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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 212805  
Subject: Re: Influence on ROE in Investing returns Date: 10/6/2012 7:23 AM
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So if one were to look at your data, what would the value of X be?
Perhaps the value that eliminates the bottom 10% by ROE? Do you know
what this value was on average in your test?


Looks like it's generally the negative numbers, which are more common that I suspected.
Fraction of population of 1700 Value Line stocks by ROE since Jan 1997.
10.2% negative
4.6% zero or unpopulated
1.1% from 0 to 1
1.4% from 1 to 2
1.6% from 2 to 3
1.9% from 3 to 4
2.3% from 4 to 5
2.6% from 5 to 6
3.3% from 6 to 7
3.5% from 7 to 8
4.1% from 8 to 9
4.6% from 9 to 10
4.8% from 10 to 11
4.9% from 11 to 12
5.1% from 12 to 13
4.6% from 13 to 14
4.2% from 14 to 15
4.0% from 15 to 16
3.4% from 16 to 17
3.0% from 17 to 18
2.9% from 18 to 19
2.5% from 19 to 20
2.0% from 20 to 21
1.8% from 21 to 22
1.7% from 22 to 23
1.5% from 23 to 24
1.2% from 24 to 25
1.0% from 25 to 26
0.9% from 26 to 27
0.8% from 27 to 28
0.7% from 28 to 29
0.6% from 29 to 30
0.6% from 30 to 31
0.4% from 31 to 32
0.4% from 32 to 33
0.4% from 33 to 34
0.4% from 34 to 35
0.3% from 35 to 36
0.3% from 36 to 37
0.2% from 37 to 38
0.2% from 38 to 39
0.2% from 39 to 40
3.9% over 40

To recap the returns
Negative ROE = 6.11%/year
Zero or unknown ROE = 10.56%/year
Lower half of positive ROE = 11.52%/year
Top half of positive ROE = 12.77%/year

Bad negative numbers aren't worse than small negative numbers.
The lowest returns are simply the subset "<0".
If you wanted the highest return 30 stock portfolio given only the ROE
field you'd choose the 30 stocks with ROE closest to 32%, which gives
15.6%/year before trading costs, perhaps a bit of a lucky outlier.
I guess there are a few absurdly high ROE values that are a bad omen?
A monthly-constituted portfolio of all stocks 35% ROE or better returned 12.6%.

Jim
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