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AAII Stock Investing Subgroup - meeting summary

From: William L.
Sent on: Thursday, March 19, 2009 2:43 AM



We had a great turnout for our third monthly stock investing subgroup meeting tonight. We featured two topics tonight.


 First, Bill Lyman pinch-hit (for the cancelled Zacks presentation) on earnings estimates, estimate revisions and earnings surprises - as they related to the impact on stock returns. Bill explained the forward-looking nature of earnings estimates and how they could potentially add further predictive power to other stock screening systems (e.g., CANSLIM, Morningstar, etc.). We examined the Zacks ranking model (1-5) and how those stocks have performed since 1988 (21 years) and briefly compared the results to the AAII EPS Estimate Revisions screen (up 5% or more) and other notable value (Piotroski and Graham) and growth screens (Zweig, Tiny Titans and CANSLIM).






11-year cumulative return

(1/1/98 – 12/31/08)

Compounded Average Annual Return (CAGR)

(1/1/98 – 12/31/08)




Zacks Rank 1**




AAII Screens

EPS Revision Screens




EPS Revisions up




EPS Revisions up – top 30 only




EPS Revisions up 5% or more




Selected Indices




S&P 500




S&P Midcap 400




Value Screens








Graham Enterprise Investor




Growth Screens




Tiny Titans












** NOTE: The Zacks Rank 1 data in this table is for 11 years only, where as the graph immediately preceding it is for 21 years.


Please note that the numbers in the table above differ slightly from the in-class calculations I did on the fly, as I made sure we were comparing apples-to-apples data.


We also compared this to the Valueline performance record (yearly data doesn’t appear to be available for a more side-by-side analysis). See chart and link at the end of this email.


AAII Stock Screening Criteria (Upward Revisions) from

  • There are more than four analysts providing earnings estimates for the current fiscal year (Y0)
  • The latest earnings per share estimate for the current fiscal year (Y0) is greater than it was one month ago
  • The latest earnings per share estimate for the next fiscal year (Y1) is greater than it was one month ago
  • There has been at least one upward revision in the earnings estimate for the current fiscal year (Y0) over the last month
  • There have been no downward revisions in the earnings estimate for the current fiscal year (Y0) over the last month
  • There has been at least one upward revision in the earnings estimate for the next fiscal year (Y1) over the last month
  • There have been no downward revisions in the earnings estimate for the next fiscal year (Y1) over the last month
  • The top 30 companies are those that have had the 30 largest percentage increases in the current-year consensus EPS estimate over the last month.

IMPORTANT NOTE: The above screens are for educational and illustrative purposes only and not meant to be investable portfolios (which much include proper portfolio composition criteria, sell rules and money/risk management rules).


Bill highlighted three booklets available in PDF format from Zacks (The Zacks Rank and The Billion Dollar Secret: Ahead of the Market with The Zacks Elite) – send me an email if you would like me to email you one or more of these. Check out for a list of quick (10 minute +/-) free educational videos that provide info on Zacks methdology.


Bill encourage attendees to sign-up for the free portion of the Zacks website ( and the “Profit from the Pros” free daily email ( and he will investigate group discounts for those interested in the Zacks Premium (regularly $199/year) and Zacks Elite ($??/year) services (see comparison chart below). Free trials are available for the Premium and Elite. I would suggest utilizing as much of the free content for 2-4 weeks first, so you get the most out of the trial. Also, the e-booklet “and Top 10 Stock Screening Strategies that Make Money” is available in PDF format – email if you want a copy.



Bill also highlighted the Zacks homestudy course which contains a 5 DVD (3.5 hours) set (see content outline below), a 100+ page workbook, a quick start guide for the Zacks Research Wizard and a 45-day free subscription to the Research Wizard (a very powerful screen AND back-tester that retails for about $1,200-1,800 per year) and Zacks monogrammed carry bag – regular price of $399 – Bill will see if he can get the $99 price for anyone interested in a trial. NOTE: this is geared towards the Zacks Research Wizard (RW) (premium screening tool). If you sign-up for the RW, you will get credit against the price paid for the home study course and get the Zacks Premium service included at no extra charge.


Disc 1: Introduction to the Zacks Method for Trading and an Interview with Len Zacks.

This disc goes over what the Zacks Rank is and how it works. Len Zacks also explains how it was created and talks about why it can give the individual investor an edge over the professional investor.


Disc 2: Trading with the Zacks Rank

This disc highlights some of our best Zacks Methods for Trading and how to incorporate the Zacks Rank into your own trading. It also shows how to implement these methods through the Research wizard.


Disc 3: Screening for Stocks and Building Your Own Trading Strategies

This disc walks you through the steps to building your own screens and trading strategies -- step by step and click by click using the Research Wizard. Moreover, it explains the difference between the different styles of trading, i.e., Momentum, Aggressive Growth, Value, and Growth and Income and more. And how to use this knowledge to help you pick the right stocks consistent with your style and goals.


Disc 4: Backtesting Your Trading Strategies for Success

This disc shows why backtesting is a critical component to trading success and it shows you how to do it quickly and easily with the Research Wizard. Learn how successful your trading style is BEFORE you risk one dime in the market. There’s also a section on money management and stop losses.


Disc 5: Advanced Backtesting and Screening

This disc shows how to take your backtesting to the next level and how to more easily find out what items work the best for successful screening and trading and how to test entire portfolios of screens for better and smoother performance.


 The second topic was presented by Robert Orange - the self-proclaimed "best exhaustion gap analyst on the planet". Robert has been doing this for 30 years and gave a compelling overview of his methodology, results and tools. Robert explained this KNO-WHEN system for identifying profitable trading strategies. Robert used the IBD 100 stocks (quality growth stocks) to explore exhaustion gaps at the top of a chart pattern and used 5-Star, wide-moat stocks (high-quality value stocks) from to explore exhaustion gaps at the bottom of a stock’s move. Both data sets are fertile ground for exploring Robert’s system.


He invited attendees to take advantage of free registration to see the tools first hand. His company is Innovest website is Register for free access and select “Meetup” in the sign-up box and you will automatically be upgraded to receive the full composite reports. If you drop Robert an email at [address removed], I believe I understood him to say that he will provide you 30 days free access to the “full monty” of web services. For more information check out the FAQ, the Terminology tutorial and the 21-page user’s Manual, all under the “Ask a Question” tab at his website.


Robert also just released (this week) a Google gadget that you can add to your own iGoogle web page (Check out our Innovest BuySellHoldAdvice MyPortfolio Gadget at or Sign-up for your iGoogle account at  


Innovest Rules (to be used with Robert’s online reports)

·        Apply two simple Innovest Rules to prove to yourself that you can, with access to, make money with stocks.

·        The Innovesting Rules are listed below, applying them as suggested will allow you to prove it to yourself - you can make money investing in stocks.

·        Using TrendTracker Report listings, find the CR and R/D% columns on the right hand side.

·        Innovesting Rule#1 - CR = Composite Rating.

·        CRs equal to 3 through 7, mark them with Green for Buy, and

·        CRs equal to 26 through 30, mark them with Red for Sell.

·        Low values represent high-reward and low-risk opportunities.

·        High values represent low-reward and high-risk exposures.

·        Low values are Good, and High values are Bad. The more extreme 3-4 or 29-30, the better,

·        Do the math, and add up the difference in prices for the times rated Buys (3-7) vs Sells (26-30).

·        Innovest Rule#2 - R/D% = Tendency to Rally/Decline by Percentile. A advancing price trend will display a Decline tendency rating (its obvious its going up.)  The question is how soon will it exhaust itself and reverse to the downside and decline - Sell High; and a declining price trend will display a Rally tendency rating.

·        Look for 83%, 92%, and 100% readings,

·        Mark the R 83, R 92, and R 100 reading with Green for Buy,

·        and use Red for the D 83, D 92, and D100 reading for Sell.

·        Next, immediately following reading of 83, 92 and 100…

·        Look for the level to drop to 30% or less - mark these to identify the opportunity to Close out any transaction.  This is to capture short-term opportunities - ones anticipated and identified to catch a quick decline (fall) or bounce (rise) or "Sell-High and Buy-Low".

·        For a quick profit, this is how Innovest Rule#2 is best used. 

There are plenty of additional tools and rules you can learn about at your leisure. The Innovest System (KNO-WHEN™) is complex, and the problem it is designed to help solve is also complex. So, if you find some parts of it difficult to grasp, welcome to the club.  However, the indicators are there because they work. Keep in mind that Innovest team is here to help you understand what you need to know to meet your goals. 




If there is sufficient interest, we can invite Robert back for a follow-on session.


 Upcoming events:

Mar 25, AAII Chapter Meeting, 7pm, Cobb Galleria (1 - Federal Reserve Bank of Atlanta; 2 - Retirement Planning bonus session), $15

April 7, AAII Stock Investing Subgroup, 7 pm, GSU-Brookhaven, $5

April 8, AAII Chapter Meeting, 7 pm, Cobb Galleria (Investing in China), $15

April 14, AAII CANSLIM/IBD Stock Investing Subgroup, 7pm, (guest speaker possible) GSU – Brookhaven, $5

May 7, April 14, AAII CANSLIM/IBD Stock Investing Subgroup, 7pm, GSU – Brookhaven, $5

May 12, AAII Chapter Meeting, 7pm, Cobb Galleria (1- How to evaluate a stock that passes a screen; 2 - an intro to Elliott Wave Theory), $15

May 13, AAII Stock Investing Subgroup, 7 pm, GSU-Brookhaven, $5


Details available at, and respectively.



Next Month:

1)      Recommendations for an investor’s “toolbox” (i.e., books, software, newsletters, subscriptions, databases, tools), crafting a educational plan and a daily work routine, and an annual budget for the toolbox.

2)      Brief Update on the 56 AAII screens performance in 2009 (and since inception 1/1/1998)

3)      A “speed dating” review (5 minutes each) of 10 stocks in 2 industry groups (industry groups TBD – any suggestion??) on fundamental, valuation and technical considerations.

4)      YOUR topics and stocks of interest


As always, please send your comments, feedback and constructive criticism – let me know how to make YOUR meetup more effective and profitable for you. Thanks to you who have already sent me your “wish list” – I am working to incorporate your ideas into our future Meetups!



Bill Lyman

Organizer, AAII Atlanta Stock Investing Subgroup

VP & Programs Chair, AAII Atlanta

“Invest your time to learn, before you invest your money to earn” provides a free service and a premium service ($169/year). A 14-day free trial is available. I suggest registering for the free subscription and using it for 2-4 weeks before taking advantage of the 14-day trial in order to get the most out of it. They track mutual funds, stocks (about 2,000 or so) on a value methodology, ETFs, hedge funds and now commodities. They have some excellent tools – portfolio X-ray, stock screener and others. They have other newsletter services available (Morningstar Stock Investor ($109) – Hare and Tortise portfolios, Dividend Investor ($149/yr), International Investor ($159/yr), Opportunistic Investor ($159/yr), Personal Finance ($79/yr) and 2 newer, higher priced offerings – Healthcare Investor ($??) and Option Investor ($550/yr special price). I highly recommend both the free and the premium web service.



Value Line - $299 for standard service, $75 for a 3-month trial (see for sample of components in service). The all-inclusive Value Line Research Center package ($995/year) includes The Value Line Investment Survey, The Value Line Investment Survey – Small and Mid-Cap Edition, The Value Line Mutual Fund SurveyThe Value Line Daily Options Survey, The Value Line Special Situations Service and The Value Line Convertibles Survey.


I haven’t used the Valueline service in a while – my personal opinion is that it is outdated and overpriced to what you can get from, but you may find it of value to your investing needs. I do use the ValueLine Options Survey ($149/year). - click on “Value Line’s Ranking System Performance”



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    • Highest Dividend Yielding Stocks
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