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  • AAII Stock Screens 2015 Review: Small-Cap Wins During a Large-Cap Year

    by Wayne A. Thorp, CFA

    AAII Stock Screens 2015 Review: Small-Cap Wins During a Large-Cap Year

    As I am writing this in mid-December, the first two weeks of this month have sapped what little momentum U.S. stocks had to this point in the year, with the S&P 500 index on track for its first annual decline since 2008. Much of this is attributable to the near certainty that the Federal Reserve will increase interest rates for the first time in nine years, a move that may have already taken place by the time you read this article. However, even before this late-year swoon, 2015 was a disappointing year for the typical stock.

    Before I delve in to the performance data of the AAII stock screens, however, let’s take a look back on the year that was 2015. The U.S. economy continued its slow and steady expansion, while the unemployment rate fell. The U.S. unemployment rate stood at 5.0% in November, compared to 5.8% a year ago. Positive economic data continually fueled speculation as to when Fed chair Janet Yellen and the Federal Open Market Committee would finally start the “liftoff” of short-term interest rates.

    Overseas, the year began with a political crisis in Greece. A snap election elevated the left-wing Syriza party to power, which rejected the austerity measures imposed by foreign lenders during its last financial bailout. Eventually, an agreement was reached for a third bailout for the country, preventing a Greek default and its exit from the European Union. China’s weakening economy had global markets on edge for much of the year as well. Chinese officials repeatedly cut interest rates and pumped liquidity into the world’s second-largest economy in the hopes of giving it a boost.

    At home, while data seems to point to an improving U.S. economy, corporate earnings have hit their weakest patch since 2009. According to FactSet, companies in the S&P 500 are expected to see earnings decline 4.4% in the fourth quarter of 2015. If this forecast proves correct, it would mark the first time the index has seen three consecutive quarters of year-over-year declines in earnings since the first quarter through third quarter of 2009.

    Stir all of this together and you have a recipe for a lackluster 2015 for U.S. equities, especially compared to last year. In 2014, the Dow Jones industrial average notched 38 record high closes. This year has only seen six as of the end of November, the last of which came on May 19. On April 23, the Nasdaq composite reached levels it had not seen in 15 years at the peak of the dot-com stock bubble. For a few months after, U.S. indexes moved mainly sideways, until late August.

    On Monday, August 24, U.S. stocks tumbled right out of the gate, with the Dow Jones industrial average plunging more than 1,000 points in the opening minutes of trading. The Dow ended down 588.40 points, or down 3.6%, to close at its lowest level in 18 months. That Monday marked the largest one-day point decline ever on an intraday basis, according to The Wall Street Journal. The S&P 500 dropped 3.9%, officially entering correction territory (as defined as a decline of 10% from a recent peak). This ended the fifth-longest correction-free streak for the S&P 500, at 1,421 days. That day also marked the first time since 2002 that the S&P 500 fell by at least 2% for three trading sessions in a row, according to Schaeffer’s Investment Research. In addition, the CBOE Volatility Index (VIX) jumped to a six-year high before settling for a 45.3% gain to its highest close in nearly three years.

    To read more, please become an AAII Registered User or CLICK HERE.

    Wayne A. Thorp, CFA is a vice president and the senior financial analyst at AAII and former editor of Computerized Investing. Follow him on Twitter at @WayneTAAII.


    Hitesh Patel from PA posted 10 months ago:

    Its a good article, although for more accurate picture, I would rather wait until 12/31/2015 data update.

    Marilyn Adams from Florida posted 10 months ago:

    Article seems very lengthy therefore,difficult to read. Prefer a condensed version with statistics and trends. Too much past history for my comprehension. However, thank you for your time.

    Nathan Busch from MN posted 9 months ago:

    I have been a subscriber to Stock Investor Professional for some time: however, I have become quite disenchanted with the quality of the data available in the data base. For instance, data for Berkshire Hathaway Common A shares is available, but who can afford a single share at $180,000-plus per share, whilst Berkshire Hathaway Common B share data is not available? Both are, of course, S&P 100 shares.

    Also, I have been running some analysis on the financial data for Union Pacific Railroad dating back to 2003. I have discovered that the financial data has not been updated in SIPro since 6th March 2015. How can we, as subscribing members, find any confidence in a data base that has not been updated in more than a year?????!!!!!!????!!!!

    Further, when I initially subscribed to SIPro, AAII was boasting that it had north of 10,000 ticker symbols included. Now, it hustles AAII to include more than 7,000, a great deal of which are junk companies, over the counter companies, or chinese companies. Both the quality and quantity of data in SIPro has suffered considerably over the past couple of years.

    Perhaps AAII needs to fix SIPro or come out and admit that it is failing on what it touts to be a quality service.

    Nathan A. Busch

    Wayne Thorp from IL posted 9 months ago:

    @Mr Busch,

    We have tried to add BRK.B shares to the Stock Investor database, but because of the data structure of our data provider, we are not able to do so.

    Looking at the 2/29/2016 data update for Stock Investor, latest fiscal quarter and fiscal year data for Union Pacific are as of 12/31/2015. You may wish to confirm the data as-of date of the version you are using or run an update of the software.

    The number of companies in the database has dropped over the years because we are now requiring companies to have current SEC filings. In years past, companies in the database may have had SEC filings that were years old. The new pre-screening process we are using actually improves the quality of screening results, since it ensures that passing companies are meeting the screening criteria based on current data.

    If you wish to discuss these issues directly, please feel free to contact me via email at wayne@aaii.com or call me at 312.676.4397.

    Kind regards,

    Wayne A. Thorp, CFA

    Matthew Foley from CA posted 8 months ago:

    Dear Mr Thorpe,
    I found this article very useful and interesting; it is great evidence that the majority of investors should have the majority of their assets in index funds!

    However, I had a question: The 5 yr, 10 yr, and "since inception" long term results are given as Average Annual Gains rather than CAGRs. If I'm understanding this correctly, CAGRs would be more useful, for a very simple reason: It is well known that if a portfolio loses 20% in year one, it must gain 25% in year two just to break even. In such a two-year period, the Average Annual Gain would be reported as +2.5%, but the actual dollar gain would be zero. The CAGR would correctly reflect this.

    If this understanding is correct, I hope you will consider publishing an addendum to these tables with the CAGR information for the filters and indexes.
    Thanks very much,

    John Schott from PA posted 8 months ago:

    Disco0unted Cash Flow:

    i am a little confused about doing Discounteed Cash using Stock Finder Pro.

    I have found nothing definitive on how this would be done. Any sugggestiong and discussion would be welcome


    Wayne Thorp from IL posted 8 months ago:

    @ Matt Foley,

    The returns we report are geometric means.


    Wayne A. Thorp, CFA

    John Portwood from LA posted 8 months ago:

    Concerning the failure of the Estimate Revisions Down 5% to deliver good returns over the years : As someone who goes long and short, I would view this screen as a potential guide to finding good shorting opportunities, or as an alert to avoid/delay investing in companies that might look attractive in other screens. I have not looked at this screen beyond noticing the performance pattern over time, but the historic model results are similar to a particular custom quant screen that weights individual analyst success in forecasting earnings. Maybe simple and cheap is better than expensive and complex.

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