Investor, averaging 11% annually, produced the third highest returns since 2003. Fisher, a money manager and long-time Forbes' columnist, introduced the concept of using price/sales ratios for valuing stocks in his best selling book, "Super Stocks." To insure sufficient trading volumes, I honed down each portfolio list to stocks with $1 billion minimum market capitalization, or trading at least 300,000 shares daily. Using those criterion, Sanderson Farms (NASDAQ:SAFM) and Winnebago Industries (NYSE:WGO) were the only investible stocks on Fisher's list.
Best Portfolios: #2
Validea's Momentum Investor, returning 13%, produced the second best average annual returns. It looks for stocks with strong price charts, among other characteristics that Validea doesn't want to share. Selecting "Strong" interest for that strategy produced only two investible picks: Amtrust Financial Services (NASDAQ:AFSI) and Credit Acceptance Corp. (NASDAQ:CACC).
The Value Investing strategy, returning 14%, on average, annually, produced the highest returns since 2003. It's based on conservative, low-risk strategies described in "Security Analysis," by Graham and Dodd, first published in 1934.
Running that screen turned up six investible stocks: National Oilwell Varco (NYSE:NOV), Hemerich & Payne (NYSE:HP), Reliance Steel & Aluminum (NYSE:RS), Joy Global (NYSE:JOY), Universal Corp. (NYSE:UVV), and Chart Industries (NASDAQ:GTLS).
All of the returns mentioned assumed buying each strategy's 10 highest-rated stocks and holding for one year.
Detailed Guru Analysis
After you run a screen, you can click on the name or ticker symbol of any of the stocks listed to see how it would be scored by any of the 10 strategies offered on the NASDAQ site. From there, you can select Detailed Analysis to see a detailed explanation why the stock passed or failed each of the strategy's requirements. You'll learn a lot by reading these.
In fact, you can see that information for any stock by entering its ticker symbol in the View Guru Analysis section.
As always, consider the stocks turned up by Validea's screens as research candidates, not a buy list. The more you know about your stocks, the better your results.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.