06-01-2015, 05:44 PM
There's a genius accounting Prof. named Piotroski, and he created a brilliant financial statement analysis. Piotroski started with the observation made by Ben Grahm that stocks priced low on a price-to-book basis tended to outperform the market. Admittedly, many companies cheap on a price-to-book basis, are really a red flag that failure is on the horizon. Piotroski found a way to separate winners from losers using historical financial statements.
Piotroski's investment strategy applies a nine criteria binary scoring system to the cheapest 20% of the market on a price/book basis. A score of 7, 8, or 9 suggest taking a long position. A score of 1, 2, or 3 suggest taking a short position.
In Piotroski's article he suggest further research be done with different valuation metrics other than price-to-book. I've decided to replace the price-to-book criteria with "Current Dividend Yield > Yield to Maturity of the 10-yr T-Note." Accepting scores >6, I accomplish alpha and a 23% CAGR of dividends since 01/1999.
Piotroski's investment strategy applies a nine criteria binary scoring system to the cheapest 20% of the market on a price/book basis. A score of 7, 8, or 9 suggest taking a long position. A score of 1, 2, or 3 suggest taking a short position.
In Piotroski's article he suggest further research be done with different valuation metrics other than price-to-book. I've decided to replace the price-to-book criteria with "Current Dividend Yield > Yield to Maturity of the 10-yr T-Note." Accepting scores >6, I accomplish alpha and a 23% CAGR of dividends since 01/1999.