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Author: DrBob2 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 260  
Subject: Test of valuation methods Date: 10/15/2001 4:59 PM
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Thanks to the generosity of those on this board, I have put together an almost complete collection of SI Pro data disks going back to 9-97. Each monthly disk contains a section “Valuations” that ranks stocks by various methods. I decided to see how 12 of these methods were at selecting winning stocks.

For each month the best five stocks for each method were noted and their returns during the following 12 months calculated. Only stocks with a market capitalization greater than two billion dollars were considered.

The period covered included a hugh bull run, a short correction and a bear market still in progress. Since some of the screens performed quite differently during the bear market, I have broken out recent results.

Here are the arithmetic averages for the 12 valuation methods.

All Months Bear Market
9-97 to 10-00 10-99 to 10-00
Ave P/CF 16% 1%
Ave P/FCF 14 29
Ave P/S 73 - 8
.
Ave P/E - 6 - 9
Ave P/Yld - 2 9
P/CF 3 -26
.
P/FCF 25 30
P/S 18 -48
P/Yld 4 11
.
P/E - 3 -14
P/E & Est 10 10
P/EA & Est 0 14

The place to be during a bull market is clearly in the Ave P/S stocks. The method picked out stocks such as QCOM early on because of their tremendous sales growth rates. 12-month returns held up well as the bear market started because of the low purchase prices. However, by the fall of '99 the blow-off stage of the bull market began and returns for the annual hold began to turn negative. From the 10-99 start date, the best performing screens were the Ave P/FCF and the P/FCF, with the latter having slightly better returns and the former less volatility.

For a smoother ride one might want to consider a 50/50 blend of the Ave P/S and the P/FCF methods, with annual rebalancing. For such a blend the geometric average (appropriate when compounding) for all 35 start months was 40%, compared to 47% for the Ave P/S method alone.

Start
Date Ave P/S P/FCF 50/50 Blend
97-09 43% 23% 33%
97-10 1 9 5
97-11 13 10 12
97-12 36 17 26
.
98-01
98-02 7 24 16
98-03
98-04 9 72 40
.
98-05 48 - 9 20
98-06 80 - 8 36
98-07 130 - 2 64
98-08 122 - 4 59
.
98-09 291 44 168
98-10 264 33 148
98-11 324 20 172
98-12 351 12 182
.
99-01 174 7 90
99-02 363 -22 170
99-03 107 -11 48
99-04 85 - 7 39
.
99-05 31 18 24
99-06 79 43 61
99-07 32 14 23
99-08 30 101 66
.
99-09 13 131 72
99-10 -28 70 21
99-11 37 87 62
99-12 -13 33 10
.
00-01 -30 2 -14
00-02 -29 4 -12
00-03 -25 -26 -26
00-04
.
00-05 -12 35 12
00-06 - 7 39 16
00-07 - 2 38 18
00-08 18 33 26
.
00-09 11 28 20
00-10 -11 13 1
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Author: euphoriant Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 159 of 260
Subject: Re: Test of valuation methods Date: 10/15/2001 5:02 PM
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Excellent work. Thank you. I'm printing it to study later.

Was this done based on every stock that passed these screens, as if they were purchased when the data came out?

Thanks again,
e

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Author: DrBob2 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 160 of 260
Subject: Re: Test of valuation methods Date: 10/15/2001 6:50 PM
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<<Was this done based on every stock that passed these screens, as if they were purchased when the data came out?>>
----------

Each month for each screen I chose the five stocks that had the highest ratio of :

Valuation
----------------
Stock Price

Typically there was a low turnover from month to month in the stocks selected for each screen.

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Author: hwetzler Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 161 of 260
Subject: Re: Test of valuation methods Date: 10/25/2001 2:01 AM
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<<<For each month the best five stocks for each method were noted and their returns during the following 12 months calculated. >>>

Five stocks monthly with 12 months hold means as many as 60 stocks at the end of a year. Any thoughts on how to reduce that number of stocks?

HW

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Author: DrBob2 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 162 of 260
Subject: Re: Test of valuation methods Date: 10/25/2001 9:41 AM
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<<Five stocks monthly with 12 months hold means as many as 60 stocks at the end of a year. Any thoughts on how to reduce that number of stocks?>>
----------

I looked at the results of buying a basket of stocks each month to get an idea of how the screens have performed over the last several years. As an individual investor, you could either jump in at any given point in time and buy five (or three) stocks and hold them for a year and a day for long-term capital gains. Or, each month you could buy the top ranked stock that you didn't already own. Or, each quarter you could buy two stocks from two screens and hold for a year, eventually giving you 16 stocks at any one time.

As they say in the car ads, "your milage may vary," but in my post I did want to let people know which screens to use as a starting point. There was a tremendous difference in the performance of the stocks choosen by the different methods.

DB2

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Author: hwetzler Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172 of 260
Subject: Re: Test of valuation methods Date: 12/29/2001 4:05 PM
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DrBob:

Do you have updated results for the last couple of months for the valuation methods?
Thanks

HW

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Author: DrBob2 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 173 of 260
Subject: Re: Test of valuation methods Date: 12/29/2001 5:11 PM
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<<Do you have updated results for the last couple of months for the valuation methods?>>
----------

Funny you should ask. I was just looking at the picks from the beginning of the year. Here are the results:

Ave P/S 24
Ave P/FCF - 1
P/FCF 26

Tomorrow I'll check on the results for November and December.

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Author: DrBob2 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 174 of 260
Subject: Re: Test of valuation methods Date: 12/31/2001 8:25 AM
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Here is the results update for the three best valuation screens that are packaged with Stock Investor Pro from AAII. The results are for five-stock portfolios held for 12 months.

Start
Date Ave P/S Ave P/FCF P/FCF
11-00 - 15% 6 - 12
12-00 15 1 25
01-01 24 - 1 26


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Author: henrycrutcher Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 258 of 260
Subject: Re: Test of valuation methods Date: 6/5/2012 5:49 PM
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I am very eager to find any AAII disks before 2003. If you still have the disks I would love to buy/copy/thank you forever for them. My email is henrycrutcher@yahoo.com.

Thank you,

Henry

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