Monday, March 28, 2005

Bottom-Fishing Value Line Stocks

Two ways to make money on Wall Street: Run with the crowd or bet against it. Whatever your preference, the Value Line Investment Survey has statistics that can help you sort out the prospects.

Forty years ago Samuel Eisenstadt created the "timeliness" ranking formula that made Value Line famous. It scores 1,700 stocks for expected performance over the next 6 to 12 months, using a plethora of technical (stock-price-related) and financial factors. The formula, still in use, has had a remarkable run. A hypothetical investor reshuffling his portfolio every Jan. 1 to hold only the 100 top-ranked stocks would have earned a 19% compound annual capital gain over the 40 years, says Value Line, against 10% for the S&P 500. (These numbers exclude dividends.) Transaction costs would have dampened the return, but even so the performance has been strong enough to baffle proponents of the Efficient Market Hypothesis, which says that no statistical formula can keep beating the market.

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