A portfolio of high Profitable Growth companies outperformed the general stock market by 9x over the past 20 years. A portfolio of high Profitable Growth companies yielded the highest coincident return of 19% per year on average. Learn more at: http://becomeabetterinvestor.net/blog/high-profitable-growth-companies-saw-value-gains-of-10x-the-market/

1. Presented by: Dr. Andrew Stotz, CFA
A Portfolio of Only the
Highest “Profitable
Growth” Companies
Grew by 10X the
Market Portfolio

2. 220 September 2016
Sources: A. Stotz Investment Research
 Hypothesis 1: A portfolio of high “Profitable
Growth” companies in any one year also results
in coincident price outperformance in that year
 Hypothesis 2: A high “Profitable Growth”
portfolio beats a high profitability portfolio and
also beats a high growth portfolio
Testing “Profitable Growth” and price performance

3. 320 September 2016
Sources: A. Stotz Investment Research
 We started with our World Class Benchmarking
database consisting of 27,000 companies globally
 20 year time period (Mar 1997-Aug 2016)
 We removed financial companies, and were left
with 23,500 non-financial companies
 We then removed 4,000 stocks that did not have
the fundamental data needed for the study
Preparing the universe

4. 420 September 2016
Sources: A. Stotz Investment Research
 Each year we only included companies with a
market capitalization greater than US$500m
 To be included in any one year, the company also
needed to have full-year price data in that year
Preparing the universe

5. 520 September 2016
Sources: A. Stotz Investment Research
 To eliminate outliers, we excluded stocks that
had a price change of more than 500% or less
than -80% in any one year
 This left us with on average 4,500 stocks per year
(minimum in any one year = 1,500, maximum =
8,400)
Preparing the universe

6. 620 September 2016
Sources: A. Stotz Investment Research
 We used EPS growth as our measure of growth
and return on assets (ROA) to measure profitability
 A company that was in both the top 3 deciles of
EPS growth and in the top 3 deciles of ROA in each
year we called a high “Profitable Growth”
company
Test the coincidence between “Profitable Growth” and price
performance

7. 720 September 2016
Sources: A. Stotz Investment Research
 To test across sectors and size, we created our
high “Profitable Growth” portfolio combining the
top 3 deciles which had the highest Profitable
Growth score in every sector and from each size
group
 We measured the 1-year price performance
ending at each company’s closing period
compared to 1 year before
Test the coincidence between “Profitable Growth” and price
performance

8. 820 September 2016
Sources: A. Stotz Investment Research
 Our high “Profitable Growth” portfolio included
on average 500 stocks per year (min = 100 and
max = 1,000)
 Hypothesis 1: A portfolio of High “Profitable
Growth” companies in any one year also results in
coincident price outperformance in that year
 Hypothesis 2: A high “Profitable Growth”
portfolio beats a high profitability portfolio and
also beats a high growth portfolio
Test the coincidence between “Profitable Growth” and price
performance

9. 920 September 2016
High “Profitable Growth” companies generated almost 10X market return
Sources: A. Stotz Investment Research, Thomson Reuters
3,013
1,178
772
342
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
High Profitable Growth
High growth
High profitability
Universe
Mcap-weighted indices (USD)

10. 1020 September 2016
High “Profitable Growth” yielded the highest return of 19% p.a.
Sources: A. Stotz Investment Research, Thomson Reuters
5
10
13
19
-
2
4
6
8
10
12
14
16
18
20
Universe High profitability High growth High profitability and
growth
Price return from Mar 1997 - Aug 2016Coincident return (%, p.a.)

11. 1120 September 2016
(60)
(40)
(20)
-
20
40
60
80
High Profitable Growth Mcap-weighted universeCoincident return (%)
Only in 2000 did high “Profitable Growth” underperformed the market
Sources: A. Stotz Investment Research, Thomson Reuters

12. 1220 September 2016
High “Profitable Growth” companies beat the market 95% of the time
Sources: A. Stotz Investment Research, Thomson Reuters
95
90
95
50
55
60
65
70
75
80
85
90
95
100
High profitability High growth High Profitable Growth
Number of years that each group beats the
sector peers in the past two decades
Winning periods (%)

13. 1320 September 2016
Sources: A. Stotz Investment Research
 A portfolio of high “Profitable Growth” companies
generated almost 10X coincident market return over
the past 20 years
 A portfolio of high “Profitable Growth” companies
yielded the highest return of 19% p.a.
 Only in 2000 did high “Profitable Growth”
companies slightly underperform the market
 A portfolio of high “Profitable Growth” companies
beat the market 95% of the time
What we have learned

14. 1420 September 2016
Want to Become a Better Investor?
Grab Our Free Newsletter
BecomeaBetterInvestor.net/join