Harry Domash, Online Investing: Let gurus do heavy lifting

By Harry Domash

Online Investing

It’s time to check back on Validea (www.validea.com), the site that picks stocks by emulating the strategies of 10 famous gurus such as Joel Greenblatt, author of the best seller, “Magic Formula Investing,” and Warren Buffet, who needs no introduction.

Besides the 10 gurus, Validea also includes its own momentum stock picking strategy and a strategy developed by Motley Fool (www.fool.com) for finding fast growing, small-cap stocks.

What makes Validea most useful is that it tracks each portfolio’s returns by year going back to 2003 as well as annualized returns since each portfolio’s inception (usually 2003).

If you check those you’ll see a lot of year-to-year variability in terms of performance vs. the overall market as gauged by the S&P 500.

For instance, in 2013, 10 of the 12 Validea portfolios generated double-digit returns and eight of them beat the S&P’s 30 percent return. By contrast, last year, only three managed to end the year in positive territory and only one of those beat the S&P’s 11 percent number.

Nevertheless, since their 2003 inception, three Validea portfolios have averaged impressive double-digit annual returns compared to only seven percent for the S&P.

You’ll need a subscription to see the current portfolios on Validea’s site, but you can see eight of them, including the six top returners, for free on the NASDAQ stock exchange site (www.nasdaq.com).

Get there from the NASDAQ home page by selecting Investing and then Guru Screener in the Investing Tools section. Once there, use the “Find Stock Based on Guru Interest” section to pick a specific Guru strategy.

Specify “Strong” for interest level to see stocks meeting each Guru’s full selection requirements, or “Some” for a larger list of stocks meeting about half of the requirements.

You can also use the section labeled “Find Good Stocks Based on Guru Interest” to see stocks that simultaneously have “strong” or “some” interest” from at least two, and up to five different Guru strategies. However, I’ve found the best results by specifying “strong interest” from only a single Guru.

The Value Investing strategy, returning 14 percent, on average, annually, produced the highest returns since 2003. It’s based on strategies described in “Security Analysis,” by Graham and Dodd, first published in 1934.

Running that screen turned up six investible stocks: National Oilwell Varco (Stock ticker symbol NOV), Hemerich & Payne (HP), Reliance Steel & Aluminum (RS), Joy Global (JOY), Universal Corp. (UVV), and Chart Industries (GTLS).

For each strategy, I limited my list to stocks with $1 billion minimum market capitalization, or trading at least 300,000 shares daily to insure sufficient liquidity.

Validea’s Momentum Investor, returning 13 percent, produced the second best average annual returns since 2003. Selecting “Strong” interest for that strategy produced only two investible picks: Amtrust Financial Services (AFSI) and Credit Acceptance Corp. (CACC).

Finally, Kenneth Fisher’s Price/Sales Investor, a value strategy, averaging 11 percent annual returns, placed third. Sanderson Farms (SAFM) and Winnebago Industries (WGO) were the only investible stocks on that list.

All of the returns mentioned assumed buying each strategy’s 10 highest-rated stocks and holding for one year.

You can use the “View Guru Analysis” function to see how any stock would evaluate using each Guru strategy. It’s worth spending time checking those out.

As is always, consider the stocks turned up by Validea’s Guru screens as candidates worthy of further research, not a buy list.

Harry Domash of Aptos publishes the Winning Investing and the Dividend Detective websites. Contact him at www.winninginvesting.com or Santa Cruz Sentinel, 1800 Green Hills Road, Suite 210, Scotts Valley, CA 95066.