Brad, since we have nothing else to discuss concerning CLE this weekend <VBG>, I wanted to pick up on your comments about beating the market. One of the problems with using that as a benchmark is that the S&P, or whatever mraket indicator is used has, by definition, a beta of 1.00. In a bull market, a reasonably diversified portfolio of stocks with a beta of greater than 1 should beat the market. Unfortunately, when we hear of systems that beat the market we don't see normalization of the return to reflect the beta of the portfolio.
For example, Value Line publishes the results of its timeliness picks. Clearly, the results suggest that the VL timeliness methodology enriches the returns of its 1500 or so stock universe. I presume that they use equal dollar weighting for their picks. But the broad market indices are capitalization-weighted. Furthermore, we don't know the betas of the Value-Line portfolios. Therefore, it is difficult to judge just what the numbers mean. In spite of these difficulties, some academics have come to the conclusion that there is a "Value Line Effect" which they take as evidence of the weak form of the efficient market hypothesis.
I have found Value Line to be an invaluable tool for picking my portfolio. That's how I picked up on CLE. It seems to be an underappreciated growth company. Same store sales seem to be increasing nicely, and I suspect that there's plenty of room for expansion in niche marketing.
Oh well, I seem to be rambling.
Regards,
Paul |
