The Complete EOD Trader - A Strategy for Longer Term Investors

[Jack o'Clubs]

It's cheating a bit to say this now, but probably worth pointing out that I have access to rather better data than Digital Look - I'm trying to remember from a couple of years ago when I wrote the original post, but I guess I was trying to adapt it for sources of free information.

To answer your question Getafix, I'm aiming for a one-year forward PEG, so I'm taking a forecast PE for a year out and comparing it with the last reported. If you are a Slater purist you will interpolate the available data to get something exactly one-year forward, so in other words if doing it now for a company with a Dec y/e you'd take 9/12ths of the 2011 f'cast PE and 3/12ths of the 2012 f'cast to get a composite one-year forecast, and then compare it to 9/12ths of the 2010 actual PE plus 3/12 of the 2011 forecast. For a while I had access to Slater's proprietary models that did all this for you, but life's a bit too short to do that without it, especially on a screening process so I'd just compare the last actual with the next forecast. Once I had a shortlist I might then take it down to the next level of detail - the main thing is just to eyeball everything to make sure it makes sense and that it doesn't score a high PEG because of some odd quirk in its results.

On the number of forecasts, Digital Look shows the number of brokers with each recommendation so you can fairly easily see if there is more than one covering the stock.

Hope that helps. As Dacamic says, you'd certainly not be wanting to do this if you only had stale information.

 

[Getafix]

Thanks Steve, unfortunately I am looking to invest in the UK were we seem to be way behind with equivalent US regulations. I assume US companies must file quarterly? Maybe incorrectly... I believe in the UK it only has to be done once per year, though most companies seem to file every 6 months. I maybe wrong here - it could be the screening software I have looked at, but it certainly doesn't look like quarterly is a requirement by law.

Ultimately I agree with you in that it is probably prudent to have a cut-off, the question is what cut-off to use... don't want to rule out too many companies. (it will certainly making getting out of the shares at the right time difficult though).

Perhaps someone can correct me on this?

 

[Getafix]

Thanks Jack. I am bit uneasy about using forecasts because they add an extra level of uncertainty into the equation... I am wondering whether it better to only look at companies that have filed in the last month so that your are on a more level playing field against fellow investors? It may not make much difference... unfortunately I don't have enough data to do a proper study.

I have just googled "Slater forecasting" but not found anything, I assume I am barking up the wrong tree...? I had assumed "Slater" was some kind of regression technique to try and forecast future EPS..?

 

[Getafix]

First I have ever heard of "Slater" from your good self.

 

[Getafix]

Just to add to my commnet about being unneasy about using forecasts... this is not entirely correct, I meant if it is a forecast that is like a "black box" where you do not understand how the forecast came about I am uneasy in using! Though I suppose it could be argued that much of the company report could be fudged to a certain extent so not entirely reliable either!?

 

[Jack o'Clubs]

First I have ever heard of "Slater" from your good self.

In the first post on the thread:

my fundamental approach will be immediately recognised by anyone who has read Jim Slater’s Zulu Principle books....

...For anyone struggling with some of the fundamental metrics mentioned here I would strongly recommend the Jim Slater books which I don’t think are currently in print, but are easily available second-hand off the web.

 

[Getafix]

Doh... Jim Slater (I haven't got round to buying that book yet lol)

 

[Jack o'Clubs]

Thanks Jack. I am bit uneasy about using forecasts because they add an extra level of uncertainty into the equation... I am wondering whether it better to only look at companies that have filed in the last month so that your are on a more level playing field against fellow investors? It may not make much difference... unfortunately I don't have enough data to do a proper study.

I have just googled "Slater forecasting" but not found anything, I assume I am barking up the wrong tree...? I had assumed "Slater" was some kind of regression technique to try and forecast future EPS..?

I would argue that you need to use forecasts because the value of a company is measured from expected future earnings and cashflows, not from what's happened in the past.

 

[Getafix]

I fear I need to read your posts again more clearly as I have just realised you did have the formula for working out the forecast... I had missed the 2010 bit. Thanks. Much for me to research.

 

[Getafix]

...in fact I have now read over and over and believe there is still a black box, you are still using a broker forecast of EPS so this will only be as good as the forecaster's predictive ability. Do you know how the forecast is derived - is it a broker's feeling? Perhaps explained in Jim's book?

 

[Getafix]

I daresay it'll not be a mathematical/scientific method?

 

[Jack o'Clubs]

To a degree. For large companies equity analysts will have complex company models where they can tweak various drivers of the business to come up with revenues, op. profit, earning and cash flow forecasts. They're in competition with each other which tends to keep them honest. In theory, they know the industry they are covering inside out. However, in a downturn they are famously slow to recognise that things are getting worse and fund managers and strategists always criticise them for cutting forecasts too late.

For small companies, the process is slightly different - the broker will be representing the company and so you trade independence for a real inside track on what the management are thinking.

But you're right, prediction is very difficult, especially about the future - as Neils Bohr said. There's always uncertainty and the scope for things to go tits up in investing...