Discussion in 'Trading' started by flea, May 27, 2002.

  1. flea


  2. DT-waw


    The page does not exsist. Your link is wrong.

    Keep It Simple, Stupid! is the greatest rule for trading and it should be used in many other areas, for example tax system also should be simple :mad:

    Keep things as simple as possible.
  3. flea


    Sorry, It should work now:)
  4. Bono



    There's a problem with the link you posted.
    Why don't u try to copy-paste the whole article ?
  5. Bono



    Great article ! Very informative for a pure technical analysts such as myself :)
    An incredibly simple stock-picking
    method nets a 267 percent gain
    B Y J O H N D O R F M A N
    I created a stock-picking robot. Now I feel like a parent
    whose child is outdoing him—proud but a trifle annoyed. The
    robot, which lives in my basement and uses Bloomberg’s equities
    database, compiles its official Robot Portfolio at the start
    of each year, though I’ve updated it to April 1 for this story. It
    assembles a 10-stock portfolio using a method that is simplicity
    itself. It begins with all the U.S. stocks having more
    than $500 million in market capitalization—about 1,800 candidates.
    Then it discards those that have total debt greater
    than common equity, lopping off 600 issues or so. From the remaining 1,200 stocks, the robot selects the 10 with the lowest
    price-to-earnings ratios. (The P/E is the stock price divided by
    the past four quarters’ per-share earnings.) That’s it. Any graduate student in finance could design a more sophisticated
    stock-picking model. Even a bright high school student could
    create something less naive. But look at the robot’s results.
    In 1999, when the S&P 500 Index rose 19.5 percent, therobot’s picks advanced 40.3 percent. I smiled and was pleased.
    In 2000, when the S&P 500 declined 9.1 percent, the robot
    surged 67.7 percent. I was delighted, but a bit discomfited. I
    had been very proud of the 30.9 percent gain I obtained for
    my clients that year, yet the robot had done much better.
    In 2001, the S&P 500 had an even worse year, falling 11.9
    percent. The Robot Portfolio bucked the trend again, rising
    23.8 percent. In March of that year, this magazine featured the
    robot in a cover story. Now things were getting a little ticklish.
    A few clients suggested that I give the robot the reins.
    At the start of 2002, the robot picked a portfolio heavy in
    out-of-favor energy stocks. (I heartily agreed.) It also included
    Providian Financial (PVN), which extends credit to people
    with short or weak credit histories. I have never been a fan of
    that business, and I thought a recession was a terrible time
    for it. Lo and behold, through the end of the first quarter, Providian was up 113 percent. The Robot Portfolio as a whole had
    gained 26 percent, against a 0.3 percent gain (including dividends) for the S&P 500. From January 1, 1999, through April
    1, 2002, a $1,000 investment in the robot would have grown
    to $3,674.
    Why does such a simplistic model do so well? There are
    several explanations. A statistician might point out that the
    sample size in the robot experiment (three years and a quarter,
    only 10 stocks a year) is statistically insignificant. A value
    investor like me might say the robot does well because it is a
    at the beginning of 1999,

    V A L U E I N V E S T I N G
    pure embodiment of value investing, searching for bargains
    among ugly-duckling stocks. A psychologist could argue that
    the robot does well because it is emotionless and has no fear
    of embarrassment when it recommends stocks that “everyone
    knows” are no good. Certainly, Providian is a good example
    of that. In past years, so were such beaten-down shares as
    Ensco International (up 114 percent in 1999), HealthSouth
    (up 204 percent in 2000), and Navistar (up 51 percent in 2001).
    But enough theory. Let’s talk stocks. In January of this year,
    6 of the robot’s 10 picks were in the energy sector: Amerada
    Hess (AHC), Devon Energy (DVN), Sunoco (SUN), Tesoro
    Petroleum (TSO), Valero Energy, and Vintage Petroleum
    (VPI). Today, those same stocks have gained between 1 and 30
    percent, though most are still not expensive. The United
    States will likely experience spot shortages of energy during
    the next five years, so I believe the long-term prospects for
    these companies are excellent.
    Two more of the robot’s official 2002 selections were home
    builders—Standard Pacific (SPF) and MDC Holdings. The
    risk here is that as the economy recovers, interest rates will
    rise, choking off home buying and hence home building.
    Already, the Federal Reserve has signaled that it is probably
    finished with its regimen of rate cuts. However, my feeling is
    that it will likely be 2003 at the earliest before higher rates
    begin to pinch home purchases. Meanwhile, housing stocks
    are quite cheap.
    The robot filled the remaining two slots with Providian
    Financial and SureWest Communications (SURW). I was a
    fan of neither; both have done well. But in my judgment,
    SureWest made the list by dint of extraordinary earnings,
    while Providian still looks risky.
    When I set the robot in motion again in early April, it
    picked only 2 of the original 10—Valero Energy and MDC
    Holdings. The other eight are newcomers, mostly because the stocks in the initial group have appreciated in price.
    Still, the robot continues to love the energy sector. Its latest selections include Houston Exploration, Marathon
    Oil, Occidental Petroleum, and refiner
    Ashland. I like these for the same reasons
    I liked the other energy companies
    mentioned above. I’m especially
    keen on Marathon Oil, now independent
    of U.S. Steel for the first time in 20
    years. I believe that subsidiaries often
    show better performance once they are
    cut loose.
    I’m also a fan of Occidental Petroleum,
    a Los Angeles-based international
    producer of oil, natural gas, and
    chemicals that had revenue of close to
    $14 billion last year. I think its CEO, Ray Irani, is being more
    candid and complete in talking with investors than his predecessor,
    Armand Hammer, was. Occidental sells for only
    eight times earnings and offers a 3.4 percent dividend yield. I
    own the stock for most of my clients. The shares, at around
    $29, are trading close to their 52-week high of $31, but from a
    valuation standpoint, they appear to have room to grow.
    PNM Resources of New Mexico produces and sells electricity
    and natural gas. The stock is cheap because earnings
    have fallen on thinner profit margins in wholesale power, from
    $4.52 cents a share in 2001 to an estimated $2.85 this year.
    A pair of title insurance companies, Fidelity National Financial
    and LandAmerica Financial Group, made the April
    list, each with a P/E ratio of 7. The peril for these firms, like
    the housing stocks, is that if interest rates rise, fewer people
    may buy homes, and there will be less need for title insurance.
    But here again, the stocks’ low prices probably discount the
    risk, and then some.
    Rounding out the robot’s latest selections is Alexander &
    Baldwin, a shipping and real estate company that carries
    goods to and from Hawaii and owns land there. Hawaii has
    been in a prolonged economic slump as a result of the chronic
    Japanese recession and the decline in U.S. travel after the September
    terrorist attacks. At 8 times earnings and 1.6 times
    book value (corporate net worth per share), this stock strikes
    me as a bargain.
    A few of my clients have the entire Robot Portfolio incorporated
    into their holdings. Such has been the power of the
    tin man. Let’s see if his good fortune continues. ∂
    John Dorfman, president of Dorfman Investments in Boston, is a
    columnist for Bloomberg News. The opinions expressed are his own.
    His firm or its clients may own or trade investments mentioned.
    T I N M A N ’ S N E W P I C K S
    The Robot Portfolio contains stocks with at least $500 million in market capitalization that
    have rock-bottom P/Es. This year, the roster is dominated by beaten-down energy stocks.
    ALEX Alexander & Baldwin  shipping and real estate 8 4%
    ASH Ashland  refining 8 –2
    FNF Fidelity National Financial  title insurance 7 7
    THX Houston Exploration  oil and natural gas 7 –8
    LFG LandAmerica Financial Group  title insurance 7 19
    MRO Marathon Oil  oil and natural gas 6 –3
    MDC MDC Holdings  home building 7 13
    OXY Occidental Petroleum  oil and natural gas 8 13
    PNM PNM Resources  electric and gas utility 7 9
    VLO Valero Energy  refining 6 29
    All data as of 4/1/02. SOURCE: Bloomberg.
  7. Does anyone know where one could get a historical database that includes company earnings and debt-to-equity ratio? It would be nice to verify the author's claims and see how well his methodology worked in previous years.

  8. an obvious idea blue.. someone backtest this marvel to 1930s plz
  9. CWU


    Now that's an interesting play on cap, pe and d/e.

    Using the Russell 3000, here's the low 33: