No. of Recommendations: 18
First, let me thank all those who have developed screens on this Board. Your work is much appreciated.

While not a regular follower, I did happen to read some of the negative comments about PEG screens and their recent performances. At the same time, I learned of the excellent, newly-developed RSPEG screens.

While I realize that the PEG performance is temporary, it struck me that one of the potential problems with PEG screens is their reliance on the machinations of corporate accountants (someday someone must explain to me why employee stock bonuses are not compensation.) The recent controversy at PPD provides an instructive example of how maleable earnings can be.

I felt that Free Cash Flow (FCFL) might be a more dependable substitute for earnings as it is very difficult for accountants to monkey around with the FCFL. I also wondered whether it would be feasible to use the debt to equity ratio to improve the risk/reward potential.

So, limited to using my "classic" WebTV, I played with the RSPEG screens, using a projected FCFL growth measure and the debt to equity ratio. While the backtest only calculates FCFL back to 1997, thus clouding its validity, I thought I would share the results with the Board.

Screen RSPEG2 S&P

CAGR 43 65 12
GSDm 36 39 18
GSD 10 33 19
Sharpe Ratio 2.75 1.23 0.48

CAGR+3s 258 339 86
CAGR+2s 164 217 57
CAGR+1s 94 128 33
CAGR-1s 6 19 -5
CAGR-2s -22 -14 -20
CAGR-3s -43 -38 -32

1997 29 25 33
1998 37 62 29
1999 45 162 21
2000 68 62 -9
2001 40 41 -5

While the screen beats the S&P every year it could be calculated, it doesn't perform nearly as well as RSPEG2 during the boom times of 1998 and 1999. It does, however, have a Sharpe Ratio of 2.75 which might interest those with a lower risk tolerance.

Please feel free to comment. The URL is:

http://backtest.org/?SB9701010112XpriGE.85Mh52Xr13T30XOltdDceqyCB20XOOpegM100MOfcflDcsoCCDpriCT5UUUUUUU
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