|
Reuters
Screens Can Help You Make Money
Please Note:
Reuters no longer offers the features described in this article.
“Many of
the stocks on that list you recommended are teetering on bankruptcy.
What were you thinking?” That was the gist of many emails I received
after I described Reuters’ Contrarian Opportunities stock selection
screen in this space just about a year ago.
Contrarian
Opportunities is one of 19 stock selection screens designed by
Reuters’ director of investment research, Marc Gerstein. Reuters (investor.reuters.com)
runs the 19 screens, which it calls Reuters
Select, daily, and lists the stocks turned up by each screen on its
site. You have to register, but there is no charge to see the lists.
Reuters
tracks the performance of each screen and makes the results available,
both in summary form, and month-by-month since inception.
What got
everyone’s attention was that, as of August 27, 2004, the stocks
picked by Gerstein’s contrarian screen had racked up an eye-popping
729% cumulative gain since its inception in January 2000. By contrast,
the overall market as gauged by the S&P 500 index, had lost 17%
during the same period.
While
Contrarian Opportunities did the best, several other screens had
produced impressive results. In fact, every one of the 19 screens had
beaten the market from January 2000 through August 2004.
Time For
An Update
With
reader’s comments still on my mind, last week, I checked to see how
Contrarian Opportunities and Gerstein’s other screens had fared over
the past year.
As of
September 9, Contrarian Opportunities still led the field, but this time
with an astonishing 1349% cumulative return. By the way, Reuters
computes the returns assuming that each portfolio is rebalanced monthly,
meaning that a new portfolio is selected every month.
Screen
Categories
Gerstein
divides his screens into four categories, Growth, Value, Quality, and
Sentiment. The Growth and Value categories each contain five screens
emulating different variations of these relatively well-known selection
strategies. Contrarian Opportunities is in the value category.
The Quality
category includes four screens that look for stocks with strong
fundamental characteristics. The Sentiment category includes five
screens that look for stocks that are “in favor” based on factors
such as insider buying or analysts’ ratings.
Lesser-Known
Stocks from the Sentiment category was the second best performing screen
with a 337% cumulative return. A value screen, Favored Value Plays, was
a close third with a 330% return.
As was the
case last year, each of Gerstein’s screens has not only been
profitable since inception, every screen has soundly trounced both the
S&P 500 and the Nasdaq.
Lower Risk
Screens
Despite its
off-the-chart historical returns, in my view, the Contrarian
Opportunities screen is too risky for serious money. While most of
Gerstein’s screens produce lists of 30 to 50 stocks, the contrarian
screen turns up far fewer. In fact, when I checked last Tuesday, it only
listed only two stocks. Obviously, with only a few stocks, one clunker
could sink the entire portfolio.
However,
Gerstein’s remaining 18 screens produce consistent market-beating
results, and to me, look relatively low-risk.
Find Reuters
Select screens from Reuters Investing homepage by selecting Ideas
& Screening and then Reuters
Select. Click on Daily
Results to see the current picks for each screen.
Check
Performance
The best way
to evaluate a screen’s suitability for your needs is to check its
monthly performance under different market conditions. You can do that
by selecting Performance,
and then click on Performance Details for a particular screen category
to download a spreadsheet showing the cumulative returns by month for
each screen since inception. Scroll past the cumulative returns to see
the actual monthly returns.
By the way,
Reuter’s cumulative returns are index values, not percentage returns.
The index values are referenced to the January 28, 2000 starting value
of 100. Subtract 100 from these values to get the actual percentage
returns. You don’t have to make that adjustment when you look at the
individual monthly returns.
Buying equal
dollar amounts of the 30 to 50 stocks typically turned up by
Gerstein’s screens may not be practical for many investors.
Even if you
don’t buy all the stocks, the screens are a good source for investing
ideas. Also, check out Gerstein’s screen descriptions. He explains his
rationale for the screen and also describes the screening criteria in
detail. Reading each one is like taking an investing course.
Gerstein’s
screens have produced remarkable results over the years. It’s amazing
that Reuters is still giving the lists away for free.
published 9/18/05 |
