There are many ways to define the quality and merit of equity research. One mea­sure stands tallest: per­for­mance of stock rec­om­men­da­tions. And by that mea­sure, New Con­structs’ research is of very high quality. See our lat­est Proof Is In Per­for­mance Thru 4Q13 Report for more details.

As you can see in the post on our stock-picking acco­lades, we have plenty of inde­pen­dent, 3rd-party val­i­da­tion of our stock-picking suc­cess. So, you don’t just have to take our word for it.

Our suc­cess comes from being able to iden­tify groups of stocks that are most likely to be re-priced as the mar­ket, over time, rec­ti­fies mis­per­cep­tions of eco­nomic value cre­ated by investors employ­ing less ana­lyt­i­cal rigor than we. We derive our advan­tage from the in-depth analy­sis of finan­cial state­ments, espe­cially the notes to the finan­cial state­ments, which we apply to the analy­sis of the under­ly­ing eco­nomic value of 3000 firms. We believe our exact­ing approach to research gives us advan­tage in the selec­tion of indi­vid­ual secu­ri­ties for our long and short portfolios.

For the whole year of 2013, our Small-Cap Long strategy (39.4%) beat the Russell 2000 by 7.8% and our combined Large and Small-Cap Long strategy (32.6%) beat  the combined S&P 500 and Russell 2000 by 3.9%%. In 4Q13 our Large-Cap Long/Short Strategy (5.1%) beat the Risk-Free Rate by 5%.

The cumulative returns of our rec­om­men­da­tions since Jan­u­ary 2005:

Long/Short Strat­egies:

• Most Attractive/Dangerous (Large and Small stocks): 61.0%
• Most Attractive/Dangerous (Large cap stocks only):  59.3%
• Most Attractive/Dangerous (Small cap stocks only): 53.1%

Long Strat­egies:

• Most Attrac­tive  (Large and Small stocks): 128.5%
• Most Attrac­tive (Large cap stocks only): 121.6%
• Most Attrac­tive (Small cap stocks only): 124.4%

Short Strat­egies:

• Most Dan­ger­ous (Large and Small stocks): -53.3%
• Most Dan­ger­ous (Large cap stocks only):  -47.6%
• Most Dan­ger­ous (Small cap stocks only): -61.0%

These returns com­pare well to the major indices over the same time frame:

• S&P 500: 56.1%
• Rus­sell 2000: 89.7%
• Risk-Free Rate: 15.5%