No. of Recommendations: 2

Here are the two free cash flow (FCFL) screens with January start dates and six month holds that I mentioned in a previous post.
As both screens can only be backtested to 1997, the same legitimate concern raised with FCFLAN also exists here.

One of the screens uses Timeliness 1-2 while the other leaves Timeliness blank. Performance of each is similar over the time periods, and they each beat the S&P for each year from 1997 to 2001.

Contrary to FCFLAN, with its 12 month hold, these two screens have an RS element. (Didn't Buffett same something about the market in the short term being a voting machine but in the longer term a weighing machine?)

Let me reiterate that the reason for trying to develop FCFL screens was a concern that screens dependent on earnings may be built upon a weak foundation that can be easily manipulated by accounting leger de main. Anyone who saw Baseball Commissioner Bud Selig's tap dance before the House Judiciary Committee yesterday understands the problem -- applicable to all companies.

The screens I've shared may not be the answers, but I hope the basic principle is not lost. Perhaps, in five years when there is more backtesting data, available, the subject can be revisited.

Here are the two new screens:


TimelinessTM 1-2
Price >= .85 x 52 week high
26 Week Return: Top 30
(Long Term Debt / Current Equity) Bottom 25
(Peg x FCFL / Shares Outstanding / Price) Top 5


Return on Common Equity >= 10
Price >= .85 x 52 week high
26 Week Return: Top 30
(Long Term Debt / Current Equity) Bottom 25
(Peg x FCFL / Shares Outstanding / Price) Top 5

                       FCFLSE     FCFLSE_NT     S&P

CAGR                     78                   80           10
GSD                      56                 56           19
Sharpe Ratio         1.26               1.30         0.39

Winning Stocks       37                   34
Avg. Gain               45                   56
Losing Stocks         13                   14
Avg. Loss             - 27                 - 27

1997                     58                   56           33
1998                     72                   96           29
1999                    109                 95           21
2000                    174               166          - 9
2001                     14                 19         - 13

Once again, all comments are welcome. As WEBTV interacts terribly with the Motley Fool message board posting, please forgive any typos or other editing mistakes.

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.