Some people have asked if there are any backtesting results for the screens. Unfortunately there are none because these screens are not meant to be blindly followed mechanically, rather they are be used in conjunction with sound judgement and due diligence.
That said, in July 2005 we started saving the results of the weekly screen for Low Price To Operating Cash Flow Ratio. The following stocks appeared in the screen (in no particular order) as of July 21st, 2005: ALO, ACGL, ARBA, VOXX, BRP, CNA, ELP, CGA, GFR, IKN, LAB, NWLIA, OPY, TSD, UTSI.<
As an experiment, we created a hypothetical portfolio of $1000 worth of each of the aforementioned stocks as at the close of July 21st, 2005. The results as of 13th January, 2006 are tabulated below, showing a gain of 26.57% for just under 6 months. In the same period, the S&P 500 gained 8.67%. Of of the 15 stocks, only 3 show a loss, with the largest deficit being -17.53%. The largest gains were 109.58% and 100.16% or well over 300% annualized.
In my view, this is proof that effectiveness of a low Price vs. Cash Flow from Operations which, although not in itself a true Graham screen, is enhanced by screening further in a more Grahamian way in order to find stocks trading below book value.
A good way to use this screen over a longer period of time would be select from it a number of stocks that you are comfortable with, after doing your due diligence, and accumulating them monthly via Sharebuilder or foliofn for example, as long as they remain on the screen. When they disappear from the screen, stop buying them and replace with a new stock or stocks from the screen. This will ensure you are always buying value. As for when to sell, at least a year is always best for tax purposes, but that is really up to you.
I hope that this gives some idea of the power of using screens like this one in a disciplined way. We hope to see in a similar fashion how well this portfolio and hopefully one from the Graham Number Screen is doing in a few months time.
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