New Data Supports Fisher's Old Approach

In a recent piece for Seeking Alpha, Thomas Pound looks at the stock-picking approach Kenneth Fisher laid out in his classic book Super Stocks, as well as Validea’s Fisher-inspired model — and the results are more proof that Fisher’s price/sales-based methodology has been extremely successful.

Pound used a screen similar to Validea’s Fisher-based model, looking for firms with, among other things, price/sales ratios below 0.75, debt/equity ratios below 0.4, and five-year average net profit margins of more than 5%. “How does this screen perform?” he asks. “It was backtested for the 16 years [1999-2015] with an annual rebalance, and the results are impressive. This chart shows how it would have performed as it grew 26.87% (±30.71%) annually with a beta of 0.7. If one compares this with the S&P 500’s average of 3.40% (±19.91%), these returns are almost unbelievable.” He adds, “When this model was backtested (with a different program) for a period beginning in January 2002, it too showed that it would have beaten the market by a substantial amount (9.59% v. 6.81%).”

Pound notes that the P/S ratio in and of itself is a huge market-beater — using just that factor tripled the market average, according to his testing. “What is important to remember about this screen is that one is first looking for quality by finding companies that can grow earnings with decent margins without running up the charge card,” he writes. “Once that has been accomplished, narrowing down the selection to companies that have made their way to the discount aisle is the key to maximizing the returns.”

Validea’s Kenneth Fisher-inspired portfolio is up 13.4% annualized since its mid-2003 inception vs. 6.6% for the S&P 500. Check out its holdings here.