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Criteria for my Rule #1 Screen
Back on September 21, 2007, I started working on a new screen to find Rule #1 companies.
What screening criteria did I use? Well, considering that I am still following the Rule #1 methodology, it is basically the same as it was the last time. Since it has been so long, let me recap the criteria:
Growth Rates:
- 10, 5, 3, 1 Yr Sales Growth Rates
- 10, 5, 3, 1 Yr EPS Growth Rates
- 10 Yr Book Value Growth Rate
- 10 Yr Cash Flow Growth Rate
All these growth rates had to be greater than 10%. For Sales and EPS growth rates, I further constrained these by enforcing that the 3 year growth rates were higher than the 5 year rates and that the 5 year rates were higher than the 10 year rates.
Consistency:
- R squared for 5 Yr Revenue Growth
- R Squared for 5 Yr EPS Growth
Both these coefficients had to be greater than 0.9. I was looking for consistent growth rates rather than irregular and uncertain rates.
Management:
- Average 5 Yr ROE
The average 5 year ROE had to be greater than 10%.
And lastly, I sorted this list of companies by their earnings yield.
With this screen, I identified 13 companies that met all these criteria! Not as many as I had hoped! But hopefully a good starting point.
Stay tuned for that list on my next post! (Don’t worry. I’ll post later in the week.)
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Related posts that may interest you:
- Rule #1 Screen Results as of May 12, 2008
- Rule #1 Screen Results
- New Rule #1 Screen
- Importance of Stock Screeners
- Dividend Screening Results
welcome back, Jungle! I’ve missed you
May 13th, 2008 at 10:34 amI will be very curious to find out which 13 companies are still holding through this bearish market!!!
I’ve been a reader of your blog for
May 13th, 2008 at 11:02 ama while, now, and I enjoyed Town’s
_Rule #1_ book. However, I was recently
surprised to see the results of the Rule #1
screen as tracked by AAII, who just recently
added the strategy to their lineup. Have
you seen these disappointing numbers? If
so, I’d be interested to hear your feedback
on them.
Hi Mark,
I am not an AAII member so I cannot see any of the information (i.e. screening criteria, passing companies, etc…). I see the return of -18% YTD, but I would need to see more detail in order to comment.
Are you a member?
May 13th, 2008 at 8:42 pmI am a member. According to AAII, the
Rule #1 Screen is down 18% year-to-date.
From 1998 through the present, the Rule
#1 screen is up 98.7%. That places it
dead last out of 22 screens in the
“Growth and Value” category that AAII
tracks. If you include the “Growth”
and “Value” categories, then the Rule #1
screen ranks 44th out of 47 total screens.
Indeed, even measuring up to his target of
15% p.a. returns, 98.7% falls woefully short
of the targeted 300% return in 10 years.
I was quite shocked when I intially
May 14th, 2008 at 10:43 amdiscovered this.