What are we looking for?
In January, we ran a screen combining the methods of legendary stock pickers Warren Buffett and Peter Lynch.
Our thinking was that, given the success they achieved on their own, putting their brains together would produce some stellar results.
Let’s check in on the portfolio to see whether we were right.
We used the “guru stock screener” from Validea Canada.
(Globe Investor has a joint venture with Validea.ca, a premium Canadian stock screen service.)
Specifically, we searched for stocks that met the criteria of both the “P/E Growth Investor” screen, which is based on Mr. Lynch’s strategy, and the “Patient Investor” screen, which seeks to emulate the stock-picking methods of Mr. Buffett.
The P/E Growth Investor screen uses the PEG ratio, among other factors.
The PEG, which Mr. Lynch used when he was piloting Fidelity’s Magellan Fund to superior returns until his retirement in 1990, takes the P/E ratio and divides it by the earnings growth rate.
Generally, the lower the PEG, the more attractive the stock is from a valuation standpoint.
Mr. Buffett looks for stocks with solid earnings growth and low price-to-earnings ratios, among other criteria.
Validea’s “long-term EPS growth” number is actually an average of the three- , four- and five-year annualized growth rates, to smooth out the effects of one exceptionally good or bad year.
Using the results of the screen, we set up a hypothetical $90,000 portfolio with equal $10,000 investments in each of the nine stocks.
From the inception date on Jan. 18 through July 4, seven of the nine stocks rose, led by a 47.5-per-cent gain in Alimentation Couche-Tard.
Over all, the portfolio posted an advance of 9.2 per cent, excluding dividends.
That handily beat the S&P/TSX composite index, which fell 3.4 per cent over the same period, also excluding dividends.
Six months isn’t long enough to judge the merits of any strategy.
We’ll check back in a few months to see how the portfolio is faring.
Remember that a stock screen is just a first step in the investing process.
Be sure to research individual companies thoroughly before you invest.
Checkup on guru screen: Jan. 18 to July 4, 2012
|Name||Symbol||No. of Units/Shares||Price $|
|Bank of Nova Scotia||BNS-T||190.26||53.84|
|Bird Construction Inc.||BDT-T||769.23||14.4|
|Computer Modelling Group||CMG-T||630.92||17.56|
|Home Capital Group||HCG-T||195.73||47.01|
|MTY Food Group||MTY-T||657.9||16.75|
|National Bank of Canada||NA-T||135.23||74.8|
|Total C$ Stocks|
|Name||Symbol||No. of Units/Shares||Price $||Mkt. value $||Total cost $||Unrealized gain/loss $||Unrealized gain/loss %||% of portfolio|
|Bank of Nova Scotia||BNS-T||190.26||53.84||10,243.53||10,000.00||243.53||2.4||10.4|
|Bird Construction Inc.||BDT-T||769.23||14.4||11,076.92||10,000.00||1076.92||10.8||11.3|
|Computer Modelling Group||CMG-T||630.92||17.56||11,078.86||10,000.00||1078.86||10.8||11.3|
|Home Capital Group||HCG-T||195.73||47.01||9,201.41||10,000.00||-798.59||-8||9.4|
|MTY Food Group||MTY-T||657.9||16.75||11,019.74||10,000.00||1019.74||10.2||11.2|
|National Bank of Canada||NA-T||135.23||74.8||10,114.94||10,000.00||114.94||1.1||10.3|
|Total C$ Stocks||98,259.11||90,000.00||8259.11||9.2||100|