O'Shaughnessy
Cornerstone Growth Screen
The Cornerstone Growth screen implements the growth strategy developed by O'Shaughnessy using over 40 years of S&P Compustat data. His book
What works on Wall Street:
A Guide to the best-performing Investment Strategies of All Time - provides a detailed examination of basic investment strategies, test results of a number of growth screens and value screens, and which screens within each strategy produced the best returns.
Latest results of over a hundred pre-defined screens for Indian stock market.
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We have all seen how high-growth, high margin stocks are often bid up to unrealistic levels. The recent crash (January 2008) and the subsequent bearish run has also shown us that we as Growth stock investors need to watch our portfolios very carefully, quickly selling off stocks with any hint of disappointing growth/other bad news. Does Suzlon ring a bell? The tests reveal that growth stocks often underwent significant periods of superior risk-adjusted performance, especially during strong bull markets. However, these gains were eroded over the long run during subsequent market periods.
So, do these tests provide some clues on how to handle a growth stock portfolio? Fortunately for us, O'Shaughnessy's tests of basic growth strategies reveal that Relative Strength is an effective tool to use for the growth stock investor, working consistently over the 40-year test period. Relative strength compares the price performance of a stock to its corresponding Index. Stocks outperforming the Index have positive relative strength while those underperforming have negative relative strength. He tested a large number of simple growth screens like high profit margins, high return on equity, high one year and five year earnings growth and high relative strength. The tests revealed that with the exceptions of relative strength and consistent earnings growth, most simple growth strategies proved risky and did not compensate investors adequately for the risks possible with these strategies. Relative strength measures help to reveal pockets of exceptionally strong or weak performance. By combining relative strength, earnings consistency and balancing the growth requirement with a price-to-sales value measure O'Shaughnessy was able to construct a portfolio, which he termed as -the Cornerstone Growth screen- that worked consistently with a desired combination of strong growth with reasonable risk. The Cornerstone Growth screen was applied to the all-stocks universe because smaller stocks have greater growth potential than large caps. A market capitalisation threshold of $150 million was applied to produce a starting base of companies. A filter for 5 years of consecutive EPS growth applied next, proves quite restrictive. This growth requirement is balanced by using a maximum price-to-sales ratio of 1.5. This reduced the passing companies further. Finally O'Shaughnessy ranked the passing companies for highest relative price strength over the past year.
Latest results of over a hundred pre-defined screens for Indian stock market.
You will need to request for a ValuePIckr UserID/Pwd as this is a Limited Alpha service currently
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