Scalper1 News
The final results of the Piotroski F-Score experiment. The portfolio lost half of its value mainly due to the fall in the price of oil. The experiment wasn’t a total failure. It has been a year since I began my Piotroski F-Score experiment (Finding Value With The Piotroski F-Score). Unfortunately, the results of the experiment are less than impressive, although the unexpected collapse in the price of oil is partially to blame. You can find the first part of this series, which explains the methodology behind the F-score, as well as an initial summary for each company, here . The second part, assessing the portfolios performance up to the beginning of February can be found here. Part three. Part four. The thesis behind my F-Score experiment was simple. The Piotroski F-Score was designed to hunt out value opportunities that are profit-making, have improving margins, don’t employ any accounting tricks and have improving balance sheets . As a contrarian value investor, I was interested in seeing how this strategy performed in the real world. It is both a way to discover value stocks and trade them without fundamental analysis, the screening criteria and investments are based purely on the financials (something Benjamin Graham recommended). Piotroski recommended scoring the bottom 20% of the market in terms of price to book value and rating these companies based on how many F-Score criteria they passed. The criteria looked at points such as leverage, liquidity, profitability and operating efficiency. One point is awarded for each criterion the company passes and the stocks that score the highest, eight, or nine are regarded as being the strongest candidates for recovery. Using the following system, Piotroski’s April 2000 paper Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers, demonstrated that the Piotroski score method would have seen a 23% annual return between 1976 and 1996 if the expected winners were bought and expected losers shorted. This time last year I selected 20 companies that passed Piotroski’s criteria and were, at the time of initial investment, trading below book value per share. I constructed a hypothetical portfolio investing $1,000 in each company excluding commissions. The positions were based on financial data only with no weighting to fundamental factors. The companies selected were: Noble (NYSE: NE ), Ternium SA (NYSE: TX ), Unit (NYSE: UNT ) Ocean Rig (NASDAQ: ORIG ), CYS Investments (NYSE: CYS ), Pacific Drilling (NYSE: PACD ), Hornbeck Offshore Services Inc (NYSE: HOS ), OM Inc. (NYSE: OMG ), Speedy Motorsports (NYSE: TRK ), Gulfmark Offshore Inc (NYSE: GLF ), Schnitzer Steel Industries Inc (NASDAQ: SCHN ), Bill Barrett (NYSE: BBG ), Penn Virginia (NYSE: PVA ), Steel Excel Inc (OTCQB: SXCLD) McClatchy Co (NYSE: MNI ), Ducommun Inc (NYSE: DCO ), Vantage Drilling Co (NYSEMKT: VTG ), Nuverra Environmental (NYSE: NES ), Willis Lease Finance (NASDAQ: WLFC ) and Ellington Residential Mortgage (NYSE: EARN ). How did the portfolio perform? (click to enlarge) Values taken after market close 11/20/2015. A 49.32% loss in 12 months is a terrible performance. Dividends received over the period totaled $61.20, although these cash payments didn’t do much to soften the blow. OM Group was taken p rivate by Apollo Global . It’s clear that turbulent oil markets were to blame for this underperformance. There’s no way the strategy could have identified or prevented the carnage in the oil sector over the past year or so. And there is no reason to give up on the F-Score after just one year of poor returns, so I’m going to continue the experiment for another year but make several adjustments. A new crop of stocks will be selected using the same criteria as the ones that qualified last year. However, this time around I’m also going to short hypothetically the 20 worst stocks — as the original F-Score study suggested. Moreover, I’m going to run another portfolio alongside the one described above which will exclude all resource stocks. I’ll be publishing the details of these two portfolios over the next week. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks. Scalper1 News
Scalper1 News