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>> This is a basic question that I have regarding the Rule Maker scoring system <<

So, obviously a great topic for "official discussion", starting (perhaps) at the now defamed "daily report" page.

From my perspective, I somehow liked the ranking criteria in their less mechanical, more "yes or no", format from the original Cash-King Principle #6, with the 8-criteria scored "yes/no".

Only because, AFAIK, there is NO real backtesting of whether the more mechanical, numerical spread-sheet-weighting "Rule Maker Score" has any real predictive power.


OK: Clearly, companies scoring 59 will tend to be better businesses than companies scoring 29 - but (?) does an 55 tend to outperform a 45 ? Over one month ? Over one year ? Over 5 or 10 years ? Should we use the numerical results as predictive quantitative indicators or qualitative discriminants (huh ? I mean does it make a difference if I get 52 or 47, or are only BIG differences of more than 10 or 15 or 20 points really relevent ?)

Among the many problems in determining a method to refine and back-test the spread-sheet numerical approach is the apparent arbitrariness of the competitors chosen in the Monopoly section. For big companies, it gets hard find 'apples to compare to apples' because by their nature, these companies and their rivals are diverse.

COke ? Pepsi. ! that was easy.

EMC ? Uh-oh. They own a particular brand of business that is just a segment of any other business, be it smaller guys like Quantum, or bigger guys like Hewlett-Packard.

GE ? Uh-oh. The opposite problem, so many businesses that each one (GE Capital, NBC, Industrial, ...) need separate comparison scoring since their competition is distinct.

We've seen, from SGP, how choice of competition (PFE ? BMY ? JNJ ?) can alter the scores by order of magnitude (didn't you know that the Spreadsheet output was a logarithmic scale ?).

Has anyone, including the originators of the model, ever gone back to a five-year old 10-k and seen how good these spreadsheets do at steering us into winners and out of losers - and do the results depend at all on how the "competition" is selected for the scoring ?

If I were to try this, perhaps a method would be to select any "major" competitors that compete in markets accounting for more than (1/4 ?) of the company's (and the competitor's) revenues. Have this short list engage in around-robin score-contest among themselves, and then rank the "company in question" against the winner.

C'mon MOT -vs- ERICY, winner to take on the champ: NOK.A

- Danny
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