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STOP
Wasting Time
START
Adding Value2014-05-20
Can Investors Gain from
Analyst Earnings Forecasts?
Part I: Forecasting
Pick stocks
Managing
a portfolio
Forecasting
Value drivers
Five factors of return
Risk matters more
Stop targets
Red...
FORECASTING
NOBODY
can predict
THE FUTURE
Most people believe this
but don’t act that way
29 April 2014 3Source: A. Stotz ...
WHAT CAN MAKE YOU THE MOST MONEY?
ACTUAL EPS OR FORECASTED EPS?
Source: A. Stotz Investment Research
Started with 16,500 stocks in Asia ex-
Japan from year-end 2003 to 2013
Removed 9,000 stocks that were small, had
low tr...
Methodology
On March 31 each year calculated the 12-month-trailing EPS
and 12-month-forward EPS
Ranked the stocks by PE ...
LOW PE
STRATEGY WORKS
29 April 2014 7Sources: A. Stotz Investment Research, Thomson Reuters
29 April 2014 8
APPLYING MARKETCAP WEIGHTS
DOESN’T CHANGE THE OUTCOME MUCH
Sources: A. Stotz Investment Research, Thomson ...
CHEAP PE BEATS THE MARKET, BUT
HISTORIC PE BEATS THE ANALYSTS
Sources: A. Stotz Investment Research, Thomson Reuters.
Note...
MORE ANALYSTS COVERING A STOCK
DOES NOT IMPROVE PERFORMANCE
29 April 2014 10Sources: A. Stotz Investment Research, Thomson...
ANALYSTS HAVE A HARD TIME IN
UP AND DOWN MARKETS
29 April 2014 11Sources: A. Stotz Investment Research, Thomson Reuters
ANALYSTS GOT IT RIGHT IN COUNTRIES
THAT HAD THE LONGEST BULL MARKETS
Sources: A. Stotz Investment Research, Thomson Reuter...
 Low-PE strategy works in Asia ex-Japan
 Low PE beats the market, historic PE beats
the analysts
 More analysts coverin...
 Analysts have a hard time in both up and
down markets
 Over 10 years, analysts got it right in the
countries that had t...
Share this with your friends
www.andrewstotz.com
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Forecasting - Stop Wasting Time, Start Adding Value, Part I

In six parts Andrew Stotz will teach you how to Stop Wasting Time and Start Adding Value on the two topics: Stock picking and Managing a portfolio.

This first part will focus on forecasting and will give you insight regarding how forecasting adds value to investment performance.

Forecasting - Stop Wasting Time, Start Adding Value, Part I

  1. 1. STOP Wasting Time START Adding Value2014-05-20 Can Investors Gain from Analyst Earnings Forecasts? Part I: Forecasting
  2. 2. Pick stocks Managing a portfolio Forecasting Value drivers Five factors of return Risk matters more Stop targets Reduce action Every day is new 29 April 2014 2 In six parts Andrew Stotz will teach how to Stop Wasting Time and Start Adding Value in stock picking and portfolio management. In Part I the focus will be on forecasting. Source: A. Stotz Investment Research
  3. 3. FORECASTING NOBODY can predict THE FUTURE Most people believe this but don’t act that way 29 April 2014 3Source: A. Stotz Investment Research
  4. 4. WHAT CAN MAKE YOU THE MOST MONEY? ACTUAL EPS OR FORECASTED EPS? Source: A. Stotz Investment Research
  5. 5. Started with 16,500 stocks in Asia ex- Japan from year-end 2003 to 2013 Removed 9,000 stocks that were small, had low trading volume or were inactive during any of the years Then removed the 2,200 China A-shares stocks, leaving 5,300 available stocks Our tested universe had 1,000 stocks which, for any one year, had data for both actual and forecasted EPS and three or more analyst forecasts 29 April 2014 5 CAN INVESTORS GAIN FROM ANALYST EARNINGS FORECASTS IN ASIA? Source: A. Stotz Investment Research
  6. 6. Methodology On March 31 each year calculated the 12-month-trailing EPS and 12-month-forward EPS Ranked the stocks by PE using both actual and forward EPS Set up two equal-weighted portfolios consisting of the lowest PE decile for both actual and forward PE Held the portfolios until the following March, then rebalanced both portfolios every March until March 2013 CAN INVESTORS GAIN FROM ANALYST EARNINGS FORECASTS IN ASIA? 29 April 2014 6Source: A. Stotz Investment Research
  7. 7. LOW PE STRATEGY WORKS 29 April 2014 7Sources: A. Stotz Investment Research, Thomson Reuters
  8. 8. 29 April 2014 8 APPLYING MARKETCAP WEIGHTS DOESN’T CHANGE THE OUTCOME MUCH Sources: A. Stotz Investment Research, Thomson Reuters
  9. 9. CHEAP PE BEATS THE MARKET, BUT HISTORIC PE BEATS THE ANALYSTS Sources: A. Stotz Investment Research, Thomson Reuters. Note: Investable universe is an equally weighted portfolio of investable stocks 29 April 2014 9 (Indices, rebased to 100)
  10. 10. MORE ANALYSTS COVERING A STOCK DOES NOT IMPROVE PERFORMANCE 29 April 2014 10Sources: A. Stotz Investment Research, Thomson Reuters
  11. 11. ANALYSTS HAVE A HARD TIME IN UP AND DOWN MARKETS 29 April 2014 11Sources: A. Stotz Investment Research, Thomson Reuters
  12. 12. ANALYSTS GOT IT RIGHT IN COUNTRIES THAT HAD THE LONGEST BULL MARKETS Sources: A. Stotz Investment Research, Thomson Reuters. Note: *China A-shares are analyzed separately from Asia ex-Japan 29 April 2014 12 4 3 2 0 0 (1) (4) (6) (6)(8) (3) 2 7 12 17 22 Low forecasted PE performance minus low actual PE performance Market return (%, Avg annual return Mar 2004 - Jan 2014) Analysts did best in the two best markets
  13. 13.  Low-PE strategy works in Asia ex-Japan  Low PE beats the market, historic PE beats the analysts  More analysts covering a stock does not improve accuracy Continued… 29 April 2014 13 WHAT WE HAVE LEARNED Source: A. Stotz Investment Research
  14. 14.  Analysts have a hard time in both up and down markets  Over 10 years, analysts got it right in the countries that had the longest bull markets  Don’t waste time predicting the future 29 April 2014 14 WHAT WE HAVE LEARNED Source: A. Stotz Investment Research
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