Another Way to Make a Bundle of Boodle:
The American Association of Individual Investors' Stock Screens

July 18, 2009

O'Shaughnessy--Tiny Titans:
    In 2007, I was struck by the outstanding performances of some of the American Association of Individual Investors' (AAII) Stock Screens. The best performer among these computer-generated stock portfolios was the O'Shaughnessy--Tiny Titans portfolio. Between 1998 and 2007 (a period of about 9½ years), it had 23-folded. That works out to a rate of gain of about 39% per year, approximately doubling every two years. At that rate it would thousand-fold in about 21 years. Furthermore, since the companies in the portfolio are small enough that their stock isn't purchased by large institutions, they stand a chance of outperforming other portfolios. I didn't pursue this in 2007 because I was doing too well on my own. But given the present uncertainties, the AAII approach looks more attractive   

The Martin Zweig Portfolio
    This portfolio ranked second in 2007, with a total 9½-year gain of about 20.

2009 Update:
    After 2007, I haven't recommended the AAII stock screens because last year (2008), the O'Shaughnessy--Tiny Titans was down 56.4% for the year, and probably more than that at the time that I checked on it. (The Zweig portfolio looked good.) I wasn't sure at the time what was going to happen to the economy and to the U. S. stock market, or how well the AAII portfolios would weather the storm. But that was then, and this is now. The AAII portfolios have hugely outperformed the stock markets as a whole, and look to me like a compelling repository for a significant chunk of my money. The O'Shaughnessy--Tiny Titans portfolio is up 27.1% for the year, while the Zwieg portfolio is up 16.7% since January. That sounds good to me. The 11½-year gain for the O'Shaughnessy--Tiny Titans portfolio is, right now, 16-folded since January, 1998, while the Zwieg portfolio portfolio has 13-folded over that 11½-year time period. (The Zweig portfolio is less volatile than the O'Shaughnessy--Tiny Titans.) That's quite a bit less than it was at the market peak in 2007, but a lot more than most other portfolios. (The S&P 500 has fallen 5.3% since January, 1998.)
    Two other new, outperforming portfolios are the "Estimated Earnings Revised Up 5%" portfolio, with an 11½-year track record of 16.32-folding and a year-to-date gain of 37.8%, and the O'Neil's CAN SLIM portfolio, with an 11½-year total return of 23.6-to-1and a year-to-date gain of 70%.
    
Diversification
    The AAII stock screens might represent another way to diversify our investments. AAII notes that these screens are AAII's computer-generated interpretations of the rules that apply to these various investment disciplines.

How to Put This into Practice
    There are two ways to approach this. 
    One approach is to subscribe to AAII ($29 a year in the U. S.; $44 international), and use the stock screens they provide in the middle of each month, based upon the closing prices at the end of the previous month. (There may be ways to access their updates earlier then the middle of the month with upgraded memberships. I haven't yet investigated this question.)
    The second approach is to sign up for a premium membership in Morningstar at a cost of $174 for one year, $289 ($145/year) for two years, or $389 ($130/year) for three years, and then use their stock screens to identify the stocks that meet the AAII criteria. This would give you a way to trade stocks at the end of each month (or more often if you deemed it advisable) without have to wait two more weeks until the AAII update became available.
    Each month, you'll end up selling one or more stocks and buying one or more stocks to replace the stocks you've sold.

Stock Screen Examples for June 30, 2009:
Zweig Portfolio
Aeropostale, Inc. ARO
Buckle, Inc., The  BKE

O'Neil's CAN SLIM
Fuqi, International, Inc.  FUQI

O'Shaughnessy's--Tiny Titans
Kirkland's, Inc.                               KIRK
Air Transport Services Group I      ATSG
Bioscrip, Inc.                                  BIOS
Caribou Coffee Company, Inc.       CBOU
Infosonics Corporation                   IFON
Delta Apparel, Inc.                         DLA
Duckwall-ALCO Stores                 DUCK
IEC Electronics Corp.                    IEC
Lithia Motors, Inc.                          LAD
Majesco Entertainment Co.            COOL
MoneyGram International, Inc.       MGI
Radian Group, Inc.                         RDN
America Service Group, Inc.          ASGR
Covenant Transportation Group     CVTI
Destination Maternity Corporation  DEST
Dorman Products, Inc.                   DORM
Gander Mountain Company           GMTN
Health Fitness Corporation             FIT
Merrimac Industries                       MRM
Saia Inc.                                        SAIA
AER Industries                              AEPI
Hawkins, Inc.                                HWKN
Openwave Systems, Inc.                OPWV
United PanAm Financial Corp.       UPFC
Big 5 Sporting Goods Corporation BGFV

How Well Does This Really Work?
    This is the big question. The AAII Discussion Section suggests that it isn't guaranteed that you can get the returns advertised by AAII. They share their individualistic rules for augmenting the AAII stock screens. Of course, they don't mention and you have no way of knowing whether their tricks of the trade work, and if so, how well. (I can't link you to the AAII discussions because it requires an AAII membership to access this feature.)
    Still, this seems to me to offer an interesting promise and possibilities. I'll be exploring (and reporting on) this in greater depth.