Standard and Poor's, the well known company that gives its name to the Standard and Poor's 500 index, provides an excellent quantitative database for selecting stocks.
Their system provides a mechanical way to buy and sell stocks and avoid errors of human judgement. We are now offering one of these S&P systems to our clients. It's called the Fair Value portfolio and the system ferrets out stocks that are most undervalued, given the other information about the stocks (such as earnings growth, price to book value, return on equity, dividend yield, etc).
The startling aspect of back testing this system is that it has beaten the S&P 500 index every year without a down year since 1987. Most investors in mutual funds have not even matched the S&P 500 and beating the index consistently alludes most stock investors. Many investors have flocked to S&P 500 index funds, but the back test of the following system has done much better with a 27.9% annualized return for the past 11 years. Here are the annual percentage results of back testing the Fair Value Portfolio:
|
Fair Value Portfolio |
S&P 500 Index |
1987 |
20.9% |
5.2% |
1988 |
25.7 |
16.5 |
1989 |
36.7 |
31.6 |
1990 |
8.6 |
-3.1 |
1991 |
46.8 |
30.4 |
1992 |
17.9 |
7.6 |
1993 |
11.6 |
10.1 |
1994 |
24.0 |
1.3 |
1995 |
40.7 |
37.5 |
1996 |
33.9 |
22.9 |
1997 |
48.4 |
31.01 |
Average |
27.9% |
16.6% |
The beauty of this system is its mechanical nature (errors of human reasoning and judgement are avoided) and manageable portfolio of about 20 stocks.
If you are tired of your mutual funds not beating the market, paying excessive taxes from short term gains and high mutual fund expenses, call us to find out more about the fair value portfolio and how it may help you achieve better returns.