1. STOP
Wasting Time
START
Adding Value2014-05-20
Can Investors Gain from
Analyst Earnings Forecasts?
Part I: Forecasting

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. 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. WHAT CAN MAKE YOU THE MOST MONEY?
ACTUAL EPS OR FORECASTED EPS?
Source: A. Stotz Investment Research

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. 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. LOW PE
STRATEGY WORKS
29 April 2014 7Sources: A. Stotz Investment Research, Thomson Reuters

8. 29 April 2014 8
APPLYING MARKETCAP WEIGHTS
DOESN’T CHANGE THE OUTCOME MUCH
Sources: A. Stotz Investment Research, Thomson Reuters

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. MORE ANALYSTS COVERING A STOCK
DOES NOT IMPROVE PERFORMANCE
29 April 2014 10Sources: A. Stotz Investment Research, Thomson Reuters

11. ANALYSTS HAVE A HARD TIME IN
UP AND DOWN MARKETS
29 April 2014 11Sources: A. Stotz Investment Research, Thomson Reuters

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.  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.  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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