Adapting a Graham Disciple's Approach: AAII's Walter J. Schloss Screen
by Cara Scatizzi
Individual investors can adapt Walter Schloss’ investing approach for their own use. AAII’s Walter J. Schloss screen was developed using AAII’s Stock Investor Pro fundamental stock screening and research database program. Stock Investor Pro covers a universe of over 9,500 NYSE, Amex, and NASDAQ stocks.
First, we excluded over-the-counter stocks as well as American depositary receipts (ADRs). Since Schloss preferred exchange-listed U.S. companies, we excluded all ADRs.
In this article
- Performance
- Profile of Passing Firms as of June 30, 2009
- Conclusion
- What It Takes: Applying the Schloss Philosophy
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Schloss did not explicitly exclude any sector in his portfolio. However, because he uses the price-to-book-value ratio to evaluate companies, we excluded stocks in the financial sector because their balance sheets are not comparable to those in other industries. Book value tells you the accounting value of a firm after it pays all of its debt.
Schloss wanted companies to have at least a 10-year history. Most screening programs and Web sites do not have 10 years of historical data. Stock Investor Pro keeps seven years of financial statement data; therefore, for use in our screen, we looked for companies that had a stock price greater than zero seven years ago to correspond with the seven years of financial data.
When the price per share was below the book value per share, Schloss saw a potential bargain. Book value represents a company’s liquidation value and the share price reflects the current market value. When the share price is less than book value per share, you are paying less to buy the stock than you would theoretically have to pay if the company liquidated all of its assets and paid off its debt. We screened for companies with a current price below its book value per share.
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