Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev | Next
Author: elann Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 33167  
Subject: Foolish Workshop FAQ Date: 5/5/2001 12:52 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 81
Frequently Asked Questions

Table of Contents

1) What is the Workshop? What kinds of investment strategies are employed here?
2) How do I choose the right screen(s) for me?
3) When should I start?
4) How do I know which stocks to buy?
5) How long should I hold each screen?
6) How should I rebalance my portfolio?
7) What is the minimum amount I should have to start investing in the Workshop screens?
8) What can I do if I don't have enough money to start?
9) What is the PEG screen? How does it work?
10) What were the historic back tested returns of the PEG screen?
11) What is the Spark screen? How does it work?
12) What is the Keystone screen? How does it work?
13) Where can I get basic information about options?
14) Do I need to hold an investment for 18 months to benefit from the long-term capital gains tax rate?
15) I want to spread my investments over several screens. Is there a recommended allocation?
16) Is Workshop related information available elsewhere on the web?
17) I read about Unemotional Growth in the book The Unemotional Investor and would like to start. What should I do?
18) I'm interested in the Unemotional Value / Foolish Four / Dow Dividend / RP4 method. Where can I find out about it?
19) What are the Most Appearances screen and the Screen of Screens?
20) I'd like to perform my own backtests of screening ideas. Where can I find the data?
21) People are always refering to CAGR and GSD. What do they mean? How are they calculated?
22) Your messages are full of unfamiliar acronyms. Where can I find out what they mean?
23) Can you tell me the exact definition of such-and-such screen?
24) Glossary of terms

1) What is the Workshop? What kind of investment strategies are employed here?

In a nutshell, the Foolish Workshop is about mechanical investing strategies. We use computer-based stock screening methods to identify lists of stocks for purchase. The Workshop approach is to buy the stocks without further investigation, hold for a set time period, then cycle and repeat. We rely strongly on back testing the strategies as far back as there is data available, which is at least 12 years for any acceptable screen.

A comprehensive and very well written Guide to New Fools was created by David Trammel (LAPropDoc)-

Part 1 - So I'm here, now what?
http://boards.fool.com/Message.asp?id=1030063003042001

Part 2 - Is Mechanical Investing for me?
http://boards.fool.com/Message.asp?id=1030063003042002

Part 3, a fairy tale about risk - with dragons but no fairies -
http://boards.fool.com/Message.asp?id=1030063003042003

Part 4 - Basic planning before we start:
http://boards.fool.com/Message.asp?id=1030063003042004

Here are a couple of TMF articles that explain what mechanical investing is all about:
http://boards.fool.com/Message.asp?mid=14897831
http://www.fool.com/ddow/1999/ddow990830.htm

2) How do I choose the right screen(s) for me?

Moe Chernick published an excellent three part series on Which Screens to Use.
You can find it here:
Part 1 http://boards.fool.com/Message.asp?mid=14897920
Part 2 http://boards.fool.com/Message.asp?mid=14897961
Part 3 http://boards.fool.com/Message.asp?mid=14897984

3) When should I start?

This is probably the most frequently asked question by beginning Workshop participants. The most common answer is - as soon as you have the money.
Most Workshop screens were first tested with an early January start. Some have been tested with quarterly starts, in January, April, July, and October. A few have been tested starting each month. The results vary to some degree by starting period, and a January start usually looks best. But the potential gains foregone by waiting for the "ideal" starting time are usually not justified.

Other people ask - "Do I have to start on the first of the month?", "...on the first Friday of the month?", "...on the first Monday after the first Friday of the month?". The answer is no. You may start on any day of the month or year and it probably won't make a difference. The back testing followed a particular fixed starting date cycle to maintain consistency. In your own portfolio it is most important to maintain discipline and hold your stocks for the period you had originally planned, regardless of market conditions.

4) How do I know which stocks to buy?

The list of stocks for each screen is updated weekly on Friday afternoons. You can find most of the screens here -
http://www.phillysites.com/screens/accdis.htm
Ten stocks are usually listed. If the strategy says to buy 5 stocks then buy the top five on the list.
Other screens are listed on some people's web sites which are listed under another question in this FAQ.

5) How long should I hold each screen?

Various screens have been back tested for various holding periods, one year, six months, three months, or one month. Quarterly or semi-annual holding may produce slightly better results than annual holding, before taxes are considered. In a taxable account it is usually better to hold for a year and a day to benefit from the lower capital gains tax rate. In a tax preferred account (e.g. IRA) the holding period may be shortened. A few screens were tested for monthly holding with good results, but watch out for those commission costs if you're investing a modest amount.

A series of Workshop articles addressed the impact of trading costs and taxes on screen returns.
http://boards.fool.com/Message.asp?mid=14900219
http://boards.fool.com/Message.asp?mid=14900223
http://boards.fool.com/Message.asp?mid=14900234

Study the particular returns and volatility of your preferred screen as a function of holding period before making your decision.

6) How should I rebalance my portfolio?

When holding a screen for a fixed period of time, rebalancing is easy. In principle you sell all the old stocks and buy the new stocks on the list in equal dollar amounts (not equal share numbers). A complication may arise when a stock remains on the list from one period to the next. That stock may have grown out of proportion to the rest of the portfolio. The back-tested solution is to sell a portion of that holding to bring it back into balance with the other stocks. You don't have to be too picky about it. It's OK to bring each position to within 5%, let's say, of its exact proportion.

Some people like to let their winners run. That is, if your winning stock is still on the screen at rebalancing time, you keep it all and you buy smaller amounts of the other stocks. It's a popular method because many people tend to fall in love with their winning stocks. This strategy may or may not pay off. It hasn't been back tested with various screens.

7) What is the minimum starting amount for Workshop investing?

As a general rule of thumb it's good to keep transaction costs, primarily brokerage commissions, at no more than 1% to 2% of your portfolio value per year. With discount commissions around $10 per trade, an annual turnover (one sale and one purchase) of a $1000 investment per stock would cost 2%. So a good beginning amount for a 5 stock portfolio is $5000. If you trade more frequently, like semi-annually, quarterly, or monthly, your commission costs will rise in proportion. With many screens the improved return of a monthly reinvestment compared to annual may be wiped out by the commission costs. See more information under Question 5.

8) What can I do if I don't have enough money to start?

You may consider investing in an index fund or buying Spyders (SPY) which are similar to an index fund. Spyders should be bought in $1000 increments to keep down your commission costs.
If you're risk tolerant and would not be discouraged by possible large drops in your portfolio value, you may consider buying just two or three stocks from one of the screens as a starting point.
Another possibility is a Dozens approach as described here -
http://boards.fool.com/Message.asp?mid=14897787
You might also consider DRIP investing if you have relatively small amount to add regularly to your portfolio. There is an area dedicated to DRIP investing at the Motley Fool -
http://www.fool.com/DRIPPort/DRIPsIntroduction.htm

9) What is the PEG screen. How does it work?

The PEG screen uses the Value Line list of stocks with Timeliness rankings of 1 or 2. It looks for stocks with good recent price appreciation (relative strength), good projected earnings growth, and a good PEG ratio. The PEG ratio used by this screen is similar to the Fool Ratio, which is described here -
http://www.fool.com/FoolFAQ/FoolFAQ0019.htm

Moe Chernik invented the PEG screen in summer 1998. He has written an excellent series of articles describing this method -
http://boards.fool.com/Message.asp?mid=14897874
http://boards.fool.com/Message.asp?mid=14897893
http://boards.fool.com/Message.asp?mid=14897944

10) What were the historic back tested returns of the PEG screen?

Moe Chernik provided the historic returns in this message and the next three immediately after it:
http://boards.fool.com/Message.asp?id=1030063000009000&sort=postdate

MakeItJake has performed an extraordinary analysis of the PEG screen returns using resampling techniques. The results are explained in detail in the thread beginning here (including a reference to his earlier explanation of the method):
http://boards.fool.com/Message.asp?id=1030013006885000 Caution: This is heavy reading!

11) What is the Spark screen. How does it work?

The Spark5 screen, which was introduced by a Workshop participant named Sparfarkle in 1998, uses the Value Line list of stocks with Timeliness rankings 1,2 or 3. It looks for stocks with good recent price appreciation (relative strength), good past and projected earnings growth, and a large market cap. The screen was tested with a one year holding period.

A list of Workshop messages about the Spark screen can be found here -
http://boards.fool.com/Message.asp?id=1030013005543000

12) What is the Keystone screen. How does it work?

The Keystone screen was developed and tested by Robert Sheard when he was the official Foolish Workshop guru. It starts with U.S. based stocks ranked 1 or 2 for Timeliness by Value Line. The 30 largest companies by market cap are sorted by 26-week total return, and the top 5 or 10 are purchased. The screen was tested with a one year holding period.

Another variation is Keystone-EPS. It uses the top 10 Keystone stocks and does a final sort by a combination of relative strength and recent EPS growth. This screen, which was tested with a one-year holding period, improves on the performance of the traditional Keystone screen.

13) Where can I get basic information about options?

Here are good starting points:
http://www.fool.com/FoolFAQ/foolfaq0055.htm
http://www.cboe.com/education/

Once you have studied the basics you may want to learn about the specific option strategies used by Workshop message board participants. This message will lead you to some of the best message threads on the subject:
http://boards.fool.com/Message.asp?id=1030013005541000

Finally, Sandy Stalberg has written a six part series entitled 6/3 Options for Dummies on the Mechanical Investing board. The link is to part 6, which contains links to the other parts:
http://boards.fool.com/Message.asp?id=1030013011946005

14) Do I need to hold an investment for 18 months to benefit from the long term capital gains tax rate?

The tax laws provided two categories of long-term capital gains tax in 1997. The lowest rate applied for investments held more than 18 months. A higher rate applied for investments held more than 12 months, up to 18 months. In 1998 the law was changed. Now the single lower tax rate applies for any stocks held more than 12 months.

15) I want to spread my investments over several screens. Is there a recommended allocation?

There is no "official" recommendation. The optimal mix of screens depends on your personal situation, such as your own tolerance for risk. If you are to invest a whole portfolio in Workshop screens it is prudent to spread over a number of screens so that you hold a total of at least 10 or 12 stocks. Some Fools have investigated optimal screen allocations. Here are a few examples:
http://boards.fool.com/Message.asp?id=1030013004831000
http://boards.fool.com/Message.asp?id=1030013006394036
Note that in the above message the key to screen names is at the bottom. The combinations are listed with the "best" at the left.

16) Is Workshop related information available elsewhere on the web?

Several Workshop contributors maintain sites with a wealth of information:

Brian Finney's site includes an awesome back testing tool and very timely updates of many screen rankings on Friday afternoons -
http://www.phillysites.com/foolishness/

Jamie Gritton's site provides a variety of back tests of the basic strategies, "overlap" strategies, screen-of-screens strategies, and blends of screens -
http://www.gritton.org/ws/

FoolishlyFree has put together a collection of links to Mechanical Investing board messages classified by subject. It is a work in progress - not all headings are populated - but it can help you quickly find significant posts by subject.
http://www.e-Possibilities.com/TMF/

Sux2BeU's personal web site is loaded with information, including all the data he used to support his Soapbox article and several backtests. The information is available for download to all -
http://members.fortunecity.com/jmsellers/

David Compton(monkban) has put together a Practical Resources site with links to several other user sites. It's a good one to bookmark so that you can easily find the others -
http://www.davidcompton.com/MI_update.html

oitsubob's site contains many useful links -
http://www.qis.net/~manymice/foolweb/index.htm

jjackel's site includes the Workshop Hall of Fame - a very extensive list of mechanical screen summaries, many of which are seldom if ever discussed on the Workshop web site or message boards. If you're looking for a never-heard-of screen, this is the place to find it. There is also a data library with a wealth of downloadable spreadsheets, if you want to see the back test results for yourself. -
http://www.jjackel.com/

17) I read about Unemotional Growth in the book The Unemotional Investor and would like to start. What should I do?

Unemotional Growth is one of the oldest, and most volatile, of the Workshop screens. It was originally tested with good returns but the last two years have not been profitable with this strategy. Most Workshop participants would not recommend it. Before investing in UG, study a few other screen possibilities. You'll find some that have historic returns that are as good or better, with much less volatility.

18) I'm interested in the Unemotional Value / Foolish Four / Dow Dividend / RP4 method. Where can I find out about it?

All of these are variations or different names for the Dogs of the Dow strategy. It is the granddaddy of mechanical investing strategies. Here at The Motley Fool we have a separate area dedicated to the Dow strategy. Go here to find out all about it -
http://www.fool.com/DDow/FoolishFourExplained.htm

19) What are the Most Appearances screen and the Screen of Screens?

Both are ideas involving a selection of the "pick of the crop" from among a collection of Workshop screens. The Most Appearances screen has been tracked with periodic articles in the Workshop area. This is the latest article as of this writing -
http://boards.fool.com/Message.asp?mid=14897855

A similar idea is called Unique 3 and is explained in the screen definitions below. It is tracked on jjackel's web page -
http://www.geocities.com/WallStreet/District/2148/index.html

Other Screen of Screen ideas are listed weekly on the Mechanical Investing board. None of these ideas have been back tested because the underlying screens have not all been back tested.

20) I'd like to perform my own backtests of screening ideas. Where can I find the data?

Comprehensive and reliable data for backtesting is difficult to come by. Most Workshop screens were originally tested with back issues of Value Line for DOS and Value Line for Windows. These products were available beginning in 1986, which is as far as most backtests can go. Value Line has sold old monthly disks and CDs by special request to a few of the Workshop participants.

Early in 1999 a product called Q-Investor was available for sale. It was specifically designed for backtesting - a good concept with somewhat questionable data quality. The company that offered it has since gone out of business.

Compustat is a comprehensive commercial database available for sale. It is mostly offered to professional investment managers and carries a hefty price.

CRSP - the Center for the Research of Security Prices, is a non-profit organization supporting academic research at business schools. Faculty and students at business schools can gain access to the CRSP database for academically related work.

Many quote engines provide historic price data but are very difficult to use for comprehensive backtesting.

Several people in the Workshop have collaborated to collect data for backtesting going back as far as 1969. A handful of people are "guardians" of the results of this collaborative effort and publish backtest results for everyone's benefit. The raw data, however, is not widely available.

21) People are always refering to CAGR and GSD. What do they mean? How are they calculated?

A good summary of these terms can be found in a message by heinrichd -
http://boards.fool.com/Message.asp?mid=13143864

22) Your messages are full of unfamiliar acronyms. Where can I find out what they mean?

Acronyms that are specific to the Foolish Workshop are defined in the Glossary below. If you find one that isn't listed please alert us and we will add it. There are also many acronyms and abbreviations that have become popular on the Internet. One of the web sites that lists such acronyms is -
http://www.acronymfinder.com

23) Can you tell me the exact definition of such-and-such screen?

Sure. These definitions were taken from the work of Jack Cade:


ACCDIS [Accumulation/Distribution IBD]

1) Select stocks with Value Line Timeliness = 1.
2) Sort descending (A at the top, E at the bottom) by IBD'saccumulation/distributing rating;
3) Secondarily sort descending (highest at the top) by IBD's Relative Strength rank;
4) To break ties, perform a tertiary sort descending (highest at the top) by IBD's EPS [Earnings per Share] rank.
5) Buy the top 5 in equal dollar amounts;


AD [Accumulation/Distribution IBD]

1) Select stocks with Value Line Timeliness = 1.
2) Select stocks with Accumulation/Distribution rank [AD] = A or B (from Investor's Business Daily [IBD]) and Relative Strength (from IBD) > 92;
3) Omit stocks that have no Projected EPS Growth from ValueLine;
4) Sort descending (highest at the top) by AD rank and secondarily sort descending (highest at the top) by Projected EPS Growth with a tertiary sort descending (highest at the top) by IBD's Relative Strength rank.
5) Buy the top 2, 4, 5, or 10 in equal dollar amounts;


BETA

1) Select stocks with Timeliness = 1 from the Value Line database;
2) Sort descending (highest at the top) by beta;
3) Buy the top 5 or 10 stocks;


BLITZ

1) Sort the ValueLine database descending (highest at the top) by Market Capitalization;
2) Select the top 100 stocks;
3) From those, select the ones with Timeliness < 3;
4) Sort them descending (highest at the top) by 26-Week Total Return;
5) Select the top 5 or 10 stocks and buy equal dollar amounts;


CATCHRS

1) Select stocks with Value Line Timeliness Rank = 1;
2) Select those with "% Retained to Common Equity" [plowback ratio] > 10 and "Projected EPS Growth" > 15 and "5 Year Total Return" > 20.
3) Sort descending (biggest at the top) by RS [relative strength rank] from Investor's Business Daily [IBD] and secondarily sort descending (biggest at the top) by IBD's EPS rank;
4) Buy equal dollar amounts of the top 5 or 10 stocks;


EG [Earnings Growth]

1) Select companies with Timeliness = 1 or 2 from the Value Line database;
2) Sort descending (highest at the top) by 26 Week Total Return;
3) Select top 25 stocks;
4) Sort descending (highest at the top) by Projected EPS Growth;
5) Buy the top 5 stocks in equal dollar amounts;


EGRSW [Earnings Growth using RSW]

1) Select companies with Timeliness = 1 or 2 from the Value Line database;
2) Sort descending (highest at the top) on a variable called RSW [relative strength, workshop] created by this formula: 0.4*13 Week Total Return + 0.3*26 Week Total Return + 0.3*1 Year Total Return;
3) Select the top 25 stocks;
4) Sort descending (highest at the top) by Projected EPS Growth;
5) Buy the top 5 stocks in equal dollar amounts;


FORM90 [Formula 90]

1) Select stocks with Value Line Timeliness Rank = 1;
2) Select those with Earnings per Share [EPS] rank (from Investor's Business Daily [IBD]) > 89;
3) Sort descending (biggest at the top) by IBD RS;
3) To break ties, secondarily sort descending (biggest at the top) by IBD's EPS rank;
4) To break any remaining ties, I do a tertiary sort on "projected EPS growth," though this is not part of the official screen.
5) Buy equal dollar amounts of the top 5 or 10 stocks;


IFG [Investing for Growth Classic]

1) From the ValueLine High Growth Stocks database, select stocks with Timeliness Rank = 1; Note: This list appears on page 39 of Value Line's Summary and Index section, available in the paper version or downloadable from Value Line as a PDF file.
2) Sort ascending (lowest at the top) by "Industry Rank" and secondarily sort descending (highest at the top) by "Proj EPS Growth Rate";
3) To break ties, do a third sort by "10-Year Total Return" (descending, highest at the top); this third sort is needed rarely, if ever.
4) Buy equal dollar amounts of the top 5 or 10 stocks;


IFGRS [Investing for Growth Relative Strength]

1) From the ValueLine High Growth database, select stocks with Timeliness Rank = 1;
2) Sort descending (highest at the top) by "26-week Total Return";
3) To break ties, secondarily sort descending (highest at the top) by "Est. % EPS Chg. FY";
4) To break ties, do a tertiary sort by "EPS Trail 12 Mo" (descending, highest at the top).
4) Buy equal dollar amounts of the top 5 or 10 stocks;


KEYSTONE

1) Select stocks with Value Line Timeliness Rank = 1 or 2 and Domicile = US;
2) Sort descending (highest at the top) by Market Capitalization;
3) Select the top 30 stocks;
4) Sort those 30 descending (highest at the top) by 26-Week Total Return;
5) Select the top 5 or 10 stocks and buy equal dollar amounts;


KEY100

1) Select stocks with Value Line Timeliness Rank < 3;
2) Sort descending (highest at the top) by Market Capitalization;
3) Select the top 100 stocks;
4) Sort those 100 descending (highest at the top) by 26-Week Total Return;
5) Select the top 5 stocks and buy equal dollar amounts;


KEYRSW [Keystone using RSW]

1) Select stocks with Value Line Timeliness Rank = 1 or 2 and Domicile = US;
2) Sort descending (highest at the top) by Market Capitalization;
3) Select the top 30 stocks;
4) Sort those 30 descending (highest at the top) on a variable called RSW [relative strength, workshop] created by this formula: 0.4*13 Week Total Return + 0.3*26 Week Total Return + 0.3*1 Year Total Return;
5) Select the top 5 or 10 stocks and buy equal dollar amounts;


KEYEPS [Keystone with EPS]

1) Select stocks with Value Line Timeliness Rank = 1 or 2 and Domicile = US;
2) Sort descending (highest at the top) by Market Capitalization;
3) Select the top 30 stocks;
4) Sort those 30 descending (highest at the top) by 26-Week Total Return;
5) Select the top 10 stocks and assign a ranking, 1-10, to each;
6) Sort these 10 again by "12-Month % EPS Chg Latest Q" and assign a ranking, 1-10, to each;
7) Add the two rankings together and sort ascending (lowest at the top) on the combined rank; to break ties, secondarily sort on 26-Week Total Return rank.
8) Select the top 5 or 10 stocks and buy equal dollar amounts (Note that the top 10 are identical to the top 10 of Keystone).


LOWPSR [Classic Low Price-to-Sales Ratio]

1) Select companies with Timeliness = 1 from the Value Line database;
2) Select those with price to sales ratio [PSR] < 1.5;
3) Select those with "EPS Growth 1 Yr" > 0;
4) Sort descending (highest at the top) by 26 Week Total Return;
5) Buy the top 5 or 10 stocks in equal dollar amounts;


LOWPSRJL [LPS1&2 (Low Price to Sales 1&2)]

1) Select companies with Timeliness = 1 or 2 from the Value Line database;
2) Select those with price to sales ratio [PSR] < 1.5;
3) Select those with "EPS Growth 1 Yr" > 0;
4) Sort descending (highest at the top) by 26 Week Total Return;
5) Discard the top-ranked stock.
6) Buy the top 5 stocks in equal dollar amounts;


LPSJLRSW [Low Price to Sales 1&2 with RSW]

1) Select companies with Timeliness = 1 or 2 from the Value Line database;
2) Select those with price to sales ratio [PSR] < 1.5;
3) Select those with "EPS Growth 1 Yr" > 0;
4) Sort descending (highest at the top) on a variable called RSW [relative strength, workshop] created by this formula: 0.4*13 Week Total Return + 0.3*26 Week Total Return + 0.3*1 Year Total Return;
5) Discard the top-ranked stock.
6) Buy the top 5 stocks in equal dollar amounts;


PEG26 (formerly known as PEG5)

1) Select stocks with Timeliness of 1 or 2 from the Value Line database;
2) Select stocks with "current P/E ratio" [PE] > 0;
3) Sort (descending, highest at the top) by 26 Week Total Return);
4) Select the top 25 stocks;
5) Sort those 25 (descending, highest at the top) by Projected EPS Growth and secondarily sort them ascending (lowest at the top) by a user defined variable (called PEG) created by dividing "current P/E ratio" by "Projected EPS Growth Rate";
6) Select the top 10 stocks and sort them (ascending, lowest at the top) by PEG.
7) Buy the top 4 or 5 stocks;


PEG13

1) Select stocks with Timeliness of 1 or 2 from the Value Line database;
2) Select stocks with "current P/E ratio" [PE] > 0;
3) Sort (descending, highest at the top) by 13 Week Total Return);
4) Select the top 25 stocks;
5) Sort those 25 (descending, highest at the top) by Projected EPS Growth and secondarily sort them ascending (lowest at the top) by a user defined variable (called PEG) created by dividing "current P/E ratio" by "Projected EPS Growth Rate";
6) Select the top 10 stocks and sort them (ascending, lowest at the top) by PEG.
7) Buy the top 4 or 5 stocks;


PEGRSW

1) Select stocks with Timeliness of 1 or 2 from the Value Line database;
2) Select stocks with "current P/E ratio" [PE] > 0;
3) Sort (descending, highest at the top) by RSW, a variable created by this formula: 0.4*13 Week Total Return + 0.3*26 Week Total Return + 0.3*1 Year Total Return;
4) Select the top 25 stocks;
5) Sort those 25 (descending, highest at the top) by Projected EPS Growth and secondarily sort them ascending (lowest at the top) on a user defined variable (called PEG) created by dividing "current P/E ratio" by "Projected EPS Growth Rate";
6) Pick the top 10 stocks and sort them ascending (lowest at the top) by PEG.
7) Buy the top 4 or 5 stocks;


PEG Overlap

1) Make 2 lists by selecting stocks according to the PEG13 and PEGRSW screens;
2) Assign rank order scores to stocks on each list (1 at the top, 10 at bottom);
3) Select stocks that appear on both lists;
4) For each selected stock, find the larger (further down the list) of the two original rank order scores and find the smaller of the two;
5) Sort (ascending) on the max rank score, with a secondary sort (ascending) on the min rank score; break ties with a third sort (ascending) on PEGRSW rank;
6) Buy as many as you like;
Note: If there are not enough overlapping stock selections, you can pad the screen by selecting the highest ranking stocks that you have not already selected from one or both screens.


PLOW26WK

1) Select stocks with "% retained to common equity" (plowback ratio) >= 25%;
2) Sort descending (highest at the top) by Market Capitalization;
3) Select the top 20 stocks;
4) Sort those 20 descending (highest at the top) on 26 Week Total Return.
5) Select the top 5 or 10 stocks and buy equal dollar amounts;


PLOWBKLD

1) Select stocks with "% retained to common equity" (plowback ratio) >= 25% and "Debt as a % of Capital Latest Q" <= 40;
2) Sort descending (highest at the top) by 26 Week Total Return;
3) Select the top 5 stocks or 10 and buy equal dollar amounts;


PLOWRSW

1) Select stocks with "% retained to common equity" (plowback ratio) >= 25%;
2) Sort descending (highest at the top) by Market Capitalization;
3) Select the top 20 stocks;
4) Sort those 20 descending (highest at the top) on a new variable called RSW [relative strength, workshop] created by this formula: 0.4*13 Week Total Return + 0.3*26 Week Total Return + 0.3*1 Year Total Return;
5) Select the top 5 or 10 stocks and buy equal dollar amounts;


ROIC [Return on Capital]

1) Select stocks with "% Earned Total Capital" (ROIC) >= 25%;
2) Sort descending (highest at the top) by Market Capitalization;
3) Select the top 20 stocks;
4) Sort those 20 descending (highest at the top) on a new variable called RSW [relative strength, workshop] created by this formula: 0.4*13 Week Total Return + 0.3*26 Week Total Return + 0.3*1 Year Total Return;
5) Select the top 5 or 10 stocks and buy equal dollar amounts;


RS13WK [Relative Strength 13-Week]

1) Select stocks with Timeliness = 1 from the Value Line database;
2) Sort descending (highest at the top) by 13-Week Total Return;
3) Buy the top 5 or 10 stocks;


RS26WK [Classic Relative Strength 26-Week]

1) Select stocks with Timeliness = 1 from the Value Line database;
2) Sort descending (highest at the top) by 26-Week Total Return;
3) Buy the top 5 or 10 stocks;


RS52WK [Relative Strength 52-Week]

1) Select stocks with Timeliness = 1 from the Value Line database;
2) Sort descending (highest at the top) by 1-Year Total Return;
3) Buy the top 5 or 10 stocks;


RSIBD [Relative Strength IBD]

1) Select stocks with Value Line Timeliness = 1.
2) Sort descending (highest at the top) by Relative Strength rank from Investor's Business Daily [IBD];
3) Secondarily, sort descending (highest at the top) by IBD's EPS [Earnings per Share] rank.
4) Buy the top 5 or 10 in equal dollar amounts;


RSW [Relative Strength, Workshop]

1) Select stocks with Timeliness = 1 from the Value Line database;
2) Sort descending (highest at the top) on a new variable called RSW [relative strength, workshop] created by this formula: 0.4*13 Week Total Return + 0.3*26 Week Total Return + 0.3*1 Year Total Return;
3) Buy the top 5 or 10 stocks;


RS Overlap

1) Select stocks with Value Line Timeliness Rank = 1;
2) Make 2 lists: one sorted (descending) by Total Return 13 Week and another sorted (descending) by Total Return 26 Week;
3) Select the top 25 from each list;
4) Assign rank order scores to stocks on each list (1 at the top, 25 at bottom;
5) Select stocks that appear on both lists;
6) For each selected stock, find the larger (further down the list) of the two original rank order scores and find the smaller of the two scores;
7) Sort (ascending) on the max rank order score, with a secondary sort (ascending) on the min score and a third sort (ascending) on 26-week total return rank;
8) Buy as many as you like;
NOTE: Other variations of the overlap may cut off the two screen lists at less than 25 stocks.

SPARK5

1) Select stocks with Timeliness of 1, 2 or 3 from the Value Line database;
2) Select stocks with 26-week Total Return >= 20%;
3) %EPS 12 month change latest qtr >= 20%;
4) EPS Growth Last Qtr >= 20% ;
5) Est. % EPS change FY >= 29%.
6) Sort descending (highest at the top) by Market Capitalization.
7) Buy the top 5 stocks in equal dollar amounts;


SPARKRSW [Spark5 using RSW]

RSW [relative strength, workshop] is a variable created by this formula:
0.4*13 Week Total Return + 0.3*26 Week Total Return + 0.3*1 Year Total Return.

1) Select stocks with Timeliness of 1, 2 or 3 from the Value Line database;
2) Select stocks with RSW >= 20% ;
3) %EPS 12 month change latest qtr >= 20% ;
4) EPS Growth Last Qtr >= 20% ;
5) Est. % EPS change FY >= 29%.
6) Sort descending (highest at the top) by Market Capitalization.
7) Buy the top 5 stocks in equal dollar amounts;


UG [Unemotional Growth]

1) Select stocks with Value Line Timeliness = 1.
2) Sort descending (highest) at the top) by EPS rank from Investor's Business Daily [IBD];
3) Secondarily, sort by Relative Strength rank [RS] from IBD;
4) Buy the top 5 or 10 in equal dollar amounts;


UNIQUE3

1) On the first of each month, run all official Workshop screens and retain the # of stocks in parentheses [currently
rsibd(10); rs26wk(10); spark(10); peg(10); beta(10); lowpsr(10); ifg(10); form90(10); ug(10); and keystone(30)];
2) If a stock appears in both rs26wk and rsibd, count that as only one appearance;
3) Pick stocks that are selected by 3 or more unique screens;
4) Buy all in equal dollar amounts;


24) Glossary of terms

Ask price - The price at which the market maker is willing to sell you a stock. i.e. your buying price.
Back Test - The process of simulating a screen's performance several years back as a way of evaluating its potential future performance. Past performance is no guarantee of future performance, of course.
BI (Benchmark Investing) - A mechanical investing strategy for Dow stocks, based on Kenneth Lee's book Trouncing the Dow.
Bid price - The price at which the market maker is willing to buy a stock from you, i.e. your selling price.
BSP (Beating the S&P) - A mechanical investing strategy involving large cap stocks that are not in the Dow index. It is fashioned after the Dow Dividend approach.
CAGR - Compounded Annual Growth Rate. The cumulative growth rate of an investment over a period of time, expressed as an annualized rate.
Call option - The option to buy a stock at a given price on or before a given date.
Compustat - A commercial database of historical stock information for research purposes. Very thorough and very expensive.
CRSP - Center for Research of Security Prices. An academic database of historic stock information for research purposes, available to faculty and students of business schools. Very thorough and free if you've got the access.
Crystal Ball Effect / Survivorship Bias - Terms commonly used in the Workshop to describe a screen that uses information that would not have been available during the tested period. Such bias may cause a screen to perform better in the test than it would have historically.
Curve Fitting / Data Mining - Terms commonly used in the Workshop to describe a screen that has been artificially fitted to the historic data to produce superior past results. Excessive data mining or curve fitting is likely to produce a screen which will not perform as well in the future.
Downside deviation - A one-sided measure of the variance of a sample of data which considers only points below a cutoff value.
Downside risk - A measure of investment risk based on downside deviation. It assumes that volatility is associated with risk, but an investor is concerned with volatility only when it is to the downside.
EPS - Earnings Per Share.
EPS ranking - A percentile ranking provided by IBD for all stocks in their "universe", ranked by recent EPS growth.
Foolish Four (FF) - A mechanical investing strategy based on the current dividend yield and price of Dow stocks.
GSD - Geometric Standard Deviation - A term invented by the Workshop participants. We commonly model screen returns assuming a log-normal distribution. The average of log-returns is equivalent to the CAGR of a screen. The standard deviation of the log-returns can be converted back into a measure of the distribution of returns, expressed as a percentage. We call this measure the geometric standard deviation.
IBD - Investors Business Daily - a daily financial newspaper that provides useful information for some of the Workshop stock screens.
LEAPS - Long term Equity AnticiPation Securities - the same as stock options, except that they are issued with expiration dates of a year or more.
Mechanical Investing board - A message board dedicated to research and discussion of advanced Workshop strategies. Go there for the cutting edge stuff. Come to the Foolish Workshop board for the How-to and What-to questions.
PEG ratio - The ratio of current PE to projected earnings growth. Used in some of the Workshop screens.
Q Investor (QI) - A commercial database and back testing tool for stock screens. Excellent idea. Unfortunately the company went out of business.
Relative strength (RS) - A measure of the recent price appreciation of a particular stock compared to all other stocks.
RS-IBD - A relative strength measure invented and provided by IBD.
RSW - A relative strength measure that resembles RS-IBD but relies only on information available in Value Line.
RS13 - Relative strength based on price appreciation over the latest 13 weeks.
RS26 - Relative strength based on price appreciation over the latest 26 weeks.
Sharpe ratio - A measure of portfolio risk invented by Nobel laureate William Sharpe. It uses the differential return between a portfolio and a risk-free investment. The Sharpe Ratio is the ratio between the average of differential returns and the standard deviation of those differential returns.
Screen of screens (SOS) - A screen that is based on a combination of Workshop screens, using either the number of appearances or cumulative ranking of each stock in the set of screens.
Sigma - The common symbol for standard deviation. 1 Sigma is a distance of one standard deviation from the mean, etc. For a Normal distribution, the population density above 1 Sigma is 15.87%, above 2 Sigma is 2.275%, and above 3 Sigma is 0.135%
Spyders (SPY) - SPDR - Standard & Poors Depositary Receipts - A synthetic "stock" that tracks the value of the S&P500 index.
Standard deviation - A statistical measure of the dispersion of a sample around its mean.
Strike price - The price at which the holder of a call option may buy, or the holder of a put option may sell, the underlying stock on or before the option's expiration date.
Timeliness - the rank of a stock's probable relative market performance in the year ahead, provided in the Value Line Investment Survey. Timeliness is used in many of the Workshop screens.
VL (Value Line) - A stock research company that publishes the Value Line Investment Survey - a database of historic and future estimated stock information.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev | Next

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Post of the Day:
Apple

Wal-Mart Nixes Apple Pay
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement