The Guide Adding Value Stock To c...

The Guide Adding Value

Stock To contemplation articles in the Canadian Shareowner magazine illustrate the use of the Stock Selection Guide and the increase of various judgments about the quality of a company's past, and possible yet to be performance. In particular, "Stock To Study" articles provide for sum of two units sets of illustrative judgments. The A prudences result in a stock's novel price being in the "Buy Zone"; the B understandings put the stock's recent price in the "Sell Zone"

The Securities Review Board has evolveed several policies in connection with reporting the performance of stocks featured as Stocks To subject of attention in the magazine. The price performance of the stocks studied in the magazine in subordination to the banner "Stock To Study" is reported upon a timely basis. Stocks are included in these reports for five years following their appearance in the magazine. The collection of these stocks is best viewed as an "unmanaged" rather than a "managed" portfolio. Editor.

The accompanying Table reports the price performance of the 60 stocks studied in Canadian Shareowner during the five-year period between September, 1991 and July 1996

MEASUREMENT

A stock's price performance is measured as the percentage change between the closing price of the stock forward the first trading day of the month in which the stock was studied in the magazine, and the closing price upon the first trading day of November, 1996 Prices are from the stock's principal exchange (eg TSE NYSE NASDAQ). For illustrative meanings the comparable price performance of the TSE 300 Index ("Index") is also reported. U stocks are reported in U dollars.

OVERALL PERFORMANCE

During the meditation period, the 60 stocks studied in the magazine with the Stock Selection Guide ("Guide") experienced an average gain of 74% (see Figure 1) In comparison, the average gain from "buying the Index" each two months during the consideration period was 40%. That is, use of the Guide added 34 percentage points to the price appreciation available from the index.

POSITIVES AND NEGATIVES

It is notable that, of the 60 stocks, 83% (50) increased in price while 17% (10) decreased since they were studied in the magazine. The average gain for the winners was 92% versus minus 18% for the average loser Readers should also note that a certain number of of the stocks now showing a price decline (eg Corporate Foods) had experienced a significant price increase earlier in the performance period; and, one stocks now showing a price increase, earlier had a large price decline (eg Lifeline Inc.).

The considerable imbalance of outcomes (50 versus 10) suggests that, to date, the A decisions seem to have prevailed for a majority of the stocks, and the B good senses for a minority.

UNLIMITED UPSIDE, LIMITED DOWNSIDE

The high average gain of 74% for the 60 stocks is the accrue of a significant number of stocks experiencing gains substantially in exces of 100%-eg Fairfax Financial (823 %) Total scheme Services (328%), Gennum (295%), Synovus (273%) Cinram (270%) Loewen (242%) In total, across one quarter (16) of the 60 stocks had gains of 100% or more while alone 3 (5%) had declines of 2S% or more-with no decline being greater than 49%

This deduction illustrates a very important principal of portfolio construction; namely, that investors should always make sure that their money is about evenly divided among all the stocks in the portfolio. If you don't practice this principal, the gains from your winners will not always be large enough to sprout losses on the losers.

YEAR-BY-YEAR PERFORMANCE

Figure 2 indicates that the superior, average performance of Guide Stocks protracts to year-over-year results. In all five of the last five publication years, Guide Stocks outperformed the Index.

PERFORMANCE by dint of MARKETS

Three quarters (45) of the 60 stocks were Canadian (including Cinram and Radiomutuel which were judgeed twice because they were studied twice during the five-year period); single quarter (15) were classified as U companies (including Synovus reckoned twice because it was studied twice).

Figure 3 illustrates that the Canadian stocks had an average increase of 69% during the performance period and added 30% to the answer available from simply buying the Index each two months.

In contrast, the U stocks averaged an 89% price increase and added 46% to the price appreciation from simply buying the Index. These ensues clearly indicate the advantage of a significant amount of U diversification for Canadians, particularly given the further reply that was available because of the general decline in the Canadian dollar relative to the U dollar during the performance period.

JOHN BART, PHD IS PRESIDENT OF THE CANADIAN SHAREOWNERS ASSOCIATION.

Copyright Canadian Shareowner Magazine Inc. Jan/Feb 1997

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