PowerStocks ValuScore

In the previous section we saw how various fundamental screens and combinations thereof could narrow down a JSE portfolio candidate list whilst dramatically enhancing growth performance of said portfolios. The effectiveness of the various screens when performed on the 2003 crash can be summarised in the below graph:


*Note in the above graph we have not limited the PE screens to "liquid issues" only as this significantly reduces performance of any screens using PE.

At PowerStocks, we have derived a scoring method called the "ValuScore" to indicate how much "intrinsic value and growth probability" a share is exhibiting. This scores shares according to their PE, Price:Book and Piotroski "F" scores, and takes the effectiveness of the various screens and combos into account when performing the scoring. The effect is to significantly boosts historical ValueFinder portfolio performance (from 1,470% to 1,750% in the 2003 excersise) whilst dropping portfolio size by a staggering two-thirds! The scoring system is out of a maximum of 6 points and works as follows:

1. Start with zero score
2. Allocate 1 point if Piotroski "F" score is equal to 7
3. Allocate 2 points if "F" score is greater than 7
4. Add bonus point if "F" > 6 and Price:Book less than 1
5. Add 1 point if P/E between 2 and 6
6. Add 1 point if Price:Book less than 1
7. Add bonus point if Price:Book less than 0.7

Below is a chart showing how stocks in the April 2003 bear market grew in the subsequent 5 years versus the PowerStocks ValuScores they achieved in the trough:

We can see that portfolio performance was significantly enhanced and in fact collapses all 7 of the high performing screens shown in the previous chart to just two categories, namely "ValuScore 6" and "ValuScore 5" (13 shares in total).

Although the 5-year growth above hints that scores of 5 and 6 perform the best, we see that scores of 4 also perform well in the initial 3 year period shown below:

We will use this scoring system in our rankings tables and it is recommended that portfolios be built using shares with PowerStocks Scores of 5 and 6 and even with 4. Shares with a score of 3 perform on average slightly above the market whilst scores of 2 on average perform at market growth whilst scores of 1 and 0 perform on average below market.

NEXT UP : PowerStocks ValueScore Performance on the JSE