No. of Recommendations: 22
During MICON 2000, Elan Caspi gave an excellent presentation. At the end he pointed out that PEG returns vary tremendously from week to week. His research shows that if you purchased the PEG on 1-29-99, your results were 4%. However, if you purchased your PEG one week later, on 2-5-99, your PEG would earn 286%. Recommendations are to purchase multiple PEGs at different starting dates to decrease what Elan referred to as the risk of inconsistent returns.

I decided to carry that recommendation to the extreme, and to try to test the results. Testing resulted in a 196% CAGR from 11-20-98 to 4-21-00. Not extraordinary, but I think it is near the high end of PEG results. Here is the plan.

1. List the top 5 stocks appearing in the the PEG 26 and the PEG RSW screens (usually about 8 stocks).
2. Buy in equal dollar amounts (sound familiar?)
3. Each week, buy any new stocks appearing in the top 5 of either screen.
4. Hold the stock until it has not appeared in the top 5 of either screen for 4 weeks.

That's it. This resulted in an average holding time for each stock of just over 10 weeks (10.28 wks.) so it is closest to a quarterly hold. The longest hold (Titan) was 70 weeks, but it is still being held, so that number gets larger each week.

There were 196 transactions (buys and sells) in 76 weeks. This is about 2.5 transactions per week, which I would guess is also closest to a quarterly hold (assuming that you bought a quarterly PEG26 and a quarterly PEG RSW).

A few words about the test: Weekly PEG data is only available from 11-20-98, so that is the starting point of the test. Clearly this is not very much time. However, there are more data points (76) than usual because weekly data is used. I'll leave it to those who know what they are talking about to tell me whether or not this means anything. My gut tells me that it is a pretty good indicator. I used $7 commissions because I use Scottrade, and that's what they charge me.

I thought that some of you might want to see the weekly change in value, so I assumed that the test started with $100,000 in cash and maintained a cash balance as stocks were bought and sold. This is just an indicator. I used only buys and sells and final value to compute the CAGR using XIRR.

I will try to post the spreadsheet in another post. But bear with me if it takes a while.

Print the post  


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.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! 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.