The folks over at http://investor.msn.com have developed a number of strategies. One of these is called "Flare-out Growth" (FOG, for short), a large-cap momentum-based strategy, that comes in yearly traded and monthly traded ports. The FOG port for 1999 was up over 200%, but the monthly one was down about 28% in Jan 2000.I don't know what backtesting they've done. The screening criteria apparently come from a book called "Online Investing", carried by Barnes & Noble.You buy the top 4 stocks that meet the criteria. At the moment, the yearly screen at investor.msn pulls up mostly the fiber optic stocks (Harmonic, and so on).The criteria for the yearly traded port are:1. Market cap >= US$1B2. 12 mo rev >= US$10M3. price/sales >= 44. % price change over last month >= 1%5. % pr chg over last quarter >= 10%6. % pr chg over last year >= 100%7. % pr chg yr - % pr chg Q - (3 * % pr chg mo) = as high as possibleI interpret the criteria as finding relatively large companies, with some but not a lot of revenue, that seem relatively expensive (though because higher p/s ratios can be supported by healthy net margins, p/s can be a proxy for profitable companies), and that have doubled (gone up significantly) in the past year and still show some, but not a lot, of price gain recently. If you play with the math for criterion #7, you'll find that stocks with recent large moves fall to the bottom of the selection list. But criteria 4 and 5 require the stock still to be moving upwards, even if the largest movements have been in the first 9 months of the past year.I gave the criteria a whirl this morning at www.globeinvestor.com. On the price filter page, I screen for all securities with a price > $10 and meeting the criteria for yearly and quarterly price change (you can only do two on the screen). That gave me a list of 62 stocks, which I listed in market cap order, descending. About 23 stocks had a market cap of more than CDN$1.4B (Zi Corp just missed the cut; you could shade down to capture more stocks).The revenue criterion knocked out some stocks such as QLT (which I found surprising).The p/s criterion knocked out the larger, but stodgier companies, such as BCE (p/s of 3) and Rogers Comm'ns (p/s of 3.7). (I like Rogers, so I'd probably let this one slide a bit.) You calculate the p/s ratio by going to the financial reports filter: print out the "quarterly" page (which gives you market cap) and the "annual" page (which gives you most recent annual revenues); then do the math (market cap/rev).You use the price reports page to calculate criterion #7, but that page only gives you the 1-year price change and the monthly price change. That was good enough for me. Keeners can go to some place like bigcharts.com and get and calculate the quarter price change info. On this criterion, Ballard Power fell to the very bottom of the list, with Cognos and BCE Emergis trailing, as well.Here's the top 10 stocks (all on the TSE), ranked by criterion #7, with the Feb 4/2000 closing prices:1. JDU (JDS Uniphase) $3052. RIM (Research in Motion) $135.503. MTI.b (Microcell Telecom) $69.754. Corel (Corel) $29.205. NT (Nortel) $1716. DE (Delrina) $857. NET.a (Clearnet Commn) $59.608. DSG (Descartes Systems) $52.509. RCM.b (Rogers Cantel Mobile) $66.3510. BVF (Biovail) $84The first 3 stocks were clear winners; I don't think the quarterly term would make much difference to the order there. Corel and NT are close enough that the quarterly figure would make a difference; and I'd probably choose NT over Corel anyway. The FOG port takes the top 4 stocks, but the first 10 make an interesting port. Stocks 9 and 10 were almost identical in their item #7 score, so the quarterly figure would definitely make a difference there; and given the other wireless companies in the list, you could go for BVF to get some biochem exposure, for a touch more diversification.I note the similarities with Crapshooter's Key-TSE portfolio. I'm tempted to put some real money into these things (I hold a small position in JDU already). But then the voice in my head wonders whether this momentum-driven market will come crashing to the ground one day, perhaps this year.Don
Don,I'd really like to thank you for your efforts to devise new screens. It will be very interesting, over the coming year, to monitor how the various screens developed on this board perform in relation to each other and the overall market. Hopefully, we can continue to work together to find a way to make our Canadian investments perform as well or better than our U.S. investments. With the lower value, generally, of the Canadian stock market, I believe we should be able to outperform the U.S. markets, with carefully chosen stock criteria.You use the price reports page to calculate criterion #7, but that page only gives you the 1-year price change and the monthly price change. That was good enough for me. Keeners can go to some place like bigcharts.com and get and calculate the quarter price change info. First of all, I have found Yahoo's Historical Quote feature excellent for calculating returns for any time period:http://chart.yahoo.com/dUsing this for JDS Uniphase:http://chart.yahoo.com/t?a=11&b=05&c=99&d=02&e=06&f=00&g=d&s=jdu.to&y=0&z=quickly gave me a closing price 3 months ago of $144.35, already in Canadian dollars, already adjusted for splits and dividends. Isn't the internet great? What could be easier? This allows us to calculate a 3 month return for JDS of 111.29%......Whoa!Just in case we have any mathematically challenged readers, subtract 3 month ago price from today's price ($305.00-$144.35) and divide this difference by the 3 month ago price ($160.65/$144.35=1.1129).The FOG port takes the top 4 stocks, but the first 10 make an interesting port. My personal preferance is a 5 stock screen. This gives a reasonable amount of diversification, with an equally reasonable amount of concentration on the higher picks. Note of interest: a 4 stock choice for my KEY-TSE when I purchased it in December would have left out BCE Emergis, the screens best performer, up 138.56% so far. Definetly could be a one-time fluke, and I consider myself very fortunate for the way things are going.I note the similarities with Crapshooter's Key-TSE portfolio. I'm tempted to put some real money into these things (I hold a small position in JDU already). But then the voice in my head wonders whether this momentum-driven market will come crashing to the ground one day, perhaps this year.I understand your fears, totally. This is why the vast majority of investors will never adopt Mechanical Investing as a way of life, even though it has been widely known for decades by investing professionals that relative strength works as a way to pick winning stocks. Momentum has driven returns for this method to unbelievable heights recently, but the longer term returns have consistently beaten the market averages.There are two threads on the MI board started by Peter Kuperman, who is continuing to do some intensive research which is way beyond my level of knowledge on these matters. I encourage everyone on this board who is interested in "Beating the TSE" using mechanical screens to read the posts in these two threads:1973-74 and 1981-82: Keystone http://boards.fool.com/Message.asp?id=1030013009284000&sort=id1969-85: RS in Bear Markets http://boards.fool.com/Message.asp?id=1030013009343000Fool On!Crapshooter
Don and Crap,You guys are awesome. I'm interested in using MI in my RRSP, but there just ain't enough information, so I applaud your gung ho attitude. I'm waiting to cash out some options and will probably plunk some of that into Don's FOG or the TSE-RS.Thanks again.mondoPS. to Crap, the UA almost named their party after you! (Conservative Reform Alternative Party-CRAP)
Using the Yahoo historical quotes section, pointed out by Crapshooter (thanks, Crap! that's a great resource), I ran the quarterly numbers for the FOG port item #7 term. It was a good exercise, because of the unusually strong runup during the past quarter (basically Nov 1 to Jan 31). As I expected, the first 3 picks didn't change, but there are some interesting changes to the lower-placed picks. Here's the revised port, again ranked by criterion #7, from top to bottom:1. JDU2. RIM3. MTI.b4. DE5. NT6. NET.a7. RCM.b8. BVF8. CORAs expected, NT pushed ahead of COR, given that COR's increase has been generated almost entirely over the last quarter. However, I was surprised to see DE (164.9) beat out NT (134.7). And note that DSG has dropped off the list entirely; it actually finished with the lowest score (-805), because it scored a 10-bagger gain over the last quarter. (Wish I were there for that!)Don
You guys are awesome. I'm interested in using MI in my RRSP, but there just ain't enough information, so I applaud your gung ho attitude. I'm waiting to cash out some options and will probably plunk some of that into Don's FOG or the TSE-RS.For aggressive investors, a gung ho attitude is really paying off, at least right now. A reasonable percentage of an individuals portfolio invested mechanically is not, IMHO, an outragiously risky move. I believe it is very important, however, to diversify your MI investment between at least 5 stocks. In other words, the top 5 positions on a screen. If one or two happens to have been making a top when you were purchasing it, the others should pull up the slack.Due to the seasonality of the market, meaning the market in general makes the largest moves from Nov-April, I believe the time is NOW to start a screen. High relative strength stocks tend to outperform all year long, even in weak market periods, but their outperformance during up markets is huge.These are my own personal opinions, for those who are able to withstand a good deal of market volatility with the hopes of outsized returns. If you have trouble sleeping at night, stay away or only invest a tiny percentage of your port in growth stocks.PS. to Crap, the UA almost named their party after you! (Conservative Reform Alternative Party-CRAP) I would have been honored :) I personally support whole-heartedly the attempt to unite the right, even though I belong to two unions. I hate the Liberals and I want them out on their free-spending A$$.Crap
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