Studying Different Systematic Value Investing Strategies on the Eurozone Market

www.value-investing.eu

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Studying different

Systematic Value Investing Strategies

on the

Eurozone stock market

by Philip Vanstraceele and Luc Allaeys

May 2010



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ontents:

- Section 1: Introduction

- Section 2: Methodology and Data

- Section 3: Workflow

- Section 4: Results

- Section 5: Conclusions

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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 Piotroski’s nine

point scoring mechanism, Benjamin Graham’s 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. It’s now very clear that the market makes BIG mistakes in pricing stocks. It

doesn’t see through reported accounting numbers. It’s 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?

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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 don’t include companies that went bankrupt or that were taken over by others. In

our test these company’s 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.

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5.A Reliable Database :

Before we started this project we investigated different data providers. There are very good

sources available in today’s 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 Piotroski’s nine point scoring mechanism,

Benjamin Graham’s Net Current Asset Value and our own ERP5 .

We also back-tested combinations of these methods.

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. 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

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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.


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. Joseph Piotroski’s 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.

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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_ΔROA]

- increasing cash flow from operations [F_ACCRUAL]

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

- increasing current ratio (indicating an increasing ability to pay off short term debt) [F_ΔLIQUID]

- decreasing or stable numbers of outstanding shares [EQ_OFFER]

- increasing assets turnover (indicating an increasing sales as a proportion of total assets) [F_ΔTURN]

- increasing gross margin [Δ_MARGIN]

All 9 factors added together being summed up leads;

F_SCORE =[F_ROA]+ [F_CFO]+ [F_ΔROA]+ [F_ACCRUAL]+ [F_ΔLEVER]+ [F_ΔLIQUID]+ [EQ_OFFER]+ [F_ΔTURN]+ [Δ_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


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. Benjamin Graham’s 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.

Graham’s 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 company’s 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.

It’s a stringent requirement, since most companies have negative NCAV’s. 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.

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.The ERP5 Value Stock Screener

Finding stocks with a considerable “margin of safety” isn’t 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 Greenblatt’s 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”.

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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 didn’t 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

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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 billion–€200 billion 77 companies 2%

Mid-cap: €1 billion–€10 billion 308 companies 9%

Small-cap: €300 million–€1 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 billion–€200 billion 229 companies 3%

Mid-cap: €1 billion–€10 billion 1.045 companies 13,95%

Small-cap: €300 million–€1 billion 856 companies 10%

Micro-cap: €25 million-€300 million 1.724 companies 21%

Nano-cap: Below €25 million 4.267 companies 52%

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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.


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A

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.


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Name PIOT2550 ERP52550 NCAV2550 MF2550 EURO STOXX

Code X%PIOT(PI) X%ERP5 X%NCAV X%MF DJEURST

14/06/1999 100 100 100 100 100

13/06/2000 115,37 125,29 117,75 115,79 136,78

13/06/2001 131,11 152,76 131,21 121,88 112,37

13/06/2002 140,87 170,44 126,68 120,45 84,64

13/06/2003 149,78 214,46 128,74 136,25 67,98

14/06/2004 237,64 309,22 205,4 188,05 77,24

13/06/2005 317,06 377,55 271,45 212,67 90,34

13/06/2006 459,25 449,08 360,72 244,46 100,02

13/06/2007 698,38 602,54 465,64 349,87 133,6

13/06/2008 627,84 489,37 394,84 282,52 107,39

12/06/2009 481,72 400,12 334,3 238,9 72,78

Return Y 17,03% 14,87% 12,83% 9,10% -3,13%


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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.


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Code X%P X%E X%NCAV X%M DJEURST

14/06/1999 100 100 100 100 100

13/06/2000 111,88 126,16 125,82 126,1 136,78

13/06/2001 129,25 159,86 145,22 140,68 112,37

13/06/2002 139,87 172,59 141,86 131,41 84,64

13/06/2003 143,05 172,78 137,15 117,9 67,98

14/06/2004 215,02 254,09 209,07 154,09 77,24

13/06/2005 283,32 312,79 276,81 165,33 90,34

13/06/2006 387,39 369,74 338,8 189,19 100,02

13/06/2007 601,28 513,19 435,21 260,32 133,6

13/06/2008 516,77 422,85 366,64 199,43 107,39

12/06/2009 394,28 344,06 293,91 166,07 72,78

Return Y 14,70% 13,15% 11,38% 5,20% -3,13%


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Name PIOT10020 ERP510020 NCAVB10020 MF10020 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 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%


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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 doesn’t necessarely increase your return.


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Code X%PIOT X%ERP5 X%NCAV X%MF DJEURST

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%


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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%


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Name PIOT100020 ERP51000C20 NCAV100020 MF100020 EURO STOXX


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%


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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%


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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%


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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%


27

Name PIOT500020 ERP5500020 NCAV500020 MF5000C20 EURO STOXX


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%


28

B


29


30


31

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 D4 D5 D6 D7 D8 D9 D10

T1999 35,76% 22,63% 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%

Return 9,28% 5,47% 6,22% 3,70% 4,77% 2,41% 1,93% -0,46% -3,02% -5,12%

Graham NCAV on Market Value / Minimum Market Cap 10mll


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%


32

Piotroski Price to Book (20% best companies) / Minimum Market Cap 10mll


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%

ERP5 / Minimum Market Cap 10mll


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%

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


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%


33

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


T1999 32,16% 14,62% 9,14% 26,30% 15,83% 37,55% 11,06% 20,10% 21,83% 11,29%

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%

MAGIC FORMULA LIST -MIN MARKET CAP 100 MLL


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%

NCAVB LIST MIN MARKET CAP 100 MLL


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%


34

PIOTROSKI PRICE TO BOOK LIST MIN MARKET CAP 100 MLL


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%

ERP5 LIST MIN MARKET CAP 100 MLL


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%

20% best MAGIC FORMULA ORDER BY PIOTROSKY SCORE -MIN MARKET CAP 100 MLL


T1999 56,35% 31,60% 12,73% 26,07% 27,75% 29,51% 20,76% 55,71% 25,36% 20,40%

T2000 24,74% 13,48% 18,16% 1,16% 9,71% -12,60% 20,20% -10,45% -10,47% -9,22%

T2001 -6,79% -1,35% -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 8,14% 47,43% 48,93% 20,43% 41,43% 29,55% 38,55% 38,87% 22,06% 27,22%

T2004 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%


35

20% best ERP5 ORDER BY PIOTROSKY SCORE -MIN MARKET CAP 100 MLL


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


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%

Return 7,90% 4,09% 4,80% 2,40% 2,48% 1,63% 4,29% 3,66% 0,83% -7,84%

NCAVB LIST MIN MARKET CAP 500 MLL


T1999 35,92% 91,54% 34,90% 33,82% 20,16% 124,70% 16,68% 14,20% 61,32% 108,91%

T2000 96,72% -9,19% -13,81% -24,48% -53,07% -26,79% -43,04% -30,77% -48,21% -59,01%

T2001 -77,57% -7,85% -19,59% -16,44% -30,06% -30,35% -32,74% -31,19% -32,46% -29,45%

T2002 -34,06% -8,35% -21,81% -12,85% -22,18% -10,51% -20,61% -12,50% -27,14% -19,40%

T2003 13,80% 32,11% 31,55% 32,15% 27,42% 22,77% 21,40% 22,09% 10,18% 27,10%

T2004 42,46% 18,52% 27,20% 19,16% 11,22% 30,80% 2,18% 12,91% 19,51% 12,44%

T2005 16,86% 13,84% 12,14% 19,68% 11,93% 18,07% 13,67% 9,83% 12,61% -6,48%

T2006 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%

Return -6,88% 8,43% 2,24% 0,47% -7,58% 6,93% -7,11% -6,87% -6,80% -9,00%


36

PIOTROSKI PRICE TO BOOK LIST MIN MARKET CAP 500 MLL


T1999 11,75% 36,95% 25,12% 19,63% 18,07% -11,23% 5,38% 43,42% 24,16% 30,91%

T2000 28,66% 9,82% 8,44% 4,20% -0,45% -6,11% -23,94% 2,78% -29,72% -27,55%

T2001 -34,02% -1,72% 8,84% -24,30% -0,09% -4,73% -24,87% -16,90% -28,70% -30,43%

T2002 -48,08% -12,54% -9,43% -25,16% 14,43% -14,63% -7,18% -20,49% -8,30% -3,11%

T2003 61,01% 31,88% 9,50% 8,43% 26,00% 63,66% 33,97% 26,01% 2,41% 15,67%

T2004 21,99% 27,60% 13,41% 34,98% 40,10% 26,82% 12,63% 24,99% 5,39% 2,60%

T2005 42,56% 31,05% 22,25% 26,93% 9,92% 24,16% 22,25% 6,79% 0,15% 36,67%

T2006 48,84% 60,91% 52,76% 37,53% 54,29% 47,64% 67,42% 37,51% 59,81% 26,00%

T2007 11,96% -14,62% -23,50% -12,83% -23,79% -21,28% -35,14% -18,01% -19,19% -29,17%

T2008 -49,94% -28,59% -41,15% -28,81% -29,17% -30,43% -32,34% -35,58% -25,19% -30,82%

Total 15,04% 179,70% 39,64% 11,96% 117,16% 41,23% -24,23% 18,98% -40,42% -35,98%

Return 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


T1999 13,13% 11,93% 37,97% 17,30% 3,85% 17,21% 26,84% 16,22% 18,69% 7,49%

T2000 21,31% 14,51% -2,46% -1,83% 1,04% 3,25% -3,07% -12,99% 5,17% -13,94%

T2001 -2,83% 1,25% -10,60% -4,29% -1,79% -8,63% -2,95% -12,57% -13,59% -8,09%

T2002 -21,88% -14,67% -19,21% -11,67% -12,13% -12,53% -7,42% -12,04% -5,01% -5,48%

T2003 28,48% 25,22% 32,61% 22,42% 27,67% 34,72% 27,58% 25,38% 24,55% 27,25%

T2004 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%

Return 9,65% 6,61% 4,78% 3,52% 4,32% 6,35% 6,57% 0,91% 3,93% -0,36%

20% best MAGIC FORMULA ORDER BY PIOTROSKY SCORE - MIN MARKET CAP 500 MLL


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%

Return 12,82% 9,20% 8,01% 7,51% 4,33% 6,26% 1,48% 4,14% -1,09% 3,67%


37

20% best ERP5 ORDER BY PIOTROSKY SCORE - MIN MARKET CAP 500 MLL


T1999 19,20% 41,93% 17,67% 49,00% 14,89% 29,80% -2,99% 3,86% 25,28% 12,51%

T2000 25,32% 16,13% 23,45% 0,41% 5,79% 2,23% 5,97% 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%

Return 14,56% 11,99% 9,99% 5,79% 2,41% 10,58% 2,78% 1,13% 6,04% 3,45%


38

Section 5: Conclusions

Actually buying an index fund isn’t 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 don’t 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 won’t 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 doesn’t 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 don’t look very nice at all,

stick to fundamentals of ”value” and don’t let “Mr Market”get into your system.

Don’t 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 you’ll do fine.

Documents

Studying Different Systematic Value Investing Strategies on the Eurozone Market