The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (Oct. 30, 1997)

Scroll to the bottom for year-to-date Growth and Value Screen results.

Last week, a Foolish Workshop reader asked if there's any evidence that the Value Line Timeliness rankings are becoming less effective than they have been in years past. It took me a few days to find the returns I was looking for, but as we await tomorrow's new weekly database and rankings, let's take today to review the history of Value Line's ranking system.

The ranking system began on April 16, 1965, a little more than 32 years ago. Through June 30 of this year, the total returns for the five rankings (allowing for weekly rankings changes) over that period have been:

1      46,451%
2       4,370%
3        384%
4        -42%
5        -96%

On an annualized basis, here is the average return:

1      21.00%
2      12.51%
3       5.01%
4      -1.68%
5      -9.51%

So, over the history of the system, the top 100 stocks have recorded terrific gains, comparable to the gains achieved by the best four or five Dow Dividend Approach candidates. Obviously, no one will hold 100 stocks and make two to five changes every week, but choosing from among these 100 stocks has proven a terrific starting point.

Over the last few years, however, the rankings haven't produced quite the same advantage for the top-ranked stocks, averaging only 18.15% since 1991. Since 1971, the return has been 22.07%.

Here are the annual returns for the last six and a half years for the top-ranked stocks:

1991  55.4%
1992  10.0%
1993  13.4%
1994  -2.6%
1995  22.8%
1996  20.4%
1997   5.9% (through June 30)

Does this mean the system is dying? I don't believe so. Like any other investment strategy, this ranking system will go through stronger and weaker phases and I think we judge it too quickly if we assume it's broken when it lags for a few years.

Keep in mind that you're not buying all 100 stocks here. Even in a supposedly weaker patch for the rankings system, we've seen a wonderful selection of winning returns for systems based on the primary Timeliness screen (UG's return in 1996 and the RS and IFG returns so far this year, as well as the Keystone portfolio, which uses both 1- and 2-ranked stocks).

Stay tuned tomorrow for the new rankings.

Monthly Growth Screens
(Jan. 3 to present)
74.49%  Relative Strength  
23.48%  Investing for Growth  
22.82%  EPS Plus RS  
20.81%  S&P 500 Index  
12.13%  Formula 90  
  9.73%  Low Price/Sales  
  9.66%  Unemotional Growth  
  9.45%  YPEG Potential  

Annual Value Screens
(Jan. 1 to present)
19.35%  Dow Combo  
19.02%  Foolish Four  
18.91%  Beating the S&P  
18.67%  Unemotional Value  
18.67%  Beating the Dow  
18.38%  Dogs of the Dow  
14.48%  Dow Jones Ind Avg