The Daily Workshop Report
by Randy Befumo (TMF Templr)

WILLIAMSBURG, VA. (June 12, 1997)

In his book The Dance of the Money Bees, money manager John Train wrote a provocative chapter that has only become more relevant over time. Train described his annual visit from a well-meaning computer scientist, a different fellow each time, who had spent two or three years accumulating historical price data. Each time, the different fellow claimed to have figured out the market. Needless to say, none of the budding "quants" have become rich and publicized this information, with the possible exception of mathematician D.E. Shaw and his cadre of Nobel Prize winning scientists.

Despite the fact that no mathematics genius has quantified her way to wealth, for some reason the idea that the stock market is some kind of code to be cracked continues to inspire the imagination of some investors. Whether you are a quant and just crunch the raw numbers or a technician and prefer to see them visualized in the form of a chart, systematically looking at the numbers as a system without any reference to the actual business that the share of stock represents seems to have generated very few millionaires.

Why then do investors still want to penetrate the complicated process of buying publicly traded companies by finding a single, mathematical magic bullet? The complete lack of any education to give the average individual a sense of how to assess a business probably contributes to this. In a country where operating margins and gross profits are as widely understood as mitosis or capillary action, it is no wonder that people want to penetrate the veil of mystery with something akin to sorcery. Take four parts this number, three parts that number, chant thus and so and you are on your way to financial security.

With billions of investing dollars assaulting the market daily, what kind of inefficiencies could survive and somehow be quantified? The emphasis on performance this month over the performance this decade hints that one of these is adopting a significantly different time frame than the majority of money being invested. Say you wanted to become a professional baseball player and you discovered that although there were quite a few pitchers, the league was actually short of catchers. Would it make more sense for you to train to be a pitcher or a catcher if your ultimate goal was getting on the team, not becoming a pitcher? By the same token, when everyone is searching for stocks that are mispriced over the next three to twelve months, systematically adopting a longer time frame puts you in a game with fewer competitors. To the degree that a stock screen could point out securities that are mispriced over a longer time frame, it would probably be very successful. We will explore this idea more tomorrow.

Monthly Growth Screens
(Jan. 3 to present)
28.75%   Relative Strength   
18.10%   S&P 500 Index   
17.84%   Low Price/Sales   
-4.22%   YPEG Potential   
-2.68%   Investing for Growth   
-3.61%   Unemotional Growth   
-10.72%   EPS Plus RS   
-21.26%   Formula 90   

Annual Value Screens
(Jan. 1 to present)
18.86%   Dogs of the Dow   
19.59%   Dow Jones Ind Avg   
13.57%   Beating the S&P   
11.31%   Unemotional Value   
11.31%   Beating the Dow   
9.91%   Dow Combo   
3.63%   Foolish Four