The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (Nov. 18, 1997)

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

In yesterday's column I mentioned my intention of running a series of new screen back-tests from 1987-1997 (the period covered in the database I just received). And to start us off, I ran a test on our beloved Dow stocks.

Here's the process I used for this simplest of relative strength tests on the Dow stocks. I ranked the thirty stocks each year by 26-Week Percentage Price Change and selected the top five stocks each year. That is, the five Dow stocks that had performed best over the previous six months made the portfolio for that year.

Through November 12, 1997, here's how the year-by-year results turned out:

1987  22.93%
1988  18.51%
1989  45.52%
1990   2.61%
1991  34.25%
1992  12.19%
1993  15.16%
1994   4.84%
1995  41.90%
1996  25.02%
1997  26.00%

Annualized return for the near 11 years was 22.2%. During the same period, the S&P 500 (with dividends) returned an annualized 16.3%.

As a comparison, let's look at the returns for the same 11-year period for some of the High-Yield Approaches. The Beating the Dow Five returned 18.2%. The Foolish Four returned 19.8%. The Unemotional Value Four (Juiced) returned 20.4%.

If you want a comparison to the much-vaunted Penultimate Profit Prospect (PPP) one-stock test, it only returned 18.1% for the eleven years, despite an awesome performance in 1991 of 182%. The top stock using this relative-strength approach each year returned an annualized 30.3%. (It had one losing year in 1994, losing 23%.)

Summary (1/1/87 - 11/12/97)
22.2%  Dow Relative Strength 5
20.4%  Unemotional Value 4+
19.8%  Foolish 4
18.2%  Beating the Dow 5

30.3%  Dow Relative Strength 1
18.1%  Penultimate Profit Prospect

What's it all mean? Well, first things first; it's only an eleven-year test, so it's quite limited. Be careful about putting too much into conclusions drawn on shorter time frames. Yes, it's convincing over the last decade, but has it always worked this well? I don't have the data to check, so reader beware!

That said, it does give support to the idea that using Relative Strength for these large-caps is a useful strategy. One way to consider this approach is as a complement to the high-yield approaches. That would give you a list of 8-10 stocks to include each year. (Occasionally a high-yield stock is also on the high-relative-strength list.)

As I promised yesterday, here's the list of statistics we can use to screen strategies. Please print this out for future reference.

Timeliness Rank
Safety Rank
Financial Strength
Industry Rank
Price Stability
Beta
Current EPS
Current Dividend
Technical Rank
52-Week High Price
52-Week Low Price
Current P-E Ratio
Current Yield (%)
Price / Book Value
13-Week % Price Chg
26-Week % Price Chg
Market Cap ($mill)
Sales ($mill)
% Return Net Worth
% Retained to Com Eq
Book Value per Share
Debt as % of Capital
Last Qtr EPS % Chg
12-Month EPS % Chg
5-Yr EPS Growth
5-Yr Divd Growth
5-Yr Book Val Growth
Est % Chg EPS Qtr 1
Est % Chg EPS Qtr 2
Est % Chg EPS Fis Yr
Prj 3-5 Yr Apprec %
Prj EPS Growth
Prj Divd Growth
Prj Book Val Growth
Prj 3-5 Yr Avg Return
Cash
Current Assets
Total Assets
Current Liabilities
Long-Term Debt
Net Worth
Cash Flow Per Share
Net Profit
% Inst. Holdings
Shares Outstanding
Current Ratio
Common Equity
Sales Per Share
Price-to-Sales Ratio
Return on Assets

Fool on!

Year-to-Date Returns
Monthly Growth Screens
70.63%  Relative Strength  
27.70%  Investing for Growth  
25.43%  S&P 500 Index  
21.79%  EPS Plus RS  
12.10%  Formula 90  
  6.98%  Unemotional Growth  
  5.64%  YPEG Potential  
  5.22%  Low Price/Sales  

Year-to-Date Returns
Annual Value Screens
25.59%  Beating the S&P  
23.02%  Foolish Four  
22.22%  Dogs of the Dow  
21.50%  Dow Combo  
21.04%  Unemotional Value  
21.04%  Beating the Dow  
18.65%  Dow Jones Ind Avg  

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