Lynn:

I’m sorry I didn’t respond earlier. I did go to Shaumberg
but came back the same day. Unfortunately, I hadn’t flagged your e-mail
it got lost in the shuffle. I’m glad you posted this query and reminded
me. Your original question to me sought a comparison with the Manifest
Investing results and it was prompted by seeing a big difference in the results
between the list of companies selected using the MI criteria vs. those using the Complete Roster.

There are a number of issues that would cause a difference between
the results Mark’s Manifest Investing dashboard produces and those
produced by the Complete Roster. Mark’s methodology is based on the same
philosophy and set of concepts that Take $tock and the Roster are based
on—George Nicholson’s gift to us all. But we do differ in several places in its application.

While I’m not qualified to speak authoritatively about the Manifest Investing discipline, I think it’s safe to say:

1)      A major departure point is that Manifest Investing searches the Value Line database for stocks that are promising.

2)      The determination of earnings growth makes use of Value Line’s
estimates for SALES growth to “back into” a calculation of an
estimate for future earnings. Mark’s rationale (I believe) is that Sales growth
is a more reliable metric, is less influenced by transient issues than would be
earnings, and is therefore more likely to produce a reliable picture of future earnings.

3)      The arbitrary apportionment of quality issues into equal, 25% contributors to the final rating could cause a major difference.

And that’s about all I’m qualified to say about the
Manifest Investing criteria and conclusions. I can’t say they’re
not “right.” I can say only that they’re “different.”
The proof of the pudding is, I guess, in the eating; and the “eating” is in the performance of portfolios assembled by each discipline.

I’m on far more familiar ground with the Roster; and I
think most NAIC-educated users would have to be, were they not to take the time
and effort to follow Mark’s logic and understand his premises. The reason
for this is that whichever electronic database is used, ALL of the companies on
the list would produce acceptable or desirable SSG’s, when looking at the
Quality issues (Sections 1 and 2), depending upon their respective Quality Indices.

This is because the screening performed to produce the Roster
goes beyond just filtering to include the raw data that might meet the
qualifications. Instead, it actually uses the same programming algorithm that
Take $tock does, eliminating the outliers from the historical data, estimating
sales and earnings growth using the rules with which we’re familiar
(e.g., no growth over 20%, earnings growth no larger than sales growth, etc.) And
it then produces the same Quality Index that Take $tock would produce, which is
based on NAIC’s familiar criteria when analyzing those parameters on an SSG.

So, the result automatically applies those conservative judgment
criteria to the entire database, which means that every stock that qualifies in that fashion is reported. Hence the term, “Complete.”

So, I guess the long and short of it is that the Complete Roster
is not restricted to only those companies included in the Value Line databases,
is not limited to the judgment of the Value Line analysts, and does not include
companies whose recent performance may have excluded it from selection on an
SSG. Relies on growth rates that are calculated using the least squares method
(a statistical tool which takes into account the performance in the years
between the first and last of the sample, rather than the straight-line growth
between an average of the most recent three years and the average of those five
or ten years previous). Both disciplines are based on George Nicholson’s
concepts; but each is applied in a somewhat different fashion using different data and tools. And both approaches have lots of merit.

I hope this gives you what you were looking for; and I hope Mark
will see this and elaborate. My response is quite inadequate when it comes to giving
you enough to go on in understanding Mark’s approach. He spent a lot of
years researching to come up with the rationales he has for doing as he does. And
his track record has proven to be quite good as well. It does suggest that you might
do well with companies that don’t necessarily meet the familiar NAIC
criteria in the strictest sense but which meet some other criteria in areas such as financial (balance sheet) strength.

Perhaps the moral of the story is an old one—that you have
a methodology and stick with it is more important than which methodology you use (within the realm of fundamental investing).

ET

From the The Toolshed forum at StockCentral.com, Lynn Ostrem writes:

Hi all,

I'm trying to learn more about the Roster, now that
it's available on SC.  I'm interested in the screening criteria and why
this list is different from the ones I run.  I sent a note to Ellis who is
usually quite good about returning emails.  I think he might be at BINC this weekend.  Anybody know anything about the criteria?

Thanks, Lynn

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Posted by: Lynn Ostrem
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