Studying Different Systematic Value Investing Strategies On The Eurozone Market

www.value-investing.
eu
Studying different
Systematic Value Investing Strategies
on the
Eurozone stock market
by Philip Vanstraceele and Luc Allaeys
May 2010
www.value-investing.eu
ontents:
- Section 1:
Introduction
- Section 2:
Methodology and Data
- Section 3:
Workflow
- Section 4:
Results
- Section 5:
Conclusions
Section 1: Introduction
s devoted Value Investors, it was our intention to back-test existing screening models for Eurozone
stocks, as well as models that we had developed.
Being located in Europe ourselves, we were interested in finding out how European stocks react- what would the
outcome be- of applying different Value-screening methods to stocks and especially to a portfolio of stocks.
For this project we studied different value-investment strategies that we could implement in our application.
We were especially attracted to existing methods, The Magic Formula by Joel Greenblatt, Joseph Piotroskis nine
point scoring mechanism, Benjamin Grahams Net Current Asset Value and using our own ERP5.
For this paper we went back 10 years in time and used fundamental constituents familiar to value investors such
as Price to Book, Return on Investments, Direction of Earnings, Earnings Yield etc.
We were also curious to learn whether markets were, indeed, as efficient as the theory indicates they are in the
modern finance.
And contradictory in a big way. Its now very clear that the market makes BIG mistakes in pricing stocks. It
doesnt see through reported accounting numbers. Its typically overly optimistic about to-be-reported earnings.
It projects that successful firms will continue their success for far too long into the future
(Haugen; The inefficient Stock Market).
As we proceeded, we also asked ourselves questions such as;

-Should we invest in an index fund rather than in individual stocks?
-Where and how can we find undervalued stocks ?
-What happens to performance if we add more stocks to a Value portfolio?
-What happens to performance if we join two Value screeners together?
Section 2: Methodology and Data
ata
When making back tests, you must ensure that you eliminate some of the problems that may occur
when doing an exercise like this. Here is a short list of the problems that you should be accounted for.
1.Survival Bias:
Most studies dont include companies that went bankrupt or that were taken over by others. In
our test these companys were not excluded.
2.Look ahead Bias:

When you are using data for your stock ranking that was not available at the moment of portfolio
formation, your results will suffer from look-ahead bias. This biases results upwards.
We worked with accounting data from the prior fiscal year and waited 6 months to form our
portfolios and actual trading.
Example:
Back-testing for 1999, we took the accounting data from the end of 1998 and formed the different
portfolios on 13/06/1999. This ensured that all accounting data was available on portfolio
formation.
We formed our portfolios and waited 6 months before actually buying them. Then we held them
until 13/06/2000 before again rebalancing the complete portfolio.
We back-tested for the period: 13/06/1999 and 13/06/2009
3.Bid-Asked bounce:
It is practically impossible to buy large positions in micro cap stocks (<25 mil). If you do so it will
influence the price very negatively. The price will skyrocket.
If you buy small positions you might get away with it if the stock has some liquidity. In our
screener you can choose your own minimum required market cap. For our back-test we began at
a minimum market cap of 25 mil.
4.Data mining:
You can run your computer a thousand times and pick the best results to publish. We on the other
hand used the same methodology over and over again through our study with the same
constituents.
5.A Reliable Database :

Before we started this project we investigated different data providers. There are very good
sources available in todays market but very few had the necessary data coverage with respect to
Europeans stocks as Thomson has.
So we selected the Thomson DataStream application and it has been doing a great job for us.
6.Small sample Bias :

You can have a strategy that does very well over a 5-year period or longer and that may then go
horribly wrong. We therefore tested the different strategies over a 10 year period. This should
give the necessary time span we need to test the solidity and endurance of these strategies in
detail.
All things considered, the last decade has been quite turbulent for the stock markets all over the
globe. We had one bull market and two major crashes (a luxury for back-testers).
ethodology
To be able to compare different strategies we concentrated on 4 models :
-The Magic Formula by Joel Greenblatt, Joseph Piotroskis nine point scoring mechanism,
Benjamin Grahams Net Current Asset Value and our own ERP5 .
We also back-tested combinations of these methods.
. The Magic Formula by Joel Greenblatt (The little book that beats the market.
Published by Wiley & Sons Inc.)
How the formula is calculated ?

The formula start with the list of all the companies in the Euro monetary zone .
For example in the Eurozone we have +/- 3.400 companies available in our list. The formula then assigns a rank to
those companies, from 1 to 3.400, based on their return of capital (ROIC).The company with the highest ROIC
gets rank 1, the company with the lowest gets rank 3.400.
Next, the formula repeats the same procedure, but this time the ranking is done using earning Yield(EY). The
company with the highest yield is assigned a rank of 1, and the company with the lowest earning yield receives a
rank of 2000.
Finally, the formula simply combines the rankings in search of the companies that have the best combination of
both two factors. So a company that is ranked 232nd best in return on capital and 153rd highest in EY, gets a
better combined ranking than a company that is ranked 1st in ROIC but only 1150th best in earning Yield because
the first company has a better combined rank of 385 (232+153=385) than the second company has (1+1150 =1151)
How are ROIC and EY defined?
Return on Capital =
EBIT / (Net Working Capital + Net Fixed Assets)
Earnings Yield =
EBIT / Enterprise Value.
The return on invested capital measures how efficiently the assets of a company have been used to generate
income. The higher this ratio, the better.
A good company is not always a good investment. The value of a good company can be so high, that it is a bad
investment idea. Most obvious, or most used, to measure this is the P/E ratio. If this ratio is reversed, it is
expressed in terms of the percentage between the operational profit and market capitalisation.
A share with P/E of 20 has an earning yield of 5%.
Greenblatt goes a step further. He does not compare the operational profit just the market capitalisation, but with
just the total value of the company (Enterprise Value) . The total value of the company is the market capitalisation
plus financial debts minus available cash.
Stocks are skipped if they are not in an industry to which the formula applies. (Banks and insurance companies are
skipped from the screener!)
Excess Cash is determined:

If Total Current Assets are greater than 2 * Total Current Liabilities, then Excess Cash is determined to be the lesser of Cash
And Short Term Investments or Total Current Assets - 2 * Total Current Liabilities, otherwise it is zero.
EBIT
is calculated as the trailing twelve months operating profit if available (if not then EBIT equals last year operating income)
Net Working Capital
is calculated as Total Current Assets - Excess Cash - Total Current Liabilities if Total Current Assets exceeds Total Current
Liabilities, otherwise it is zero
Net Fixed Assets
is calculated as Total Assets - Total Current Assets - Total Intangible assets
Enterprise Value
is calculated as Market Cap + Long-Term Debt + Minority Interest + Preferred Stock - Excess Cash. If the returned value for
Enterprise value is negative, then a default value of 1 is used.
. Joseph Piotroskis 9- point scoring mechanism

(Paper published in 2000 Value Investing: The Use of Historical Financial Statement Information to Separate
Winners from Losers- http//www.chicagobooth.edu/faculty/selectedpapers/sp84.pdf).
Piotroski came up with a nine point scoring mechanism for stocks;
In this paper he showed that by using a set of nine different fundamentals it is possible to outperform the market
by 10% a year on average from 1976 to 1996.
It is clear that we were attracted to this formula and that we would implement this kind of screeners on our
website.
It was designed to be applied to value investment in low Price/Book (P/B) stocks, mainly the lowest 20%.
This limits the strategy to true value companies.
But it is useful for any set of stocks. (We have also applied the algorithm to the best 20% Magic Formula stocks
and to the best 20 % ERP5 companies)
Piotroski's methodology starts by narrowing stock choices to those trading in the top 20 percent of the market
based on their book/market ratios (or, conversely, the bottom 20 percent of the market based on price/book
ratios).
He found that just buying low price/book stocks does not produce excess returns over the long term, because
many low price/book companies are trading at a discount because they deserve to be they're dogs with poor
prospects.
When he applied a series of additional tests of financial strength to these low price/book stocks, however,
Piotroski was able to separate the dogs from the good prospects.
Among the variables he examined: return on assets, current ratio, cash flow from operations, change in gross
margin, and change in asset turnover.
The strategy usually finds smaller companies whose stocks are flying under Wall Street's radar.
Piotroski scanned the companies on the following basis, Financial performance, Leverage liquidity, source of
funds and Operating efficiency.
In addition to the price-to-book ratio, the analysis is based on accounting fundamentals and consists of awarding
one point for each of the following tests:
-
positive earnings [F_ROA]
positive cash flow [F_CFO]
increasing ROA [F_ROA]
increasing cash flow from operations [F_ACCRUAL]
decreasing long term debt as a proportion of total assets [F_LEVER]
increasing current ratio (indicating an increasing ability to pay off short term debt) [F_LIQUID]
decreasing or stable numbers of outstanding shares [EQ_OFFER]
increasing assets turnover (indicating an increasing sales as a proportion of total assets) [F_TURN]
increasing gross margin [_MARGIN]
All 9 factors added together being summed up leads;
F_SCORE =[F_ROA]+ [F_CFO]+ [F_ROA]+ [F_ACCRUAL]+ [F_LEVER]+ [F_LIQUID]+ [EQ_OFFER]+ [F_TURN]+ [_MARGIN]
Each company is given either a score 0 or 1. The sum of the variables is between 0 and 9.
The companies are then ranked from best to worst.
Important:
The only difference between the Original Piotoski formula and our model is in the way we evaluate outstanding
shares.
-If the number of shares outstanding is stable we assign a value of 0,5
-If the number of shares outstanding decreases (share repurchase) we assign a value of 1
. Benjamin Grahams NCAV (Net Current Asset Value) (The intelligent

Investor published in 1949)
Benjamin Graham, considered by many to be the architect of fundamental analysis, described a strategy for
identifying deep value stocks, which in his view are low-risk candidates.
Grahams strategy, dubbed the Net Current Asset Value approach, apparently works very well.
One research study, covering the years 1970 through 1983 showed that portfolios picked at the beginning of each
year, and held for one year, returned 29,4%, on average, over the 13 year period, compared to 11,5% for the S&P
500 Index.
Despite the impressive results, the strategy is relatively unknown to individual investors.
The reason for that is that it requires some digging.
A normal computation of a companys book value is defined as:
Total Assets Total Liabilities.
Graham had a different point of view about that matter. He stated that
NCA= Current Assets (cash, inventories and accounts receivable) Total Liabilities
This strategy calls for buying stocks trading at 2/3 or less of their NCAV.
In our methodology the NCAV-ratio should be greater than 1,33, and we define the ratio as Net Current Assets
Value / Market Value.
This ratio is used to find companies that are trading below their net current assets value.
Its a stringent requirement, since most companies have negative NCAVs. But Graham was looking for firms
trading so cheaply that there was little danger of their falling further. His strategy calls for selling the shares when
they trade at their NCAV.
But of course, on is free to choose the Margin of Safety that one prefers.
10
.The ERP5 Value Stock Screener
Finding stocks with a considerable margin of safety isnt a standalone issue.

We have devised a way of combining several great ideas into one method and back-testing it over time, to see
whether these ideas could be combined to make a robust model.
We combined Greenblatts Earning Yield & Return on Invested Capital, Price to Book Value (one of most
important indicators for Value Investing stocks; previous studies by Rosenberg,Reid, and Lanstein 1984; Fama
and French 1992; Lakonishok, Shleifer, and Vishny 1994) and the 5-year trailing Return on Invested Capital.
We code named it ERP5, based on the initials of the 4 factors.
For convenience:
- Earning Yield is EBIT / Enterprise Value
How much is a business earning compared to the enterprise value purchase price of the company?
- ROIC
How well a company uses its capital to generate income?
- Price to Book Value
How much Margin of Safety there is on the investment.
- 5 Year trailing ROIC
This gives a clear trend of earnings over a 5-year period.
Each factor is calculated separately and then ranked within the same factor.
Finally the ranking of the factors is summed up and re-ranked.
Example:
- Company A has scores of 12/125/40/600 totalling 777
- Company B has scores of 1/1/5/1500 totalling 1507
Company A has better overall score and is therefore better than B
This in the end will give us a more weighed measurement of Value.
11
Section 3: Workflow
or convenience we back-tested the 4 strategies (Piotroski, ERP5, NCAV and The Magic Formula) over a 10 year period and compared the results to the Dow Jones EuroSTOXX .
The EuroSTOXX index is the more liquid version of the EuroSTOXX 600 index. It has +/- 313 companies in the index over
the Euro Monetary zone (12 countries).
-As discussed earlier we apply a buy and hold strategy for 1 year (we didnt short) for our different portfolios and
rebalanced the portfolios once a year at exactly the same time .
-We were looking for evidence that putting your eggs in different baskets is an adage that makes sense.
-We back-tested throughout the whole market capitalisation spectrum of the EU zone .
-We excluded Financial- and Insurance companies from our screeners!!
-We back tested the different strategies and calculated the price-index PI (excluding dividends) on an equally
weighted basis .
The following strategies were back tested :
(MV; the minimum Market Value in Millions and C ; the number of companies in the portfolio).
-MV25 C20
-MV25 C50
-MV50 C20
-MV50 C50
-MV100 C20
-MV100 C50
-MV250 C20
-MV500 C20
-MV1.000 C20
-MV1.000 C50
-MV2.000 C20
-MV2.000 C40
-MV5.000 C20
-MV25 C20&50
-MV50 C20&50
-MV100 C20&50
-MV1.000 C20&50
-MV2.000 C20&50
12
n the Euro Monetary zone there are +/- 4.080 companies with a primary quote on the stock market.
If we exclude the financials and insurers are excluded +/- 3.400 companies remain.
In order to quantify the landscape of this zone we split them up in different capitalisations being.
Large-cap: 10 billion200 billion
77 companies
2%
Mid-cap: 1 billion10 billion
308 companies
9%
Small-cap: 300 million1 billion
334 companies
10%
Micro-cap: 25 million-300 million
1.189 companies
35%
Nano-cap: Below 25 million
1.446 companies
44%
The spectrum below 25 million comprises a portion that is smaller than 1 million (294 companies, or 10%) and a
larger number (1.152 companies, or 34%) of companies between 1 and 25 million.
The US market on the other hand looks somewhat different with a total of some 8.000 companies( excluding
banks and insurance) .
Above 200 billion
4 companies
0,05%
Large-cap: 10 billion200 billion
229 companies
3%
Mid-cap: 1 billion10 billion
1.045 companies
13,95%
Small-cap: 300 million1 billion
856 companies
10%
Micro-cap: 25 million-300 million
1.724 companies
21%
Nano-cap: Below 25 million
4.267 companies
52%
13
Section 4: Results
A
Each of the four strategies invested for 100 over C companies on an equally weighted basis
(and the DJ Eurostoxx also rebased to 100) held for a 10 -year period (13/06/1999 to 13/06/2009).
The price index is graphically displayed over a 10-year period.
Additionally the Return is calculated with a 100 invested (here the DJ Eurostoxx is also rebased to 100).
B
The same strategies (with the same Minimum Market Caps) were back-tested with a changing number of
companies in the portfolios.
C
Finally we back-tested the strategies by deciles split up (minimum Market Cap 10,100 and 500 Mil.) to see
whether any consistency appeared among the different screening methods.
Here we included the dividends on a equally weighted basis.
14
Name
PIOT2520 - PI
ERP2520
NCAV2520 -
MF2520
DJ EURO STOXX
Code
X%PIOT(PI)
X%ERP
X%NCAV
X%MF
DJEURST
14/06/1999
100
100
100
100
100
13/06/2000
118,21
117,07
111,78
129,42
136,78
13/06/2001
128,64
151,11
126,53
134,18
112,37
13/06/2002
135,94
176,98
129,77
130,37
84,64
13/06/2003
155,94
266,74
124,91
183,92
67,98
14/06/2004
256,04
378,89
185,49
254,43
77,24
13/06/2005
377,28
427,94
248,51
276,65
90,34
13/06/2006
496,57
482,36
305,87
292,63
100,02
13/06/2007
795,46
610,14
444,82
443,75
133,60
13/06/2008
713,34
518,43
422,7
327,99
107,39
12/06/2009
535,71
449,39
352,91
330,77
72,78
Return Y
18,28%
16,22%
13,44%
12,71%
-3,13%
Back-testing in the micro cap zone (min market cap 25mil) is always difficult and has to be interpreted with great
caution because of the bid-ask bounce that could occur.
15
Name
Code
14/06/1999
13/06/2000
13/06/2001
13/06/2002
13/06/2003
14/06/2004
13/06/2005
13/06/2006
13/06/2007
13/06/2008
12/06/2009
Return Y
PIOT2550
X%PIOT(PI)
100
115,37
131,11
140,87
149,78
237,64
317,06
459,25
698,38
627,84
481,72
17,03%
ERP52550
X%ERP5
100
125,29
152,76
170,44
214,46
309,22
377,55
449,08
602,54
489,37
400,12
14,87%
NCAV2550
X%NCAV
100
117,75
131,21
126,68
128,74
205,4
271,45
360,72
465,64
394,84
334,3
12,83%
16
MF2550
X%MF
100
115,79
121,88
120,45
136,25
188,05
212,67
244,46
349,87
282,52
238,9
9,10%
EURO STOXX
DJEURST
100
136,78
112,37
84,64
67,98
77,24
90,34
100,02
133,6
107,39
72,78
-3,13%
Name
PIOT5020
ERP55020
NCAV5020
MF 5020
DJ EURO STOXX
Code
X%PIOT(PI)
X%ERP
X%NCAVB
X%MF
DJEURST
14/06/1999
100
100
100
100
100
13/06/2000
118,06
122,97
128,76
106,37
136,78
13/06/2001
140,51
166,21
143,76
113,05
112,37
13/06/2002
148,13
165,03
147,17
97,08
84,64
13/06/2003
153,87
167,64
136,16
91,31
67,98
14/06/2004
228,61
241,06
200,66
129,02
77,24
13/06/2005
325,64
293,19
271,48
138,75
90,34
13/06/2006
435,19
360,23
337,58
150,87
100,02
13/06/2007
697,77
543,16
474,22
218,34
133,60
13/06/2008
604,58
446,05
417,59
160,78
107,39
12/06/2009
458,5
388,96
317,29
144,48
72,78
Return Y
16,45%
14,55%
12,24%
3,75%
-3,13%
In the spectrum above 50 mil MC, which is perfectly feasable to invest in for a private portfolio
all value strategies outpreform the market quite substantially.
17
Name
Code
14/06/1999
13/06/2000
13/06/2001
13/06/2002
13/06/2003
14/06/2004
13/06/2005
13/06/2006
13/06/2007
13/06/2008
12/06/2009
Return Y
PIOT5050
X%P
100
111,88
129,25
139,87
143,05
215,02
283,32
387,39
601,28
516,77
394,28
14,70%
ERP55050
X%E
100
126,16
159,86
172,59
172,78
254,09
312,79
369,74
513,19
422,85
344,06
13,15%
NCAV5050
X%NCAV
100
125,82
145,22
141,86
137,15
209,07
276,81
338,8
435,21
366,64
293,91
11,38%
18
MF5050
X%M
100
126,1
140,68
131,41
117,9
154,09
165,33
189,19
260,32
199,43
166,07
5,20%
EURO STOXX
DJEURST
100
136,78
112,37
84,64
67,98
77,24
90,34
100,02
133,6
107,39
72,78
-3,13%
Name
PIOT10020
ERP510020
NCAVB10020
MF10020
DJ EURO STOXX
DJEURST
Code
X%PIOT(PI)
X%ERP
X%NCAVB
X%MF
14/06/1999
100
100
100
100
100
13/06/2000
109,52
121,76
134,12
128,51
136,78
13/06/2001
128,5
160,64
154,95
145,41
112,37
13/06/2002
137,04
166,13
150,53
117,07
84,64
13/06/2003
132,35
153,55
148,77
111,97
67,98
14/06/2004
195,13
224,26
212,06
155,38
77,24
13/06/2005
280,8
282,71
269,5
175,81
90,34
13/06/2006
379,22
358,36
305,64
200,22
100,02
13/06/2007
570,39
484,94
404,69
272,43
133,60
13/06/2008
516,84
380,68
354,19
208,78
107,39
12/06/2009
436,09
313,23
270,98
182,8
72,78
Return Y
15,87%
12,10%
10,48%
6,22%
-3,13%
19
Name
PIOT10050
ERP10050
NCAV10050
MF10050
DJ EURO STOXX
Code
X%PIOT(PI)
X%ERP
X%NCAV
X%MF
DJEURST
14/06/1999
100
100
100
100
100
13/06/2000
117,54
109,54
128,77
126,06
136,78
13/06/2001
136,41
136,94
143,68
145,55
112,37
13/06/2002
148,61
138,93
140,36
135,58
84,64
13/06/2003
146,01
127,74
139,25
125,66
67,98
14/06/2004
211,51
176,12
198,78
164,06
77,24
13/06/2005
288,63
222,52
249,74
188,61
90,34
13/06/2006
387,23
275,32
291,66
228,87
100,02
13/06/2007
601,24
368
372,47
317,07
133,60
13/06/2008
503,68
290,51
307,28
245,25
107,39
12/06/2009
408,68
234,03
251,53
199,17
72,78
Return Y
15,12%
8,87%
9,66%
7,13%
-3,13%
Here you can see that adding more stocks (from 20 to 50) to a portfolio doesnt necessarely increase your return.
20
Name
PIOT25020
ERP525020
NCAV25020
MF25020
EURO STOXX
DJEURST
Code
X%PIOT
X%ERP5
X%NCAV
X%MF
14/06/1999
100
100
100
100
100
13/06/2000
99,9
121,48
154,54
126,25
136,78
13/06/2001
115,83
157,35
185,77
158,46
112,37
13/06/2002
119,66
173,17
171,03
126,03
84,64
13/06/2003
102,4
149,89
163,68
108,98
67,98
14/06/2004
153,02
196,11
225,02
148,4
77,24
13/06/2005
205,65
272,62
264,84
174,87
90,34
13/06/2006
288,9
326,8
287,66
206,16
100,02
13/06/2007
448,22
439,38
405,4
269,07
133,60
13/06/2008
369,93
326,78
346,02
207,45
107,39
12/06/2009
318,37
253,11
285,53
177,61
72,78
Return Y
12,28%
9,73%
11,06%
5,91%
-3,13%
21
Name
PIOT50020
ERP550020
NCAV50020
MF50020
EURO STOXX
Code
X%PIOT(PI)
X%ERP5
X%NCAV
X%MF
DJEURST
14/06/1999
100
100
100
100
100
13/06/2000
102,69
115,36
143,71
115,14
136,78
13/06/2001
117,23
129,82
160,56
121,58
112,37
13/06/2002
123,59
143,7
136,8
130,05
84,64
13/06/2003
107,49
111,75
131,73
115,44
67,98
14/06/2004
149,68
150,37
171,15
160,09
77,24
13/06/2005
192,52
188,68
204,62
193,09
90,34
13/06/2006
240,03
219,29
220,77
229,49
100,02
13/06/2007
355,33
287,83
303,4
301,2
133,60
13/06/2008
301,85
223,96
250,13
229,8
107,39
12/06/2009
252,69
180,35
201,06
193,96
72,78
Return Y
9,71%
6,07%
7,23%
6,85%
-3,13%
22
Name
PIOT100020
ERP51000C20
NCAV100020
MF100020
EURO STOXX
Code
X%PIOT(PI)
X%ERP5
X%NCAV
X%MF
DJEURST
14/06/1999
100
100
100
100
100
13/06/2000
98,92
116,01
177,38
125,46
136,78
13/06/2001
119,29
129,4
157,09
138,52
112,37
13/06/2002
119,9
141,31
138,76
136,62
84,64
13/06/2003
95,68
118,69
129,65
123,56
67,98
14/06/2004
129,47
153
170,94
164,7
77,24
13/06/2005
172,57
190,65
199,43
195,65
90,34
13/06/2006
213,33
224,25
217,6
222,96
100,02
13/06/2007
324,24
308,4
307,94
298,37
133,60
13/06/2008
272,65
268,59
252
236,08
107,39
12/06/2009
211,75
227,21
199,23
206,58
72,78
Return Y
7,79%
8,55%
7,14%
7,52%
-3,13%
23
Name
PIOT100050
ERP5100050
NCAV100050
MF100050
EURO STOXX
Code
X%PIO(PI)
X%ERP
X%NCA
X%M
DJEURST
14/06/1999
100
100
100
100
100
13/06/2000
107,61
114,85
152,57
126,69
136,78
13/06/2001
121,86
123,87
121,91
135,09
112,37
13/06/2002
125,56
127,25
99,42
132,93
84,64
13/06/2003
105,88
108,92
91,97
116,84
67,98
14/06/2004
140,09
136,18
115,51
145,63
77,24
13/06/2005
186,01
167,06
130,09
173,02
90,34
13/06/2006
225,36
199,94
147,13
200,7
100,02
13/06/2007
337,29
273,37
193,12
289,29
133,60
13/06/2008
264,05
235,09
158,38
241,15
107,39
12/06/2009
195,36
190,95
121,67
185,88
72,78
Return Y
6,93%
6,68%
1,98%
6,40%
-3,13%
24
Name
PIOT200020
ERP5200020
NCAV200020
MF200020
EURO STOXX
Code
X%PIOT(PI)
X%ERP5
X%NCAV
X%MF
DJEURST
14/06/1999
100
100
100
100
100
13/06/2000
103,62
120,41
209,63
146,05
136,78
13/06/2001
112,01
131,94
183,11
158,46
112,37
13/06/2002
110,99
137,35
155,83
157,49
84,64
13/06/2003
91,33
128,54
128,46
148,64
67,98
14/06/2004
117,52
162,5
152,49
187,68
77,24
13/06/2005
154,29
194,39
175,09
225,98
90,34
13/06/2006
183,84
234,28
211,07
253,23
100,02
13/06/2007
295,29
319,18
304,24
323,55
133,60
13/06/2008
259,98
258,21
239,13
239,69
107,39
12/06/2009
180,41
203,89
182,02
185,08
72,78
Return Y
6,08%
7,38%
6,17%
6,35%
-3,13%
25
Name
PIOT200040
ERP5200040
NCAV200040
MF200040
EURO STOXX
Code
X%PIO
X%ERP
X%NCA
X%M
DJEURST
14/06/1999
100
100
100
100
100
13/06/2000
105,43
121,76
173,52
130,43
136,78
13/06/2001
114,75
123,81
137,18
124,84
112,37
13/06/2002
104,52
118,81
108,49
119,85
84,64
13/06/2003
90,71
106,8
97,07
105,27
67,98
14/06/2004
118,85
135,46
109,93
130,52
77,24
13/06/2005
142,73
169,49
122,1
157,41
90,34
13/06/2006
165,95
205,61
146,44
183,96
100,02
13/06/2007
257,04
280,89
201,25
264,14
133,60
13/06/2008
210,02
238,72
160,61
206,46
107,39
12/06/2009
146,47
184,13
122,14
157,36
72,78
Return Y
3,89%
6,29%
2,02%
4,64%
-3,13%
26
Name
PIOT500020
ERP5500020
NCAV500020
MF5000C20
EURO STOXX
Code
X%PIOT(PI)
X%ERP5
X%NCAV
X%MF
DJEURST
14/06/1999
100
100
100
100
100
13/06/2000
114,39
126,1
165,78
125,58
136,78
13/06/2001
127,95
121,41
121,84
116,67
112,37
13/06/2002
111,95
103,49
90,26
103,63
84,64
13/06/2003
89,53
90,24
80,94
86,24
67,98
14/06/2004
115,67
108,1
86,83
97,57
77,24
13/06/2005
133,76
131,78
91,78
116,28
90,34
13/06/2006
153,48
150,73
102,47
130,61
100,02
13/06/2007
221,58
197,02
137,3
169,07
133,60
13/06/2008
172,84
163,24
116,47
136,7
107,39
12/06/2009
122,15
128,98
85,55
105,39
72,78
Return Y
2,02%
2,58%
-1,55%
0,53%
-3,13%
27
28
29
30
C
We ranked all companies and split them up in deciles. (Minimum Market Caps 10 100 and 500 Millon Euros).
Our purpose in doing that was to see wether there was any consistency in the screeneing methods over a number
of years.
As you see, the ranking methods are robust over a 10-year stimespan.
Magic Formula / Minimum Market Cap 10mll

YEAR
D1
D2
D3
T1999
35,76%
22,63%
D4
D5
D6
D7
D8
D9
D10
46,37%
49,94%
41,16%
27,23%
41,62%
26,68%
34,72%
43,45%
T2000
7,52%
3,15%
-5,91%
-16,11%
-16,70%
-21,72%
-23,46%
-22,19%
-31,73%
-28,02%
T2001
-3,77%
-10,98%
-11,24%
-10,27%
-9,44%
-13,39%
-15,87%
-21,53%
-33,14%
-42,57%
T2002
-8,46%
-11,96%
-7,96%
-16,97%
-11,96%
-9,59%
-10,55%
-11,62%
-10,97%
-5,92%
T2003
35,69%
32,49%
33,13%
25,95%
26,21%
24,36%
19,28%
26,30%
34,00%
39,35%
T2004
32,60%
22,16%
22,75%
20,42%
21,81%
19,49%
26,73%
18,65%
16,05%
14,67%
T2005
17,19%
24,88%
16,65%
19,61%
23,99%
25,01%
19,39%
20,79%
20,95%
13,07%
T2006
39,60%
37,55%
38,96%
39,77%
41,60%
42,80%
47,58%
36,35%
36,71%
16,70%
T2007
-13,68%
-19,39%
-17,91%
-17,20%
-14,81%
-14,95%
-20,51%
-18,14%
-24,79%
-29,66%
T2008
-25,66%
-23,32%
-25,28%
-26,91%
-26,06%
-27,84%
-29,88%
-30,84%
-30,52%
-28,58%
Total
142,87%
70,38%
82,79%
43,82%
59,38%
26,94%
21,11%
-4,47%
-26,44%
-40,90%
9,28%
5,47%
6,22%
3,70%
4,77%
2,41%
1,93%
-0,46%
-3,02%
-5,12%
D5
D6
D7
D8
D9
D10
Return
Graham NCAV on Market Value / Minimum Market Cap 10mll

YEAR
D1
D2
D3
D4
T1999
27,64%
48,47%
28,35%
40,23%
43,70%
25,90%
35,96%
60,56%
54,20%
28,96%
T2000
40,55%
0,01%
3,38%
-15,13%
13,76%
-28,59%
-3,40%
-32,07%
-26,93%
-21,29%
T2001
-18,40%
-8,59%
-16,29%
-8,96%
-20,14%
-34,15%
-22,77%
-41,57%
-26,84%
-41,57%
T2002
-38,42%
-0,15%
-11,51%
-8,72%
-11,40%
-12,57%
9,68%
-6,94%
-15,65%
-14,45%
T2003
40,11%
49,36%
34,55%
24,72%
47,92%
44,18%
43,48%
23,19%
26,95%
6,30%
T2004
36,24%
29,86%
23,84%
15,27%
19,10%
-5,48%
10,54%
46,54%
12,19%
4,66%
T2005
40,74%
23,47%
16,38%
15,56%
18,16%
10,82%
34,38%
17,27%
17,36%
19,01%
T2006
49,41%
28,32%
38,36%
20,39%
30,84%
39,99%
24,60%
45,01%
23,21%
39,75%
T2007
29,21%
-16,74%
-17,23%
-8,02%
-13,62%
-18,66%
-31,78%
-23,58%
-17,52%
-26,17%
T2008
-43,88%
-17,00%
-19,67%
-25,03%
-18,25%
-24,34%
-27,11%
-25,90%
-23,57%
-33,57%
Total
162,38%
187,78%
75,35%
36,39%
122,44%
-32,65%
46,91%
3,09%
-9,71%
-53,96%
Return
10,13%
11,15%
5,78%
3,15%
8,32%
-3,88%
3,92%
0,30%
-1,02%
-7,46%
31
Piotroski Price to Book (20% best companies) / Minimum Market Cap 10mll
YEAR
D1
D2
D3
D4
D5
D6
D7
D8
D9
D10
T1999
21,02%
35,74%
56,53%
10,83%
39,55%
15,34%
36,82%
93,91%
73,41%
102,33%
T2000
83,88%
12,64%
1,97%
-5,42%
-9,71%
-4,25%
14,31%
-33,14%
-31,94%
-35,17%
T2001
-28,20%
-0,38%
-0,38%
-17,00%
-23,79%
-26,23%
-22,85%
-27,48%
-34,96%
-7,47%
T2002
7,26%
-8,05%
7,97%
6,60%
10,88%
-9,59%
-2,53%
-0,17%
-11,82%
-7,52%
T2003
39,88%
35,12%
24,76%
45,19%
33,37%
1,48%
1,80%
-1,12%
21,66%
33,53%
T2004
44,33%
30,71%
14,89%
1,02%
33,51%
-6,71%
-4,69%
16,79%
0,22%
19,29%
T2005
55,37%
46,06%
18,63%
25,20%
18,50%
28,90%
11,96%
22,27%
26,06%
16,65%
T2006
59,39%
54,04%
39,12%
49,74%
46,97%
37,58%
52,67%
49,97%
40,30%
50,00%
T2007
38,94%
-14,47%
-9,44%
-21,69%
-26,32%
-17,99%
-26,51%
-23,88%
-17,58%
-11,73%
T2008
-34,27%
-26,76%
-34,77%
-36,40%
-28,24%
-37,21%
-27,19%
-33,47%
-40,60%
-41,23%
Total
682,53%
248,59%
139,92%
27,03%
74,60%
-36,32%
4,36%
0,67%
-28,53%
62,29%
Return
22,84%
13,30%
9,15%
2,42%
5,73%
-4,41%
0,43%
0,07%
-3,30%
4,96%
D3
D4
D5
D6
D7
D8
D9
D10
ERP5 / Minimum Market Cap 10mll

YEAR
D1
D2
T1999
19,70%
19,96%
13,77%
23,20%
18,37%
22,24%
23,94%
24,03%
27,27%
-0,29%
T2000
16,40%
12,35%
5,87%
0,84%
-0,34%
-2,57%
-10,33%
-3,52%
-2,81%
-18,92%
T2001
-12,05%
1,66%
-6,09%
-0,09%
2,09%
-2,00%
-1,19%
-13,67%
-2,69%
-24,49%
T2002
-21,80%
-7,61%
-10,47%
-12,20%
-10,69%
-11,99%
-5,66%
-7,13%
-1,71%
-7,17%
T2003
35,88%
38,22%
35,89%
31,57%
31,03%
26,44%
23,39%
28,60%
31,76%
19,93%
T2004
47,59%
26,05%
31,94%
18,47%
26,68%
29,25%
21,64%
26,50%
21,25%
13,73%
T2005
35,26%
19,11%
29,97%
18,63%
27,10%
22,50%
19,62%
18,96%
16,29%
12,25%
T2006
51,57%
37,81%
43,36%
44,12%
41,92%
42,56%
43,14%
43,29%
34,26%
16,81%
T2007
1,56%
-18,63%
-16,48%
-16,08%
-17,60%
-15,23%
-17,22%
-21,41%
-22,62%
-31,63%
T2008
-51,38%
-25,57%
-26,43%
-26,73%
-28,14%
-27,26%
-28,74%
-30,59%
-31,04%
-31,62%
Total
94,53%
119,25%
107,84%
78,56%
90,73%
80,79%
57,04%
45,11%
57,48%
-52,62%
Return
6,88%
8,17%
7,59%
5,97%
6,67%
6,10%
4,62%
3,79%
4,65%
-7,20%
D5
D6
D7
D8
D9
D10
20% best MFI ranked by Piotroski/ Minimum Market Cap 10mll

YEAR
D1
D2
D3
D4
T1999
35,31%
22,96%
22,83%
33,48%
47,99%
55,23%
27,78%
28,41%
14,99%
37,65%
T2000
39,51%
11,11%
11,01%
6,01%
5,29%
6,34%
7,39%
-6,95%
-7,35%
-3,53%
T2001
3,82%
-5,32%
-13,15%
7,32%
-3,28%
-2,02%
-21,65%
-14,56%
-18,61%
-16,66%
T2002
-14,80%
-0,28%
-8,43%
-2,13%
-13,96%
-12,97%
-14,56%
-14,62%
-23,01%
-10,46%
T2003
32,15%
55,98%
28,65%
35,65%
32,17%
38,12%
28,57%
33,04%
25,43%
19,26%
T2004
49,51%
27,26%
29,03%
25,76%
38,28%
23,67%
19,99%
16,71%
40,85%
16,52%
T2005
33,99%
29,99%
17,52%
23,52%
48,23%
9,01%
11,45%
22,09%
11,01%
10,26%
T2006
48,50%
37,86%
37,25%
39,76%
31,32%
40,07%
56,05%
32,06%
32,60%
44,43%
T2007
26,78%
-18,75%
-16,49%
-13,12%
-20,40%
-18,22%
-18,06%
-6,12%
-19,90%
-17,24%
T2008
-40,53%
-17,36%
-22,08%
-31,36%
-24,32%
-22,28%
-26,63%
-21,75%
-30,12%
-31,26%
Total
394,92%
208,09%
88,94%
161,04%
177,93%
133,33%
48,15%
60,32%
-2,81%
24,74%
Return
17,34%
11,91%
6,57%
10,07%
10,76%
8,84%
4,01%
4,83%
-0,28%
2,24%
32
20% best ERP5-ranked by Piotroski / Minimum Market Cap 10mll

YEAR
D1
D2
D3
D4
D5
D6
D7
D8
D9
D10
26,30%
15,83%
37,55%
11,06%
20,10%
21,83%
11,29%
T1999
32,16%
14,62%
9,14%
T2000
23,31%
11,54%
11,46%
3,02%
10,62%
3,35%
16,88%
-0,60%
1,64%
-2,95%
T2001
7,28%
1,68%
6,65%
-0,13%
6,62%
-5,17%
-0,59%
-2,96%
-5,29%
-6,85%
T2002
-7,73%
-4,36%
1,18%
-6,21%
-5,26%
-19,90%
-1,28%
-14,48%
-16,32%
-13,94%
T2003
33,93%
54,58%
36,04%
32,63%
38,65%
35,38%
40,62%
28,99%
37,57%
27,64%
T2004
61,75%
31,07%
39,18%
22,21%
34,70%
30,96%
24,83%
25,92%
23,44%
15,31%
T2005
38,28%
29,72%
27,25%
23,53%
49,89%
14,51%
15,00%
27,35%
12,11%
14,84%
T2006
53,80%
32,86%
43,89%
40,78%
36,87%
41,23%
49,78%
35,92%
34,51%
54,06%
T2007
40,39%
-13,78%
-18,68%
-16,33%
-22,06%
-10,19%
-18,92%
-15,08%
-16,02%
-25,60%
T2008
-49,54%
-22,56%
-18,37%
-26,97%
-23,83%
-18,55%
-21,10%
-24,32%
-25,20%
-30,90%
Total
426,49%
189,89%
202,09%
109,93%
194,42%
126,45%
146,39%
78,98%
57,86%
15,93%
Return
18,07%
11,23%
11,69%
7,70%
11,40%
8,52%
9,44%
5,99%
4,67%
1,49%
D4
D5
D6
D7
D8
D9
D10
MAGIC FORMULA LIST -MIN MARKET CAP 100 MLL

YEAR
D1
D2
D3
T1999
24,93%
25,46%
40,65%
29,83%
28,50%
29,91%
38,45%
41,55%
13,17%
44,29%
T2000
10,96%
1,07%
-8,75%
-19,31%
-18,10%
-23,93%
-26,43%
-29,11%
-37,98%
-46,98%
T2001
-6,31%
-7,20%
-8,77%
-9,72%
-12,16%
-13,69%
-14,58%
-14,01%
-25,55%
-33,32%
T2002
-9,59%
-13,09%
-6,98%
-13,99%
-15,93%
-9,23%
-10,43%
-5,10%
-6,51%
-11,43%
T2003
34,70%
36,07%
28,75%
31,33%
28,21%
26,99%
27,46%
24,81%
26,10%
26,75%
T2004
25,52%
27,92%
23,46%
25,09%
22,52%
29,32%
27,29%
21,49%
19,93%
19,12%
T2005
19,19%
22,48%
17,06%
19,69%
18,85%
19,71%
20,74%
19,77%
12,19%
19,66%
T2006
42,20%
29,79%
41,83%
38,33%
40,94%
48,27%
40,64%
51,95%
37,24%
31,07%
T2007
-16,98%
-22,91%
-20,13%
-16,46%
-18,78%
-11,61%
-17,37%
-19,53%
-17,32%
-29,25%
T2008
-26,27%
-26,19%
-26,54%
-26,81%
-27,99%
-26,55%
-29,17%
-30,01%
-30,72%
-27,83%
Total
105,95%
61,01%
68,63%
35,28%
19,62%
46,52%
25,66%
27,26%
-34,83%
-45,37%
Return
7,49%
4,88%
5,36%
3,07%
1,81%
3,89%
2,31%
2,44%
-4,19%
-5,87%
D3
D4
D5
D6
D7
D8
D9
D10
NCAVB LIST MIN MARKET CAP 100 MLL

YEAR
D1
D2
T1999
37,75%
48,54%
36,91%
23,69%
24,67%
31,84%
40,64%
35,72%
4,46%
36,72%
T2000
43,59%
0,06%
-3,59%
-19,93%
-14,04%
-34,15%
-24,80%
-42,97%
-36,69%
-46,16%
T2001
-56,57%
15,35%
-23,96%
-23,04%
-25,43%
-20,71%
-31,03%
-42,00%
-40,68%
-41,19%
T2002
-54,47%
0,63%
-2,90%
-12,26%
-6,07%
-20,57%
-10,54%
-4,97%
-24,03%
-24,24%
T2003
14,93%
44,42%
33,56%
41,76%
15,90%
32,72%
31,72%
42,39%
15,69%
30,26%
T2004
53,47%
30,09%
27,66%
19,08%
18,54%
14,38%
14,55%
9,70%
13,18%
23,52%
T2005
38,04%
19,81%
24,18%
23,21%
12,22%
14,37%
23,77%
20,81%
14,85%
21,18%
T2006
52,06%
21,73%
35,75%
24,12%
49,44%
38,65%
38,95%
28,76%
40,67%
22,91%
T2007
8,29%
-20,68%
-17,43%
-21,09%
-4,38%
-19,81%
-31,67%
-20,00%
-32,42%
-21,38%
T2008
-48,85%
-17,65%
-25,88%
-13,76%
-22,38%
-22,04%
-23,78%
-19,20%
-28,73%
-33,47%
Total
-19,80%
208,75%
71,43%
17,49%
28,37%
-17,72%
-11,82%
-32,98%
-69,64%
-58,88%
Return
-2,18%
11,93%
5,54%
1,62%
2,53%
-1,93%
-1,25%
-3,92%
-11,24%
-8,50%
33
PIOTROSKI PRICE TO BOOK LIST MIN MARKET CAP 100 MLL

YEAR
D1
D2
D3
D4
D5
D6
D7
D8
D9
D10
T1999
17,57%
34,26%
36,53%
62,10%
28,87%
20,83%
4,99%
28,39%
59,63%
73,79%
T2000
72,35%
7,92%
-2,49%
17,26%
12,10%
-13,96%
-12,64%
-15,66%
-25,44%
-37,52%
T2001
-38,90%
-6,80%
6,92%
-6,90%
-15,68%
-4,49%
-9,40%
-34,31%
-10,01%
-23,33%
T2002
-20,06%
-10,21%
-3,66%
-4,81%
-12,98%
-6,41%
-5,04%
-13,42%
-23,17%
-6,34%
T2003
46,06%
15,81%
26,28%
26,57%
42,55%
32,94%
24,31%
11,23%
11,71%
18,06%
T2004
38,02%
8,14%
15,51%
32,48%
17,94%
1,09%
20,90%
11,52%
21,37%
21,24%
T2005
53,05%
32,25%
22,07%
17,61%
17,73%
36,96%
25,79%
6,11%
39,02%
18,30%
T2006
60,29%
66,95%
50,74%
59,71%
50,23%
52,17%
41,75%
58,34%
24,54%
21,65%
T2007
9,09%
-9,66%
-15,16%
6,30%
-25,51%
-27,23%
-17,53%
-24,01%
-14,75%
-20,92%
T2008
-49,40%
-31,70%
-37,71%
-30,67%
-32,56%
-28,19%
-23,19%
-33,14%
-27,84%
-46,45%
Total
170,18%
106,84%
94,51%
290,96%
58,36%
36,01%
33,96%
-34,79%
18,83%
-31,98%
Return
10,45%
7,54%
6,88%
14,61%
4,70%
3,12%
2,97%
-4,19%
1,74%
-3,78%
D3
D4
D5
D6
D7
D8
D9
D10
ERP5 LIST MIN MARKET CAP 100 MLL

YEAR
D1
D2
T1999
16,69%
14,92%
15,59%
28,55%
19,85%
18,48%
31,04%
13,86%
32,17%
17,98%
T2000
39,06%
11,18%
9,21%
-0,73%
2,02%
-8,77%
-0,21%
-10,45%
-7,80%
-15,87%
T2001
-8,21%
-2,48%
-5,48%
1,77%
2,30%
-7,09%
0,27%
-6,26%
-10,35%
-13,24%
T2002
-21,00%
-8,55%
-13,15%
-11,13%
-12,71%
-8,48%
-13,32%
-8,20%
-3,21%
-2,07%
T2003
36,48%
36,89%
28,97%
31,05%
34,39%
29,52%
27,93%
25,79%
27,96%
19,81%
T2004
46,39%
28,50%
30,22%
25,25%
21,15%
31,13%
28,92%
25,44%
21,52%
7,52%
T2005
31,09%
21,60%
22,21%
17,59%
18,98%
21,68%
20,32%
12,66%
15,60%
13,32%
T2006
54,34%
38,02%
38,57%
42,62%
41,07%
49,04%
44,11%
41,30%
46,52%
28,03%
T2007
11,70%
-20,88%
-20,98%
-16,79%
-13,27%
-20,18%
-14,71%
-14,70%
-20,41%
-28,01%
T2008
-51,40%
-27,35%
-24,52%
-30,39%
-28,01%
-24,41%
-29,74%
-33,41%
-29,87%
-30,65%
Total
158,24%
93,38%
75,79%
84,03%
86,30%
70,78%
94,78%
25,19%
55,43%
-21,33%
Return
9,95%
6,82%
5,80%
6,29%
6,42%
5,50%
6,89%
2,27%
4,51%
-2,37%
D7
D8
D9
D10
20,40%
20% best MAGIC FORMULA ORDER BY PIOTROSKY SCORE -MIN MARKET CAP 100 MLL
YEAR
D1
D2
D3
D4
D5
D6
T1999
56,35%
31,60%
12,73%
26,07%
27,75%
29,51%
20,76%
55,71%
25,36%
T2000
24,74%
13,48%
T2001
-6,79%
-1,35%
18,16%
1,16%
9,71%
-12,60%
20,20%
-10,45%
-10,47%
-9,22%
-3,78%
-15,88%
6,15%
-2,29%
-9,37%
-15,66%
-20,40%
-12,31%
T2002
-7,25%
-7,80%
-7,19%
-8,48%
-12,81%
-18,02%
-2,66%
-15,46%
-19,10%
-24,79%
T2003
T2004
8,14%
47,43%
48,93%
20,43%
41,43%
29,55%
38,55%
38,87%
22,06%
27,22%
57,88%
34,73%
24,39%
25,06%
29,63%
23,25%
24,94%
18,56%
18,02%
37,92%
T2005
50,35%
36,06%
22,56%
22,89%
32,80%
16,30%
13,48%
21,84%
19,46%
12,29%
T2006
47,95%
28,85%
34,47%
41,34%
30,94%
40,28%
44,74%
37,29%
41,76%
37,33%
T2007
18,09%
-22,15%
-17,88%
-18,92%
-12,89%
-28,77%
-21,78%
-21,32%
-10,97%
-33,16%
T2008
-58,61%
-24,55%
-24,87%
-20,39%
-35,42%
-18,66%
-26,29%
-27,76%
-29,18%
-30,41%
Total
213,00%
177,83%
124,09%
65,80%
132,61%
36,84%
109,92%
55,63%
11,19%
-9,27%
Return
12,09%
10,76%
8,40%
5,19%
8,81%
3,19%
7,70%
4,52%
1,07%
-0,97%
34
20% best ERP5 ORDER BY PIOTROSKY SCORE -MIN MARKET CAP 100 MLL
YEAR
D1
D2
D3
D4
D5
D6
D7
D8
D9
D10
T1999
34,77%
11,59%
5,13%
39,98%
6,81%
16,58%
7,14%
23,20%
15,86%
15,79%
T2000
29,15%
13,36%
18,14%
5,02%
8,76%
12,67%
5,35%
14,30%
0,32%
-6,50%
T2001
3,45%
1,77%
1,56%
-3,75%
9,71%
-0,38%
-4,07%
-0,32%
-3,20%
-8,69%
T2002
-9,32%
-6,36%
-9,66%
-11,34%
-2,10%
-17,82%
-5,56%
-16,09%
-16,22%
-15,24%
T2003
17,53%
38,80%
29,81%
30,09%
32,61%
31,49%
43,50%
37,19%
28,00%
37,03%
T2004
70,77%
32,09%
30,93%
29,53%
32,94%
38,96%
16,33%
22,67%
26,62%
25,86%
T2005
42,97%
31,19%
22,27%
27,60%
32,81%
18,00%
16,51%
23,90%
23,41%
14,66%
T2006
50,12%
28,91%
42,14%
37,94%
36,46%
44,67%
50,61%
37,50%
30,05%
42,60%
T2007
27,94%
-13,48%
-20,21%
-15,97%
-25,17%
-16,68%
-20,44%
-26,28%
-9,22%
-32,26%
T2008
-56,19%
-29,17%
-18,28%
-25,83%
-32,40%
-15,12%
-31,50%
-22,98%
-24,08%
-23,62%
Total
294,18%
129,06%
119,49%
131,92%
101,66%
137,20%
63,24%
91,75%
68,99%
22,26%
Return
14,70%
8,64%
8,18%
8,78%
7,27%
9,02%
5,02%
6,73%
5,39%
2,03%
MAGIC FORMULA LIST -MIN MARKET CAP 500 MLL

YEAR
D1
D2
D3
D4
D5
D6
D7
D8
D9
D10
T1999
27,88%
28,20%
39,38%
27,77%
29,40%
5,70%
29,22%
40,53%
14,98%
20,20%
T2000
6,22%
-6,46%
-8,53%
-18,19%
-12,04%
-17,94%
-17,24%
-11,25%
-28,24%
-44,02%
T2001
1,37%
-4,79%
-12,67%
-10,42%
-9,28%
-12,30%
-18,89%
-12,32%
-13,72%
-29,33%
T2002
-12,49%
-9,91%
-11,40%
-14,26%
-19,96%
-13,44%
-5,91%
-9,19%
-5,23%
-13,61%
T2003
32,79%
23,42%
28,00%
26,82%
22,41%
25,72%
28,65%
30,75%
31,14%
25,02%
T2004
23,22%
26,95%
19,43%
24,73%
26,65%
29,12%
39,69%
27,06%
19,85%
8,27%
T2005
18,50%
18,86%
14,28%
18,33%
13,90%
17,57%
19,56%
15,05%
20,28%
14,69%
T2006
44,02%
35,00%
43,49%
41,79%
42,72%
42,41%
42,24%
37,40%
44,98%
41,79%
T2007
-15,34%
-21,35%
-17,88%
-15,00%
-18,07%
-14,73%
-16,29%
-16,27%
-17,32%
-26,75%
T2008
-24,89%
-26,60%
-21,26%
-29,99%
-25,12%
-22,99%
-27,07%
-34,44%
-28,95%
-33,25%
Total
113,94%
49,30%
59,89%
26,80%
27,76%
17,52%
52,27%
43,19%
8,62%
-55,79%
7,90%
4,09%
4,80%
2,40%
2,48%
1,63%
4,29%
3,66%
0,83%
-7,84%
Return
NCAVB LIST MIN MARKET CAP 500 MLL

YEAR
D1
D2
D3
D4
D5
T1999
35,92%
91,54%
34,90%
33,82%
20,16%
T2000
96,72%
-9,19%
-13,81%
-24,48%
T2001
-77,57%
-7,85%
-19,59%
T2002
-34,06%
-8,35%
T2003
13,80%
32,11%
T2004
42,46%
T2005
T2006
D7
D8
D9
124,70%
16,68%
14,20%
61,32%
108,91%
-53,07%
-26,79%
-43,04%
-30,77%
-48,21%
-59,01%
-16,44%
-30,06%
-30,35%
-32,74%
-31,19%
-32,46%
-29,45%
-21,81%
-12,85%
-22,18%
-10,51%
-20,61%
-12,50%
-27,14%
-19,40%
31,55%
32,15%
27,42%
22,77%
21,40%
22,09%
10,18%
27,10%
18,52%
27,20%
19,16%
11,22%
30,80%
2,18%
12,91%
19,51%
12,44%
16,86%
13,84%
12,14%
19,68%
11,93%
18,07%
13,67%
9,83%
12,61%
-6,48%
38,18%
39,67%
39,82%
21,23%
41,01%
39,68%
51,75%
35,97%
22,01%
4,89%
T2007
-6,32%
-23,33%
-13,68%
-14,28%
-13,16%
-7,06%
-21,35%
-16,83%
-16,84%
-22,46%
T2008
-49,48%
-19,89%
-24,60%
-27,29%
-23,75%
-22,58%
-19,87%
-39,77%
-20,08%
-26,41%
Total
-50,99%
124,60%
24,84%
4,80%
-54,54%
95,34%
-52,15%
-50,90%
-50,57%
-61,05%
-6,88%
8,43%
2,24%
0,47%
-7,58%
6,93%
-7,11%
-6,87%
-6,80%
-9,00%
Return
35
D6
D10
PIOTROSKI PRICE TO BOOK LIST MIN MARKET CAP 500 MLL

YEAR
D1
D2
D3
D4
D5
T1999
11,75%
36,95%
25,12%
19,63%
18,07%
-11,23%
T2000
28,66%
9,82%
8,44%
4,20%
-0,45%
T2001
-34,02%
-1,72%
8,84%
-24,30%
T2002
-48,08%
-12,54%
-9,43%
-25,16%
T2003
61,01%
31,88%
9,50%
8,43%
T2004
21,99%
27,60%
13,41%
T2005
42,56%
31,05%
22,25%
T2006
48,84%
60,91%
T2007
11,96%
T2008
Total
Return
D8
D9
D10
5,38%
43,42%
24,16%
30,91%
-6,11%
-23,94%
2,78%
-29,72%
-27,55%
-0,09%
-4,73%
-24,87%
-16,90%
-28,70%
-30,43%
14,43%
-14,63%
-7,18%
-20,49%
-8,30%
-3,11%
26,00%
63,66%
33,97%
26,01%
2,41%
15,67%
34,98%
40,10%
26,82%
12,63%
24,99%
5,39%
2,60%
26,93%
9,92%
24,16%
22,25%
6,79%
0,15%
36,67%
52,76%
37,53%
54,29%
47,64%
67,42%
37,51%
59,81%
26,00%
-14,62%
-23,50%
-12,83%
-23,79%
-21,28%
-35,14%
-18,01%
-19,19%
-29,17%
-49,94%
-28,59%
-41,15%
-28,81%
-29,17%
-30,43%
-32,34%
-35,58%
-25,19%
-30,82%
15,04%
179,70%
39,64%
11,96%
117,16%
41,23%
-24,23%
18,98%
-40,42%
-35,98%
1,41%
10,83%
3,40%
1,14%
8,06%
3,51%
-2,74%
1,75%
-5,05%
-4,36%
ERP5 LIST MIN MARKET CAP 500 MLL

YEAR
D1
D2
D3
D4
T1999
13,13%
11,93%
37,97%
17,30%
T2000
21,31%
14,51%
-2,46%
T2001
-2,83%
1,25%
T2002
-21,88%
T2003
28,48%
T2004
D7
D6
D7
D8
D9
3,85%
17,21%
26,84%
16,22%
18,69%
7,49%
-1,83%
1,04%
3,25%
-3,07%
-12,99%
5,17%
-13,94%
-10,60%
-4,29%
-1,79%
-8,63%
-2,95%
-12,57%
-13,59%
-8,09%
-14,67%
-19,21%
-11,67%
-12,13%
-12,53%
-7,42%
-12,04%
-5,01%
-5,48%
25,22%
32,61%
22,42%
27,67%
34,72%
27,58%
25,38%
24,55%
27,25%
44,57%
38,04%
25,08%
19,50%
29,55%
35,17%
30,70%
20,13%
24,38%
8,36%
T2005
27,95%
22,44%
16,81%
15,83%
15,26%
15,73%
14,46%
14,38%
14,22%
20,42%
T2006
64,05%
42,47%
39,39%
42,00%
42,26%
43,00%
41,82%
49,90%
42,11%
37,43%
T2007
17,80%
-22,95%
-20,00%
-14,94%
-14,61%
-15,78%
-12,79%
-17,67%
-16,61%
-23,26%
T2008
-47,49%
-26,28%
-24,02%
-29,06%
-27,21%
-24,59%
-27,53%
-33,80%
-31,55%
-31,49%
Total
151,23%
89,64%
59,58%
41,34%
52,63%
85,12%
88,99%
9,45%
47,09%
-3,59%
9,65%
6,61%
4,78%
3,52%
4,32%
6,35%
6,57%
0,91%
3,93%
-0,36%
Return
D5
D6
D10
20% best MAGIC FORMULA ORDER BY PIOTROSKY SCORE - MIN MARKET CAP 500 MLL
YEAR
D1
D2
D3
D4
D5
D6
D7
D8
D9
D10
T1999
53,40%
43,13%
-9,19%
41,80%
33,15%
37,56%
-2,99%
36,12%
11,42%
49,38%
T2000
42,63%
16,21%
8,16%
10,28%
-14,40%
-15,38%
-13,33%
4,39%
-6,60%
-14,17%
T2001
-19,20%
5,09%
-5,46%
-5,06%
-9,23%
20,51%
-7,47%
-5,15%
-14,14%
5,03%
T2002
16,72%
-14,22%
-20,46%
-11,24%
-11,85%
-12,15%
-15,63%
-9,25%
-24,13%
-8,35%
T2003
15,01%
31,89%
54,60%
23,83%
26,30%
37,41%
39,16%
25,59%
4,62%
18,65%
T2004
46,01%
21,77%
22,39%
22,31%
34,57%
29,57%
26,37%
10,78%
24,51%
29,01%
T2005
42,08%
17,88%
57,20%
15,33%
18,69%
14,77%
10,63%
-1,29%
16,53%
6,12%
T2006
40,92%
39,42%
47,77%
35,52%
34,06%
50,74%
34,86%
43,29%
56,26%
32,21%
T2007
5,97%
-25,57%
-17,94%
-11,01%
-14,17%
-29,61%
-10,68%
-18,13%
-5,82%
-28,64%
T2008
-54,56%
-18,13%
-18,88%
-25,68%
-27,84%
-31,31%
-24,67%
-23,88%
-40,84%
-24,18%
Total
234,09%
141,14%
116,09%
106,29%
52,76%
83,53%
15,87%
49,98%
-10,41%
43,41%
12,82%
9,20%
8,01%
7,51%
4,33%
6,26%
1,48%
4,14%
-1,09%
3,67%
Return
36
20% best ERP5 ORDER BY PIOTROSKY SCORE - MIN MARKET CAP 500 MLL
YEAR
D1
D2
D3
D4
D5
D6
D7
T1999
19,20%
41,93%
17,67%
49,00%
14,89%
29,80%
-2,99%
T2000
25,32%
16,13%
23,45%
0,41%
5,79%
2,23%
5,97%
D8
D9
D10
3,86%
25,28%
12,51%
6,38%
-4,11%
-9,42%
T2001
9,56%
4,88%
3,87%
-4,36%
14,33%
-0,64%
-17,51%
11,07%
-15,68%
-3,67%
T2002
-4,32%
-14,90%
-24,03%
-22,44%
-12,97%
-19,43%
-22,77%
-16,80%
-17,43%
-8,65%
T2003
27,92%
28,77%
22,40%
35,74%
16,51%
31,91%
38,84%
31,72%
26,47%
32,99%
T2004
55,56%
27,71%
22,73%
27,79%
21,68%
54,29%
43,28%
14,66%
35,38%
25,48%
T2005
43,23%
44,81%
24,62%
16,51%
16,37%
27,30%
19,39%
11,77%
14,01%
22,68%
T2006
50,59%
50,45%
52,99%
42,07%
26,31%
54,70%
40,61%
33,02%
37,64%
52,56%
T2007
25,19%
-24,11%
-11,25%
-15,51%
-29,14%
-16,73%
-14,18%
-36,11%
1,02%
-28,96%
T2008
-53,71%
-22,45%
-11,09%
-34,79%
-28,97%
-22,88%
-29,90%
-23,61%
-20,84%
-29,43%
Total
289,46%
210,22%
159,07%
75,57%
26,85%
173,46%
31,57%
11,89%
79,72%
40,41%
14,56%
11,99%
9,99%
5,79%
2,41%
10,58%
2,78%
1,13%
6,04%
3,45%
Return
37
Section 5: Conclusions
Actually buying an index fund isnt a really great idea if you want some performance in the end.
Those who bought and held an Index fund in 1999 would have suffered a total loss of 27,22% or a 3% annually by
June 2009!
As all the graphs make very clear, 100 invested in 1999 with different Value Investing strategies and different
market caps would have beaten the market, even with an mechanical stock screener and trading only once a year.
Actually sticking with your investment plan is a good thing (and is often the hardest part) if you dont want to
spend a lot of time on your investments.
Working with stock screeners and rebalancing your portfolio only once a year gives you the necessary discipline
which can sometimes be necessary.
Imagine what a full-time Value investor from Graham and Doddsville could achieve
The Value Investing strategies may underperform the market for several years, but over the long term they
clearly outperform it.
Adding consistently more stocks to your portfolio wont make returns better (we did not study the volatility
factor). This would be logical if a value strategy worked and adding more stocks brought you more to the market
average return.
Analysing the returns from the EU market and the US gives roughly the same results.
By combining different Value screening methods (ERP5/Piotroski and MF/Piotroski) you can increase your
return.
The use of combined value screeners gives you an 360 perspective on the concept of Value and protects
you from the possible loss of principal, which is, in our viewpoint the most important aspect of risk.
Using the NCAV and splitting it up in deciles sometimes gives you strange results but you have to consider that
using NCAV doesnt always reflect how cheap a company is. Graham himself only bought companies trading
at 2/3 of their NCAV.
Even if the stock market sometimes is irrational and things dont look very nice at all,
stick to fundamentals of value and dont let Mr Marketget into your system.
Dont buy stocks expensive because of projected earnings to far in the future.
Stick with the solid data that you have and over the long run youll do fine.
38

Studying Different Systematic Value Investing Strategies On The Eurozone Market

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by Philip Vanstraceele and Luc Allaeys

Methodology and Data

As we proceeded, we also asked ourselves questions such as;

Section 2: Methodology and Data

2.Look ahead Bias:

5.A Reliable Database :

6.Small sample Bias :

How the formula is calculated ?

EBIT / (Net Working Capital + Net Fixed Assets)

EBIT / Enterprise Value.

Excess Cash is determined:

. Joseph Piotroskis 9- point scoring mechanism

Piotroski came up with a nine point scoring mechanism for stocks;

positive earnings [F_ROA]

positive cash flow [F_CFO]

increasing ROA [F_ROA]

increasing cash flow from operations [F_ACCRUAL]

decreasing long term debt as a proportion of total assets [F_LEVER]

decreasing or stable numbers of outstanding shares [EQ_OFFER]

increasing gross margin [_MARGIN]

All 9 factors added together being summed up leads;

. Benjamin Grahams NCAV (Net Current Asset Value) (The intelligent

Total Assets Total Liabilities.

.The ERP5 Value Stock Screener

Finding stocks with a considerable margin of safety isnt a standalone issue.

Large-cap: 10 billion200 billion

Mid-cap: 1 billion10 billion

Small-cap: 300 million1 billion

Micro-cap: 25 million-300 million

Nano-cap: Below 25 million

Above 200 billion

Large-cap: 10 billion200 billion

Mid-cap: 1 billion10 billion

Small-cap: 300 million1 billion

Micro-cap: 25 million-300 million

Nano-cap: Below 25 million

Magic Formula / Minimum Market Cap 10mll

Graham NCAV on Market Value / Minimum Market Cap 10mll

ERP5 / Minimum Market Cap 10mll

20% best MFI ranked by Piotroski/ Minimum Market Cap 10mll

20% best ERP5-ranked by Piotroski / Minimum Market Cap 10mll

MAGIC FORMULA LIST -MIN MARKET CAP 100 MLL

NCAVB LIST MIN MARKET CAP 100 MLL

PIOTROSKI PRICE TO BOOK LIST MIN MARKET CAP 100 MLL

ERP5 LIST MIN MARKET CAP 100 MLL

MAGIC FORMULA LIST -MIN MARKET CAP 500 MLL

NCAVB LIST MIN MARKET CAP 500 MLL

PIOTROSKI PRICE TO BOOK LIST MIN MARKET CAP 500 MLL

ERP5 LIST MIN MARKET CAP 500 MLL

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