05.24.14

Hi Folks,

Please read the, at the bottom, AAII.com discussion on Quantitative and Mechanical Screen Investing.  I believe it should be part of every investor’s portfolio. AAII.com and Folio.com have about 100 free screens to choose.

I believe it is the #1 idea to become rich, via investing in stocks, simply based upon the data, performance, and facts. 

The SP500 (SPY), the Russell 2000 (IWM) are “Quant Screens”. I am suggesting that one can use less used, but “more successful”, quant screens to change your financial future. The data supports this conclusion. 

I believe there is a severe lack of discussion on Quant discussion. Hopefully we can discuss this topic on the forum. This approach basically allows one to beat any benchmark (SP500, IWM) by a significant percentage over time.

It’s tedious, takes about 15-30 minutes a week to change – but you will never regret this decision if you use patience.

1. Emerge Energy Services LP (EMES) 

Here is a link to a EMES.Inverestor.Conference.05.21.14 PDF presentation. $EMES is doing ok in my view.

1.ok.image

My interpretation of “ok” may vary from yours. I am very optimistic and it remains my #1 holding. ymmv

2. Taking Profits by Rolling Up

Hi-Crush Partners LP (HCLP) and U.S. Silica Holdings, Inc. (SLCA) remain core holdings. My dear friend Stephen asked “why own $HCLP and $SLCA if $EMES is top dog?”.  It’s a great question. I presumed they would go up because they were in the same sector.

$EMES is #1

There are clear differences and pros that favor $EMES – which make me look a little silly to own $HCLP/$SCLA. 

I own $HCLP/$SCLA to a far lesser degree than $EMES. We are taking financial advantage of option positions.

I personally bought calls on both names. I’ve rolled up on both positions to pay for the names. Selling covered calls works. Selling option spread works.

Canadian, etc, Fracking Companies: I Know but We are Frack-Flush

3-names is fine with me: $EMES, $HCLP, $SLCA. I know there are Canadian companies and other secondary plays we could buy.

My Current Goal

I’m looking to find the next future winning sector to let the industry leaders make us $.

 

1.future.image

Quantitative and Mechanical Screens

If I could recommend one strategy to start – as an initial small percentage – it would be Quant and Mechanical Screens.

AAII.com Assessment on Quant Screen 

Guide to Stock Screening

Guide To Stock Screening Splash image

These approaches run the full spectrum, from those that are value-based to those that focus primarily on growth. Some approaches are geared toward large-company stocks, while others uncover micro-sized firms. Most fall somewhere in the middle. There are even a number of specialty screens that attempt to gauge the stock selection impact of a single variable-such as earnings estimates revisions. Needless to say, the characteristics of these stock investment approaches vary widely.

Choosing a Screen

It is important to understand the investment characteristics of any approach you are using. By browsing through the passing companies tab of a stock screen, you can get a better idea of the kind of companies that a screen favors along with a sense for any industry concentrations that a screen may generate.

AAII tracks the results of the screens on this site. Every month we update each screen using Stock Investor Pro and post a new list of passing companies. The results are usually posted in the middle of each month using data from the previous month’s end.

The purpose of AAII’s stock screening area is to provide you with access to a wide range of investment approaches.

The performance of the stocks passing each screen is tracked on a monthly basis. The month-to-month closing price is used to calculate the return, which assumes an equal investment in each stock at the beginning of each month. The impact of factors such as commissions, bid-ask spreads, cash dividends, time-slippage (time between the initial decision to buy a stock and the actual purchase) and taxes is not considered. This overstates the reported performance, but all approaches are subject to the same conditions and procedures. Higher turnover portfolios would typically benefit more from these simplified rules. Sell rules are the same as the buy rules: The screens are simply reapplied using each subsequent month’s data. Thus, a stock is “sold” (no longer included in the portfolio) if it ceases to meet the initial buy criteria, and new stocks are added if they qualify. Stocks that no longer qualify are dropped even if the strategist behind a particular approach suggests different sell rules versus buy rules.

What Works Best

In terms of any judgment concerning which screen appears to work best, we recommend that you look at the long term returns as well as recent performance. Understand that the screen portfolios that we present are merely computer-generated lists, based on our own interpretation of popular investment approaches. Screens following the approach of an investment guru do not represent their actual stock picks. The rules of each screen are defined by our interpretations of their respective investment approaches. The criteria or rules used to generate the list of passing companies are presented for each strategy.

That being said, our screen tracking results are quite revealing. If you want to examine the numbers, complete performance statistics—including year-by-year return figures—they are presented in the performance table. Note that you can also gain access to this table by clicking on “Performance” link of the Stock Screens main page. Remember that past performance is no guarantee of future success.

The Portfolio Characteristics table presents a snapshot of the characteristics of the stocks that made up each portfolio at a specific point in time. This table is updated semiannually and provides an indication of the types of stocks that each strategy tends to hold.

Category Definitions

Click here to see how we categorize the screens that AAII makes available.

Conclusion

Keep in mind that the screens here are our own interpretations of the investment approaches advocated by numerous strategists. While we have attempted to illustrate a practical set of rules for each approach, the screens are only the first step. We recommend that you use them to generate an initial list of potential investments that merit further research. In addition, the monthly updates do not replicate a buy-and-hold strategy, which is the optimal approach for an individual investor.

When determining which screen(s) you want to follow, you need to ask yourself the following questions:

  • How is your screen of interest reacting relative to the current market environment? If it is deviating substantially, what is the cause of that deviation-is it the individual stock picks, or is it a deliberate over-concentration caused by the screen’s investment methodology?
  • Are the screen’s characteristics more similar to a value-based or growth-based approach? Any screening approach that you follow should match your individual needs and risk tolerance.
  • What is the proper benchmark to measure the performance of your screen and its resulting stock picks? It is important to look at the characteristics of your portfolio (market capitalization, industry concentration, growth vs. value) so that you can properly evaluate the performance.
  • How frequently does your list of “passing companies” within a screen change? If trading is frequent, you need to consider developing “hold” criteria; selling whenever initial buy criteria is no longer met may cause you to sell winners too soon.
  • Most importantly, remember that screening is just a first step. There are qualitative elements that cannot be captured effectively by the very quantitative screening process that we present. Detailed fundamental analysis of any stock you are considering for purchase is necessary for successful investing.

For an overview of the stock screening process, read “Constructing Winning Stock Screens.”

AAII.com is the best value in the financial world. It’s non-profit. It’s focus is upon the individual success.  

Todd

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