SubscribeSAPI Slugs 2008 – Quant Screen Results
November 29, 2007 2:03 pm
S&P Index Slugs (SAPI Slugs) Adapted from Pages 44-45 of The Disciplined Investor – Essential Strategies for Success
According to MSN Money, this simple but effective value search presents a pure yield play. It is similar but potentially superior to the better-known “Dogs of the Dow” search we reviewed on November 14th because it draws from a wider pool of large-cap stocks and includes a secondary financial-strength overlay.
The search was also developed and tested by money manager and author Jim O’Shaughnessy. The strategy calls for buying the top 20 stocks from the result set of this search, ranked by dividend yield. These should be held for 1 year and then rescreened and rebalanced. It can be combined with O’Shaughnessy’s Momentum Growth search to create a balanced 30-stock, 1-year portfolio. This search criteria and others are available in the stock screener section of the MSN Money website and can also be downloaded from The Disciplined Investor website. Below is the criteria used to create the screen with the MSN Money Deluxe Screener.
The theory of using more than one screen is to allow for greater diversification within the portfolio. This way, if one particular screening method is sorely out of favor, the other may help to avoid massive losses. In his research, O’Shaughnessy built portfolios for one year each. Translated, this means that once you buy the resulting stocks and effectively hold them for 52 weeks, you can rerun the screen to find the stocks to include in the next cycle.For most individual investors, this is a tedious task and can result in excessive trading fees. Also, as has been discussed, the tax implications alone could be extremely detrimental to a portfolio’s performance. This is precisely why these methods are often used within tax-deferred accounts along with additional fundamental overlays. Suffice it to say that these screens should be used as initial idea generators, not as absolute methodologies.
Click Table to Enlarge
The theory of using more than one screen is to allow for greater diversification within the portfolio. This way, if one particular screening method is sorely out of favor, the other may help to avoid massive losses. In his research, O’Shaughnessy built portfolios for one year each. Translated, this means that once you buy the resulting stocks and effectively hold them for 52 weeks, you can rerun the screen to find the stocks to include in the next cycle. For most individual investors, this is a tedious task and can result in excessive trading fees.
Also, as has been discussed, the tax implications alone could be extremely detrimental to a portfolio’s performance. This is precisely why these methods are often used within tax-deferred accounts along with additional fundamental overlays. Suffice it to say that these screens should be used as initial idea generators, not as absolute methodologies.
This chart shows a 1-Year price performance for the 10 highest yielding stocks within the SAPI Slugs using the above screening criteria.
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5 Responses to “SAPI Slugs 2008 – Quant Screen Results”
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I’m a little confused by the context here. The fact that this piece about the SAPI Slugs is being posted implies that it might be a good strategy to consider (at least as a starting point), but that chart shows 6 out of 9 finished down for the year, some very significantly. That makes it look like a horrible strategy.
The blog post mentions nothing about the 2007 performance; there’s just a graph and no commentary.
Is that 2007 performance something that would cause most people to run screaming *away* from this screen? It would be nice to have this placed in context–does the SAPI Slugs usually do better or worse that what you’re showing here?
Or is the takeaway here that this screen isn’t useful in a market that’s turning around?
SAPI = S And P Index
SLUGS =~ CRAPPY Performers considering they have the highest yield
If you look at the Dogs of the Dow, they are usually the bottom of the performance pack for the previous year (or at least the top one should be, compared to all 30). These two strategies look for a rotation into the unloved and finds stocks through a screen uncovering highest yields of the bunch.
Think about this: the reason why the yield is up is because the stock is down…not just because the yield is up. No company gratuitously pays a higher dividend than the market. So if FRE kept their dividend at their current level, they COULD have been included in a screen with these parameters if it met all of the criteria.
Of course there is no particular reason that these will outperform in ONE year, but by utilizing this contrarian screen results, at least you will have a cushion in that there is a dividend and you know that the company is not laden with debt.
Just one more tool to consider.
Help! I just bought the Disciplined Investor Book-on-mp3, and I’m at 17:30 seconds into the second chapter: where Horowitz first walks thru the moneycentral stock screener. I am at the site right now, and after I click on “custom search”, all the further steps he explains are not even options on the screen. Did MSN change the website, or is there one than one version of the moneycentral stock screener?
Andy:
Glad you got it resolved. MSN Money requires IE as browser…
Andrew
Attractive. Interesting website.