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Strategies & Market Trends : Greenblatt's Little Book That Beats The Market -- Ignore unavailable to you. Want to Upgrade?

To: Stewart Whitman who wrote (82)	2/20/2006 12:44:12 AM
From: Shane M	Read Replies (1) \| Respond to of 218

Stew, thanks again for the comments. the Greenblatt ROC of 23-29% doesn't really say that the business is good or a solid performer. You're right - point taken on a different or relative scale of "good" and "bad" ranges for Greenblatt's ROC. I do think as a rule-of-thumb it's safe to say that 29% ROC is is pretty good relative to the universe though. I'm showing 745 of 4504 stocks in eligible sectors/industries have ROC of 29% or better. I like your thoughts on quality companies at the right price and "improving" over time. From what I can tell most of the big gains - at least in stocks of profiles I select from - occur primarily due to multiple expansion compounded with ROTC/ROE improvements and sales growth. Example: Of the stocks passing screens I follow the top performing group (49 stocks with 50% gain or more) increased a median 68% in 2005. In that group the median PE at the start of the year was 18.4 and at the end of the year was 26.0. Book value increased median 23%, Sales/share increased median 22%, ROTC_12m was 13.9% vs 3yr avg of 10.2% for the group. They also had high levels of return on marginal equity (the ratio of increase in income over past 5yrs vs equity added over past 5yrs). Lower debt levels also tended to perform better in aggregate (1.1x earnings median for best performance group). It's proving more difficult to spot the improving trends 12 months in advance at the right price though <g>, although it seems some stocks have a long enough history to allow a level of confidence in projecting continued improvements. It's also interesting to note that all of the poorly performing groups from last year had median ROTC that were flat and/or declining along with lowest sales and book value growth. Thanks for the thoughts on Piotroski score. I've noticed the Piotroski screen has performed extremely well on the AAII website over time. I'll come back to the "improving" checklist you mention below. That's an interesting idea. Shane