Q2 for the value strategies have been a disappointment for the most part.

Q1 was strong, but the value strategies that I follow weren’t able to keep up in the second quarter.

At the end of the first quarter, 9 out of the 16 stock screens (60%) were beating the market. That is now down to 5 out of 16 screens beating the S&P500 for a win rate of 31.3%.

Here’s how all the value screens did last year.

The order is sorted in descending order based on the end of year performance.

But first, something important that most people get confused about.

The value stock screens are predefined results free for visitors.

It is not part of the Stock Analyzer package. The Stock Analysis software is a “stock analyzer” providing deep fundamental analysis and valuations.

It does not screen for stocks or perform backtests.

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Now that I’ve gotten that clear, let’s continue.

The Value Stock Screener Performances

2013 Performance at the End of Each Quarter value strategies
value strategies

You can read up on the idea behind each screen and how it was backtested from the main stock screener page.

Compare last years performance with the Q1 and Q2 performance of 2014 below (descending order).

2014 Q1 Results

2014 Q2 Results

Now here are the Q1 and Q2 performances side by side, sorted by the Q2 numbers.

The Altman Z screen was at the bottom in terms of performance last year (still gained 27%), so it’s good to see it at the top. It also goes to show that one strategy won’t work every single year.

All those claims you see on the internet are mostly lies.

So expect periods of underperformance even with the screens that I have up. And that’s the difficult part with mechanical investment strategies because it’s difficult to know whether your starting point will be a good time or not.

A leap of faith and trust in the numbers and research is required to stick to the strategy.

On the flipside, the Piotroski Best screen as well as the FCF Cow are fairly consistent.

I should really try combining the Piotroski Best and the FCF Cow screen to see what I come up with.

What do you think?

What two screens should I try combining?

Quick Recap of the Stock Screen Descriptions

Before I go further, let me give you a quick run down of what strategy each screen follows.

Altman Z

Piotroski Best

FCF Cow

  • Looks for increasing FCF from the previous year along with inproving FCF/LongTermDebt to find strong companies.

NNWC Increasing

Magic Formula

Graham Formula

  • Searching for stocks where the Graham Formula is less than 66% of the stock price. Looking for a big margin of safety here.

Insider Buys

  • Strategy that follows insider buy and sell transactions. Also include stock options in this screen.

Piotroski

  • Just replicating the original Piotroski score and all the stocks with a score of 9.

CROIC

Share Buybacks

  • Much like the insider buys screen but uses company share buybacks as signals.

Low Expectations

Graham Checklist

NNWC & NCAV

  • Best performing strategy since I started following each one closely. Not for the faint hearted.

Negative Enterprise

  • Another category of cheap companies stockpiled with cash.

A Deeper Look at the Altman Z Stocks

There are some claims that the Altman Z is outdated and shouldn’t be used in this day and age.

Take a look though.

Z = 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 +1 X5

where

X1 = Working Capital / Total Assets

X2 = Retained Earnings / Total Assets

X3 = EBITDA / Total Assets

X4 = Market Value of Equity / Total Liabilities

X5 = Net Sales / Total Assets

Here are the rules for interpreting the Altman Z score.

  • When Z is >= 3.0, the firm is most likely safe based on the financial data.
  • When Z is 2.7 to 3.0, the company is probably safe from bankruptcy, but this is in the grey area and caution should be taken.
  • When Z is 1.8 to 2.7, the company is likely to be bankrupt within 2 years.
  • When Z is <= 1.8, the company is highly likely to be bankrupt.

The Z score itself isn’t as accurate today.

That’s true.

But the ratios (X1 to X5) are useful financial ratios. You can read about each in more detail and how it is used from the Altman Z discussion article.

The Current 2014 Altman Z Portfolio

Here are the stocks that make up the 2014 Altman Z Screen.

All stocks are held for one year with equal weighting.

Even if I believe a stock has reached intrinsic value, it stays. No sells.

The purpose is to keep it objective with minimal expenses.

Stocks that Currently Make Up the Altman Z Stock Screen

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