What Members Are Asking Online
by CI Staff
I recently joined AAII and just received the First Quarter 2011 issue of Computerized Investing. The Technically Speaking column on the accumulation/distribution line was very informative. I’m new to technical analysis and have a question: In the article, Figures 1 and 2 show the accumulation/distribution line with positive and negative divergence, respectively. The question is, why do you put the trendline under the accumulation/distribution line and on top of the stock price in Figure 1 and the opposite in Figure 2?
—D.M. via e-mail
CI Editor’s Response:
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Your question highlights the subjective nature of trendlines. Generally speaking, an uptrend is characterized by higher highs and higher lows, while a downtrend consists of a series of lower highs and lower lows. In the figures from the First Quarter 2011 Technical Speaking article, the trendlines shown on the stock charts and accumulation/distribution line charts are connecting the lower highs for downtrends and negative divergence and the higher lows for uptrends and positive divergence.
AAII Stock Screens
I’ve been downloading historical data from the AAII Stock Screens area and looking specifically at the Graham Defensive Investor (Non Utility) screen. I see that there have been some months where no stocks pass the screen. Is this common for this particular screen? Should I interpret the fact that no stocks show up on the screen as a signal to sell stocks purchased previously using that screen?
—R.W. via Web inquiry
CI Editor’s Response: Our backtesting methodology for the AAII stock screens assumes that a stock is sold if it does not pass a given screen from one month to the next. However, we are not advocating this as an optimal rebalancing strategy. By subjecting all of our stock screens to the same conditions for backtesting, we are attempting to illustrate how different types of stock screens—value, growth, growth and value, etc.—behave over various market conditions.
Historically, the Graham Defensive (Non-Utility) screen has generated 20 passing companies each month. It is rare for this screen not to have at least one passing company. However, the Graham Enterprising screen does suffer from this problem: only four companies, on average, pass the screen each month. Looking at the underlying screening criteria for a screen provides insights as to why it may not have any passing companies. The Graham Enterprising screen is a strict value screen, requiring companies to have a price-to-book-value ratio of less than or equal to 1.2. Furthermore, passing companies must have earnings per share for the last fiscal year and trailing 12 months greater than earnings per share five years ago. During the recent economic downturn, few, if any, companies were able to meet these criteria.
Stock Screener Quest
I am looking for a stock screener that will allow me to develop a screen using the following parameters:
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Return on invested capital over the last 10 years;
Sales growth over the last 10 years;
Earnings per share growth over the last 10 years;
Equity per share growth over the last 10 years; and
Free cash flow growth over the last 10 years.
Do you have any suggestions?
—D.D. via Web Inquiry
CI Editor’s Response: Our latest comparison of online stock screening services appeared in the Third Quarter 2010 issue of Computerized Investing, and it is available at ComputerizedInvesting.com. We are not aware of any stock screening service that offers 10 years of data for screening purposes. The vast majority have three to five years of data for screening. Arguably the most flexible fundamental stock screening application I have run across is AAII’s Stock Investor Pro software. This Windows-based program provides financial data for the last seven fiscal years and last eight fiscal quarters. It includes the vast majority of the stock screens we track on AAII.com, and you can also create your own stock screens. While it does not cover 10 years of data, the program has all the data points you mention. For more information, visit the AAII website: www.aaii.com/store/sipro.
Simple Valuation Spreadsheet
I found the First Quarter 2011 Spreadsheet Corner article very interesting and downloaded the spreadsheet to try it out for myself. When I went to the Morningstar site to obtain the necessary “per share” and “financial leverage” data, however, I was unable to locate it. In fact, I’ve been unable to locate this information anywhere.
—C.F. via Web inquiry
CI Editor’s Response: This data is available—for free—from Morningstar.com, it is just a little hard to find. At the Morningstar home page (www.morningstar.com), enter the ticker in the “Quote” box at the top of the page and either hit