Value Line Contest From The 1980s: Mimicking It Today

Value Line Contest From The 1980s: Mimicking It Today

Mimicking the 1980s Value Line Contest by David Merkel, CFA of Aleph Blog

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A letter from a reader:

Dear Mr. Merkel,

Growing Up In The Fund Management Business: This PM’s First Stock Was A Value Stock

Invest ESG Leon CoopermanWhen portfolio managers get started in the business, their investing style often changes over the years. However, when Will Nasgovitz bought his first stock when he was 12, he was already zeroing in on value investing, and he didn't even know it. Nasgovitz has been with mutual fund manager Heartland Advisors for almost 20 years, Read More

I am organizing an investment contest in my university and I want to do it properly. Can you provide me with data of stock divided into 10 groups based on volatility? I searched for it in Yahoo Finance, but if you have it compiled in a better way, it would be really helpful. 

Also, what do you mean when you say a minimum capitalization limit? Do you mean that the students should hold a certain amount of cash, that they are not allowed to invest?

Sometime in 1983-1984, Value Line held a contest where it asked participants to pick ten stocks, on from each of ten price volatility groups, ranked from lowest to highest.  Why such a contest design?  Well, with most stock picking contests, the winner picks a really volatile stock, it soars, and he is the winner by accident.  I say “by accident” because there were others with similarly volatile stocks that lost.

Forcing players to pick a portfolio of stocks, including less volatile stocks, creates a real challenge that resembles real portfolios.   Even though the contest will still run over 3-6 months, the luck component is substantially reduced, even though results over a short time horizon are highly affected by luck and momentum.

Well, I’ve created a file that divides the US-traded market into 10 volatility buckets for you, using data from a screening package.   Here’s the link.

3,589 stocks made the cut.  No ETFs, closed-end funds, etc.  No market caps below $100 million. No stocks with less than 3 years of trading history.  The market cap limit is there because really teeny stocks can fly, and skew the results.  And no, no cash is in the results, just the average returns of 10 stocks.

Here are the average price volatilities by bucket.  [Volatility is actual price volatility for 36 trailing months]

Bucket Avg Price Volatility
1 15.04
2 19.80
3 23.28
4 26.67
5 30.01
6 33.69
7 38.16
8 44.38
9 54.21
10 107.02

As for industries, the volatilities are what you might expect:

Ten Least Volatile

  • 1206 – Natural Gas Utilities
  • 1203 – Electric Utilities
  • 1209 – Water Utilities
  • 0512 – Fish/Livestock
  • 0506 – Beverages (Non-Alcoholic)
  • 0524 – Tobacco
  • 0715 – Insurance (Property & Casualty)
  • 0503 – Beverages (Alcoholic)
  • 0933 – Real Estate Operations
  • 0730 – S&Ls/Savings Banks

Ten Most Volatile

  • 0912 – Casinos & Gaming
  • 0930 – Printing Services
  • 0124 – Metal Mining
  • 0409 – Audio & Video Equipment
  • 0427 – Photography
  • 0969 – Schools
  • 0118 – Gold & Silver
  • 0803 – Biotechnology & Drugs
  • 0966 – Retail (Technology)
  • 0424 – Jewelry & Silverware

That said, such a contest would force some choices from both safe and volatile investments.

Smaller stocks are a lot more volatile than large stocks on average:

Mkt Cap Bucket

Average Vol Decile













Over 100B


Finally, some countries are more or less volatile than others.  Of the 50 countries represented, trading on US exchanges, here are the most and least volatile:

Least Volatile

  • Colombia
  • Denmark
  • Panama
  • Philippines
  • Turkey
  • Belgium
  • United Kingdom
  • Chile
  • Switzerland
  • Japan

Most Volatile

  • Israel
  • Bahamas
  • Finland
  • Portugal
  • Russian Federation
  • India
  • Monaco
  • Greece
  • China
  • Argentina


My point in showing some of the divisions is to give an idea of ways to analyze and play the game.  You could also do it by momentum or valuation variables.  Momentum would probably work best in a short contest.

As for me in the early ’80s, I was a busy graduate student, so I looked at the stocks rank ed highest for Timeliness by Value Line in each volatility group, and selected the one for each group that I thought was the most promising.  As it was, I finished in the top 1%, but not high enough to win a prize.

Anyway, I think this is a great contest design, because it minimizes the ability of players to pick volatile stocks.  With ten stocks of varying volatility in the portfolio, stock-picking skill has a greater chance of being revealed.  Better would be a longer-term contest, but few have the patience for that, and players will argue that they should be allowed to trade, making for a more complex contest.

Updated on

David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.
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