Simple and Powerful Screening Strategy

I spent a good deal of time experimenting with various screening strategies on www.backtest.org. This site essentially gives you the ability to construct a stock screener and back test the results as far as 1986 (not for all criteria). Really useful criteria is available as well as options to change the holding period and starting month.

So I tried numerous different "value" oriented screens and came upon some successful results. There was however, one particular screen that showed especially outstanding results over almost any time frame and/or holding period. The screen is quite simple:

• Current P/E Ratio <= 14
• Return on Shareholders Equity >= 20%
• EPS Growth - 5 years >= 10%
• % Retained to Common Equity >= 60%

Here are the results for a 3 month holding period and the percentages are for annual growth:

From 1990-2010: 27%

1995-2010: 30%

2000-2010: 37%

2005-2010: 25%

The results were very similar to 12 month holding periods as well as varying time frames within the 20 years of data!