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Screening Strategies

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Warren Buffett - Hagstrom Screen

Warren Buffett - Hagstrom is a quality investing strategy inspired by modelling of Warren Buffett's investment approach in books by investment strategist Robert Hagstrom, including The Warren Buffett Way. It is a strategy that combines Buffett's focus on value and business quality. It uses price-to-free cash flow as a valuation measure and assesses quality using operating profit and return on equity. In his book, Robert Hagstrom explains: "Your goal as an investor should be simply to purchase, at a rational price, a part interest in an easily understood business whose earnings are virtually certain to be materially higher, five, ten, and twenty years from now." Remember, Buffett is famous for looking beyond financial measures when examining the quality of a business franchise. more »

Quality Investing
3 Year Return: 20.0%
Charles Kirkpatrick Growth Screen

Charles Kirkpatrick Growth is a strategy pioneered by Charles Kirkpatrick, the renowned US investment strategist who wrote Beat the Market & many books on technical analysis. It combines relative growth and momentum factors in large capitalisation stocks. Specifically it looks for the top 20% of shares with the strongest share price vs 130-day Moving Average and then the top 10% with the strongest growth in operating profit. Kirkpatrick reinforced his strategy by studying point-and-figure charts to determine whether a stock was in an uptrend, which helped to guide his trading decisions. In an award winning paper by Kirkpatrick, entitled Stock Selection: A Test of Relative Stock Values Reported over 17 ½ Years, he wrote: "Relative price strength and relative reported earnings growth, when calculated in the manner of this study, showed superior results when compared to market averages." In Beat the Market, Kirkpatrick claimed that his stock-picking technique had outperformed the S&P 500's performance by 7.7x over 25 years. more »

Growth Investing
3 Year Return: 19.4%
Dividend Dogs

Dividend Dogs of the FTSE is a high yield income strategy based on an approach devised by US investor Michael O'Higgins in his book Beating the Dow. It simply selects the 10 highest yielding stocks in a major market index like the FTSE 100, the S&P 500 or the FTSE Eurofirst 300. This version of the strategy uses the current, or historic, dividend yield. It's main safety net is that blue-chip stocks tend to be large, mature and well financed companies with long histories of weathering economic turmoil. O'Higgins wrote: "Beating the Dow is based on simple logic that will produce exceptional returns in any rational market and until excessive popularity turns contrarianism into conventional wisdom." O'Higgins suggested rebalancing the Dividend Dogs portfolio once per year, based on the highest yields available. more »

Income Investing
3 Year Return: 19.0%
Charles Kirkpatrick Bargain Screen

Charles Kirkpatrick Bargain is a rules based strategy inspired by US investment strategist Charles Kirkpatrick's work in his excellent Beat the Market. Kirkpatrick has established strategies for finding growth and value stocks. His bargain strategy concentrates on value and momentum factors, with a very precise requirement for the price to sales ratio. Kirkpatrick's testing of of relative price-to-sales ratio rankings found that it was most effective between the 17th and 42nd percentiles in terms of cheapness. Initial testing of the Bargain Model was promising but Kirkpatrick said that several more years of testing were needed before labeling it a success. Kirkpatrick wrote: "As a result of these studies of relative selection methods, I decided to create a new list, called the 'Bargain List' that would incorporate the best triggers found so far and would only include value and price strength." more »

Bargain Stocks
3 Year Return: 18.1%
Piotroski High F-Score Screen

The Piotroski F-Score Screen is a quality strategy outlined by the famed academic Professor Joseph Piotroski and investigated further in a 2011 paper titled "Identifying expectation errors in Value/Glamour stocks". The strategy hunts for the best quality shares in the market regardless of price. In this version of the screen we have selected the highest scoring stocks in the market using Piotroski's nine-point fundamental checklist called the F-Score. While the F-Score was originally used only for filtering value stocks, Piotroski discovered it was just as effective for filtering glamour stocks: "Firms experiencing the strongest improvement in fundamentals (FSCORE ?7) generate a mean size-adjusted return of 5.5 percent annually". What Piotroski essentially was saying was that the highest scoring stocks returned 5.5% more than the market - these findings have been backed up by independent research by Societe Generale. Perhaps as a result the F-Score has become extremely popular with investors and is a core component of the Stockopedia StockReports. more »

Quality Investing
3 Year Return: 17.0%
Piotroski F-Score Price to Book Value Screen

The Piotroski F-Score P/B is the classic value strategy by famous finance academic Joseph Piotroski. Originally published in a 2000 research paper titled "Value Investing: The use of historical financial statement information to separate winners from losers", the strategy hunts for the highest quality shares amongst a deep value basket. In this version of the screen, the cheapest 20% of the market by their Price to Book ratio are first selected, and filtered further to find those with the most improving fundamental health trends using the Piotroski F-Score. Piotroski developed the F-Score system after observing that: "In that mix of bargain companies, you have some that are just stellar. Their performance turns around. People become optimistic about the stock, and it really takes off. However half of the firms languish; continue to perform poorly and eventually delist or enter bankruptcy." Piotroski's back-tests over 20 years showed that his formula could improve the returns from typical value investing strategies by at least 7.5% annually and is especially effective amongst small caps. Investors should beware the low liquidity shares in this screen can be expensive to trade. more »

Value Investing
3 Year Return: 15.2%
52 Week High Momentum Screen

52 Week High Momentum is momentum strategy that was explored in a paper called The 52-Week High and Momentum Investing by academics Thomas George and Chuan-Yang Hwang. It capitalises on the positive momentum effect which appears to cause stocks that are at, or close to, their 52 week high prices continuing to outperform. It is believed to work because investors tend to under-react to positive news about previously successful stocks and are reluctant to bid their prices higher, even if the positive news warrants it. When the full impact of the information prevails, and the 52 week high is broken, the market "wakes up" and prices see further gains. George and Hwang wrote: "Our results indicate that the 52-week measure has predictive power whether or not individual stocks have had extreme past returns. This suggests that price level is important, and is consistent with an anchor-and-adjust bias." The original research found that, between 1963 - 2001, the average monthly gain to this strategy assuming a 6 month hold was 0.45% - "about twice as large as those associated with other momentum strategies". more »

Momentum Investing
3 Year Return: 12.8%
Earnings Upgrade Momentum Screen

Earnings Forecast Upgrades is a momentum strategy set out by US academics Phillip McKnight and Steven Todd in research that examined how analyst forecasts affect share prices. It focuses on finding momentum stocks by highlighting those that are receiving the highest levels of upgraded earnings forecasts from analysts. It looks at both the number of analysts that have raised their forecasts on a share over the past month, and the overall percentage earnings-per-share increase among the consensus of analysts. McKnight and Todd claimed: "Stocks with the greatest number of upwards revisions in earnings, net of downward revisions, earn significantly higher returns than otherwise similar stocks." The researchers examined a portfolio of European shares and found that the 20% with the highest net upward revisions outperformed the lowest 20% by over 16% a year. Earnings upgrades are one way of finding stocks with 'earnings momentum'; those that have received upward earnings revisions are likely to do so again in the future. more »

Momentum Investing
3 Year Return: 12.6%
Muhlenkamp's ROE Screen

Ronald Muhlenkamp Return on Equity is a quality investing strategy based on an approach used by US fund manager Ronald Muhlenkamp. It combines quality and value factors by looking for companies with a high return on equity (ROE) at a reasonable price. ROE is a measure of how much profit a company earns compared to the amount of shareholder equity on its balance sheet. Muhlenkamp compares ROE with other growth measures to find stocks that are likely to be highly cash generative. He said: "You want to be sure that the companies you own can survive whatever the heck happens." Muhlenkamp's methods were analysed by Ludwig B Chincarini and Daehwan Kim in Quantitative Equity Portfolio Management. They found that the Muhlenkamp fund averaged an 18.38% annual rate of return for the 19 years to 2004, versus 12.07% for the S&P 500. more »

Quality Investing
3 Year Return: 11.6%
Greenblatt's Magic Formula

The Magic Formula is a value investing strategy invented by the hedge fund manager Joel Greenblatt in the bestselling and highly recommended Little Book that Beats the Market. It focuses on finding quality value stocks using a blended ranking system (the Magic Formula rank) composed from two fundamental ratios: Return on Capital (which Greenblatt argues is the best determinant of whether a business is a good one) and Earnings Yield (his favoured measure for cheapness). He summarised his philosophy with the maxim "buying cheap stocks at bargain prices is the secret to making lots of money". In the fourth edition of his book Greenblatt claimed the top scoring portfolio of 30 stocks appreciated by 30.8% each year over the previous 17 years, though he stressed that the strategy could underperform during periods of up to two years. Having now sold hundreds of thousands of copies, the "Magic Formula" is credited for reinvigorating the practice of value investing. more »

Quality Investing
3 Year Return: 11.6%
Bill Miller Contrarian Value Screen

Bill Miller Contrarian Value is a value investing strategy based on the style of US fund manager, Bill Miller. It uses value and growth factors to find stocks that are trading below their intrinsic value but are capable of rebounding. This model of Miller's contrarian approach uses price-to-free cash flow as a valuation measure but also looks at the price-to-earning growth factor (PEG) as well as sales and free cash flow growth. Miller wrote: "We are value investors because we are persuaded of the logic of buying shares of businesses when others want to sell them, and we understand that lower prices today mean higher future rates of return, and high prices today mean lower future rates of return." Between 1991 and 2005 Miller cemented his legendary reputation by guiding the Legg Mason Value Trust to a record 15 consecutive years of beating the S&P 500. more »

Value Investing
3 Year Return: 10.3%
The Screen of Screens

The Screen of Screens is a blended investment approach devised by Stockopedia. It picks stocks that are appearing most frequently across all the 'Guru Screens' tracked by Stockopedia - be they quality, value, momentum, growth or income (excluding short-selling strategies). A stock must be appearing on at least four strategies before it can qualify for the Screen of Screens. Ed Page Croft, CEO of Stockopedia, says: ?One benefit of a blended approach such as the Screen of Screens is that it builds a portfolio exposed to many driving factors of stock returns at once.? By definition, this strategy tends to highlight a list of relatively defensive stocks because they exhibit good fundamentals across a wide range of investing disciplines. The strategy was highlighted in an Financial Times feature by David Stevenson titled: "Stock screens to net the ones that get away". In it he said: "You need to use a website or system that can run the screens for you, and then identify the stocks that come up most often in each of them, which is exactly what Stockopedia has done." more »

Quality Investing
3 Year Return: 9.3%
Altman Z-Score Screen

The Altman Z-Score is a checklist for identifying stocks that might be at risk of bankruptcy. It was created by US finance Professor Edward Altman and detailed in a book he co-authored, called Managing Credit Risk. The Z-Score is a red flag indicator that can be used as a short selling strategy. It analyses five weighted business ratios to estimate the likelihood of financial distress. Broadly, these checks examine a company's asset, strength, profitability, solvency, efficiency and ability to generate earnings. Altman wrote: "The detection of company operating and financial difficulties is a subject which has been particularly amenable to analysis with financial ratios." Tests over 31 years to 1999 found the Z-Score to be 80-90% accurate in predicting bankruptcy one year prior to the event. The Z-Score is one of the components used in another short selling strategy: James Montier Trinity of Risk. more »

Short Selling
3 Year Return: 8.0%
Neglected Firms Screen

Neglected Firms is a value investing strategy inspired by Ludwig Chincarini and Daehwan Kim in their book, Quantitative Equity Portfolio Management. It uses value and quality measures to find neglected shares that are under-researched by analysts and potentially misunderstood by investors. It looks for companies with low analyst coverage, above average earnings growth and that are cheaply priced according to their price-to-earnings and price-to-book ratios. Chincarini and Kim explain: "It is likely that neglected firm's stock prices do not reflect all the relevant information available and that their prices will react sluggishly to relevant news. This opens a window of time and opportunity for an astute investor to purchase undervalued, neglected stocks and reap the rewards when the market recognizes the stocks' true values." Academic research by Avner Arbel and Paul Strebel found that between 1972 and 1976 comparatively neglected S&P stocks easily outperformed those that were well researched. more »

Value Investing
3 Year Return: 7.1%
R&D Breakthroughs Screen

R&D Breakthroughs is a quality investing strategy inspired by a screen devised by US journalist Jack Hough, in his book, Your Next Great Stock. It is partly based on research by Louis Chan, Josef Lakonishok and Theodore Sougiannis in paper called The Stock Market Valuation of Research and Development Expenditures. The strategy filters a value screen with quality factors related to how much a company is investing in its future development. It uses the price-to-research ratio to find value and compares R&D investment in relation to growth, sales and assets. The strategy seeks to identify research-led businesses that are investing significantly in future development in order to try to identify their potential future growth before the market does. Louis Chan wrote: "The clearest evidence that high R&D plays a distinctive role arises from stocks with high R&D relative to the market value of equity. Their average return over the following three years is 6.12% per year." more »

Quality Investing
3 Year Return: 7.0%
Piotroski F-Score Price to Earnings Value Screen

The Piotroski F-Score P/E is a value strategy developed by the renowned finance professor Joseph Piotroski, published in a 2000 research paper titled "Value Investing: The use of historical financial statement information to separate winners from losers". The strategy hunts for the best quality shares amongst a deep value basket. In this version of the screen, the cheapest 20% of the market by their P/E ratio are selected, and filtered further for the highest scoring companies using a nine-point fundamental checklist called the Piotroski F-Score. Piotroski developed the system after observing that: "In that mix of bargain companies, you have some that are just stellar. Their performance turns around. People become optimistic about the stock, and it really takes off. However half of the firms languish; continue to perform poorly and eventually delist or enter bankruptcy." Piotroski's back-tests over 20 years showed that his formula could improve the returns from typical value investing strategies by at least 7.5% annually and is especially effective amongst small caps. Investors should beware the low liquidity shares in this screen can be expensive to trade. more »

Value Investing
3 Year Return: 6.7%
T Rowe Price Screen

Thomas Rowe Price Jr Growth is a growth-at-a-reasonable-price investing strategy based on the approach of US fund manager Thomas Rowe Price, Jr. It combines growth and value rules, with a focus on improving earnings, margins and positive cashflow together with a reasonable price-to-earnings ratio. Rowe Price said: "A forward-looking investor must be able to reasonably assess and evaluate the currents and the tides and be prepared to reckon with winds or storms, which are unpredictable." A screen based on these rules tracked by the American Association of Individual Investors returned 22.6% in the five years to 2015. Rowe Price founded his own investment firm T.Rowe Price Associates in 1937, which today manages in excess of $730bn of assets. more »

Growth Investing
3 Year Return: 6.4%
John Neff Value Screen

John Neff Value is a value investing strategy based on the rules of successful US fund manager John Neff. It combines demanding value criteria with elements of growth, quality and dividend income. Although he didn't like the term, Neff was a contrarian investor buying good companies with moderate growth and high dividends while out of favour, and selling them once they rose to fair value. One of the tools used by Neff is the Total Return Ratio, which is calculated using the price-to-earnings growth factor (PEG), but adjusted for dividend yield - PEGY. John Neff wrote: "If you buy stocks when they are out of favor and unloved, and sell them into strength when other investors recognize their merits, you'll often go home with handsome gains." During his tenure as manager of Vanguard's Windsor Fund between 1964 and 1995, Neff's average annual total return was 13.7%. more »

Value Investing
3 Year Return: 5.7%
Peter Lynch Growth Screen

Peter Lynch Growth is a growth investing strategy inspired by the approach of former Fidelity fund manager Peter Lynch, who wrote One Up on Wall Street. It looks for consistently profitable, relatively unknown, low-debt, reasonably priced stocks with high, but not excessive, growth. Among the criteria used, the strategy looks for stocks with a low price to earnings growth rate (PEG). Peter Lynch wrote: "If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them." Lynch managed Fidelity's Magellan Fund between 1977 and 1990 and during the time racked up average annualised gains of close to 30%. He urged investors to adopt a bottom-up investing process and "buy what you know". more »

Growth Investing
3 Year Return: 3.8%
Quality Income Screen

Quality Income is a dividend strategy focused on firms with strong fundamentals and high yields, based on research by Societe Generale. It looks for quality income stocks using checklists for identifying strong financial health, low bankruptcy risk and high, but not excessive, yields. Specifically, firms must be capitalised at more than £800 million, have a Piotroski F-Score of more than 7 out of 9 and a strong Altman Z-Score. Yields are capped at 15% to avoid potential dividend traps.The SocGen team explains: "As a real asset class, we think Quality Income is an attractive alternative to anyone buying credit thinking that’s the only way to generate a high yield." SocGen found that quality income stocks produced standout total returns that averaged 11.6% per year since between 1990 and 2012, more than doubling the return of the global equity markets but with significantly reduced volatility. more »

Income Investing
3 Year Return: 3.6%
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