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Strategies & Market Trends : Shorting stocks: Mechanical aspects -- Ignore unavailable to you. Want to Upgrade?

To: Banjoman who wrote (62)	7/28/1998 3:59:00 AM
From: Q.	Read Replies (2) \| Respond to of 172

Don, thanks for the news about your mechanical short-picking strategy. And nice to hear from you again. :-) Your scheme reminds me of one that AOL-TMF posters devised a couple of years ago. One guy wanted to use Value Line's #5 timeliness stocks. He wanted to narrow the list down to just a few so that an individual can short them all. (That's what you are doing, by further filtering based on Zacks #5 ratings, which indicates rapidly dropping analyst ratings.) Ultimately, he and I figured out a very easy way to narrow down the VL #5 list. On the page of the VL booklet where they list the #5 timeliness stocks, they also listed the dividend yield and p/e. By picking only the stocks that had zero yield and NMF p/e, we found that we got only the the VL stocks with the shakiest cash situations. This was easy, because it required only looking at a single page of a VL booklet. That guy made a paper portfolio, and followed it for several months (much as you did) and he got quite a good return, something like 10% per month, on the shorts. It should be easy to backtest this scheme if one had the old VL reports. His scheme picked different sorts of stocks than yours, I imagine. His would not pick Boeing, for example, because it pays a dividend. Please let us hear more about your scheme as it develops!

To: Banjoman who wrote (62)	7/28/1998 4:10:00 AM
From: 246810	Respond to of 172

Looks good. I printed a hard copy for reference. When doing it on paper you can test all kinds of characteristics. However, when doing it for real, you would look to maximize return by choosing only the weakest performers. I think you should drop income as a parameter and look at other things like cost ratios to book value, sales growth and ??? 246810

To: Banjoman who wrote (62)	7/28/1998 5:07:00 AM
From: Q.	Read Replies (3) \| Respond to of 172

Don, thinking more about your scheme, one could summarize by saying that you're screening the mid-to big cap stocks using two momentum based criteria and one value criterion. VL timeliness is based on both price and earnings momentum, while Zacks is based on analyst ratings momentum. Limiting the yield below 3% introduces the value criterion. Your momentum criteria are based on a mix of technical and fundamental factors (low RS and declining earnings). I think this sounds like a pretty sensible scheme. One parameter that might be worth playing with is your yield limit. How did you choose 3%? The S&P yields 1.4%. Does your limit actually eliminate many of the stocks in your universe?