In the year 2000, the Foolish Workshop will officially keep tabs on 12
specific models. Taking the community's preferences into account, and the
need to keep things manageable, we have decided to no longer track the Beta, Investing for Growth Classic, and Low Price to Sales screens. The five new
models that we'll officially be tracking are: KeystoneEPS, Keystone 100,
Plowback, PEG13 and RS13. Below are explanations of all the models we'll be
tracking this year, in alphabetical order.
An investor may choose to buy any number of the top stocks that these
screens turn up. For example, you may choose to buy the top 4, top 5, or even
the top ten. As a general rule, the more stocks you hold from each screen,
the lower your returns are, BUT you also reduce volatility and these screens
can be very volatile. Buying fewer than
four stocks from any one screen would be very, very risky. For
convenience, we have chosen to show the historic returns for 5 and 10 stock
portfolios for each screen if available. See "Notes on the Returns" at the
bottom of this page for additional information.
For general background on the data sources for the following screens, see:
Formula 90: Starting with all of the stocks ranked Timeliness 1 by the Value Line Investment Survey, select only the stocks that have an EPS (Earnings Per Share) score in Investor's Business Daily of at least 90, then sort those stocks by the RS (Relative Strength) score also found in Investor's Business Daily. For the portfolio, select the stocks with the highest RS ranking. Ties are broken using the EPS score. (If you use a simultaneous dual sort, first sort by RS descending, then by EPS descending -- after selecting only the stocks with EPS above 90.) Using an annual renewal strategy, the ten-stock variation of this model has returned 34% a year while the five-stock version has returned 33% per year since 1987. These impressive returns have been accompanied by very high inter-year volatility, however. A more complete backtest, for various holding periods, is in the works and will be published as soon as it is available.
Keystone:
Starting with all of the domestic (Domicile Code = US) stocks ranked Timeliness 1 or 2 by the Value Line Investment Survey, narrow the field to the 30 stocks with the largest Market Capitalization. Of those thirty choose the stocks with the highest Total Return (26 week).
KeystoneEPS:
This screen begins with the top 10 stocks selected by the Keystone screen above. Number the top 10 Keystone stocks from 1-10. Sort these 10 again by 12-Month % EPS Chg Latest Q and renumber them from 1-10, retaining the old ranks. Add the two rankings together and sort ascending (lowest at the top) on the combined rank. To break ties, use the Total Return (26 week) value (higher return equals a lower (better) rank).
Keystone100:
Starting with all of the stocks (domestic and international) ranked Timeliness 1 or 2 by the Value Line Investment Survey, narrow the field to the 100 stocks with the largest Market Capitalization. Of those one hundred choose the stocks with the highest Total Return (26 week).
Annual
Returns Quar- Semi- (Jan.
Screen Monthly terly annual Annual start)
Keystone-5 25% 25% 27% 28% 28%
Keystone-10 25% 24% 24% 25% 27%
KeyEPS-5 30% 28% 29% 29% 33%
Key100-5 27% 30% 32% 31% 35%
Key100-10 24% 22% 25% 25% 28%
PEG (also
known as PEG26): For stocks ranked Timeliness 1 or 2 by the Value Line Investment Survey and with a positive Current P/E take the 25 stocks with the highest Total Return (26 week). From those, take the 10 stocks with highest Projected EPS Growth Rate. Sort these in ascending order by PEG (Current P/E divided by Projected EPS Growth Rate). Select the stocks with the lowest PEG ratios.
PEG13: For stocks ranked Timeliness 1 or 2 by the Value Line Investment Survey and with a positive Current P/E take the 25 stocks with the highest Total Return (13 week). From those, take the 10 stocks with highest Projected EPS Growth Rate. Sort these in ascending order by PEG (Current P/E divided by Projected EPS Growth Rate). Select the stocks with the lowest PEG ratios. This is identical to PEG26 except that 13 week total returns are substituted for 26 week total returns.
Annual
Returns Quar- Semi- (Jan.
Screen Monthly terly annual Annual start)
PEG26-5 38% 37% 36% 29% 41%
PEG26-10 30% 29% 30% 26% 38%
PEG13-5 58% 33% 31% 28% 25%
PEG13-10 36% 29% 26% 26% 30%
Plowback:
From the Value Line Investment Survey, select the stocks with % retained to common equity (Plowback Ratio) greater than or equal to 25%. Sort descending (highest at the top) by Market Capitalization. Select the top 20 stocks. Sort those 20 descending (highest at the top) by Total Return (26 week). Select the stocks with the highest total return
Annual
Returns Quar- Semi- (Jan.
Screen Monthly terly annual Annual start)
Plowback-5 26% 28% 30% 29% 30%
Plowback-10 24% 24% 24% 23% 24%
Relative
Strength -- IBD: Starting with all of the stocks ranked Timeliness 1 by the Value Line Investment Survey, select stocks based on the highest RS (relative strength) percentile score in Investor's Business Daily. Ties are broken using the EPS (earnings per share) score. (If you use a simultaneous dual sort, first sort by RS descending, then by EPS descending.) A complete backtest, for various holding periods, is in the works and will be published as soon as it is available.
Relative
Strength - 26 Week (RS26): Starting with all of the stocks ranked Timeliness 1 by the Value Line Investment Survey, select the stocks with the highest Total Return (26 week).
Relative Strength - 13 Week (RS13): Starting with all of the stocks ranked Timeliness 1 by the Value Line Investment Survey, select the stocks with the highest Total Return (13 week). Yep, this is identical to Relative Strength - 26 Week except it uses the 13 week total return figures.
Annual
Returns Quar- Semi- (Jan.
Screen Monthly terly annual Annual start)
RS26-5 43% 40% 36% 30% 27%
RS26-10 35% 33% 31% 26% 31%
RS13-5 50% 34% 32% 28% 24%
RS13-10 35% 28% 26% 25% 23%
Spark:
Taking all of the stocks ranked Timeliness 1, 2, or 3 by the Value Line Investment Survey, filter for the following attributes:
- Total Return (26 week) is greater than or equal to 20%
- %EPS 12-month Chg Latest Qtr is greater than or equal to 20%
- %EPS Change from Last Quarter is greater than or equal to 20%
- Estimated % EPS Change for the Fiscal Year is greater than or equal to 29%.
Sort the remaining stocks by Market Capitalization and select the top stocks.
Annual
Returns Quar- Semi- (Jan.
Screen Monthly terly annual Annual start)
Spark-5 26% 29% 28% 25% 37%
Spark-10 23% 25% 26% 22% 31%
Unemotional
Growth: Starting with all of the stocks ranked Timeliness 1 by the Value Line Investment Survey, select the stocks with the highest EPS (Earnings Per Share) score in Investor's Business Daily. Ties are broken using the RS (Relative Strength) score, also from Investor's Business Daily. (If you use a simultaneous dual sort, first sort by EPS descending, then by RS descending.) This model, one of the original Unemotional Investor screens, has been tested using a monthly holding period. A history of monthly returns is tracked and updated monthly here: Unemotional Growth History.
Notes on the Returns: To ensure accurate comparisons among holding periods, each test covers the same total number of months. Because we do not yet have the returns data from 2000, every strategy finished at some time in 1999. For example: A strategy starting in May of 1986 would end in April of 1999 and cover a full 13 years. Each strategy's end point is therefore exactly 13 years after its starting point.
For each strategy, the CAGR (Compound Annual Growth Rate) was calculated for
5- and 10-stock versions renewing every month, quarter, half year, and year.
Returns quoted in the tables above are the average for 13 portfolios
following that strategy, e.g., the PEG Quarterly Strategy is the average for
13 portfolios, the first starting at the beginning of January 1986 and
renewing in April 1986, June 1986, etc., every three months through the end
of December of 1998; the next starting in February 1986 and renewing in May
1986, July 1986, etc. through January 1999, etc. through the final portfolio
that started in December 1986, and renewed every three months ending in
November 1999.
We have data available to display the returns for each starting month
separately, but most likely the fluctuations between starting months are due
to chance. Several strategies appear to have consistently better returns when
started in January, however, so we show the January returns for annual
strategies separately. (The regular annual returns include all starting
months in their average.) Readers are cautioned that the January results are
not necessarily as reliable as the averaged results.
Note on monthly strategies: Before jumping into a monthly strategy, please
read this article about the possibly high costs of monthly strategies: More on Costs.
The current stocks selected by each screen are listed at Workshop Rankings. Year-to-date returns for the current year are tracked at Workshop Returns.
The following articles may be helpful for newcomers to this area:
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