Super Stocks: A New Assessment Of Ken Fisher's Pioneering Book

If we try to add some of Fisher’s other criteria using a screen, we’re necessarily extrapolating wildly from what he wrote. Using a ranking system loosely based on them may be a bit better, but when I tried this, it didn’t improve backtested results, and it’s once again a real extrapolation. The simple value system that Fisher came up with in 1983 still works as a general system for buying stocks.

Sell Rules

But holding stocks for two years is quite arbitrary. Fisher actually lays down some hard and fast sell rules. Only sell a stock when its sales ratio is between 3 and 6—or if you judge, based on the above criteria, that it’s no longer a super stock.

We can simulate the first part of this strategy using Portfolio123’s simulation engine. We’ll use the same liquidity rules as we used above, and the narrower limits—price to sales less than 1.5 and price to research less than 10. We’ll buy every stock that passes those limits every week and hold until either the company gets bought, goes out of business, or rises to a price-to-sales of 3 or higher. If we run this since January 1999, we get a record of buying close to 3,000 stocks—quite a huge sample. Their average return is 70.52% with an average holding period of 3.5 years. If you held the S&P 500 for 3.5 years over this period your average return would be 30.77%. The portfolio itself would vary quite hugely in size, sometimes holding over 600 stocks and sometimes fewer than 300; the annualized return of its equity holdings would be 18.33%.

We can also simulate the strategy over only the last ten years, buying stocks from January 2011 until now. The average return is now 62.73% over an average holding period of a little over three years. The annualized return of its equity holdings is 15.38%.

A Look at Past Screen Results

Three years ago today, the top ten stocks ranked by the product of the square of the price-to-sales ratio and the price-to-research ratio included three Chinese companies about which reliable information would have been difficult to come by. Besides these, the top ten stocks were Eastman Kodak (KODK), Renesola (SOL), Centrus Energy (LEU), Unisys (UIS), Radisys (RSYS), Ophthotec (which later changed its name to Iveric Bio (ISEE)), Voxx International (VOXX), Perion Network (PERI), Toshiba (TOSYY), and Aviat Networks (AVNW). Some of these stocks turned out to indeed have Super Stock returns: 500% or 600%; some of them just sat there; and one of them—Kodak—tanked, losing 20%. Would it have been possible three years ago, using Ken Fisher’s methodology, to separate the wheat from the chaff?

Perhaps not. Out of these ten stocks, the “Super Stocks,” in terms of their return, turned out to be Renesola, Centrus Energy, and Perion; back in January 2018, the potential of the first two of these companies didn’t look a whole lot better than Kodak’s or Toshiba’s. Of these ten stocks, only Ophthotec and Aviat had improving margins at this point, with Perion looking hopeful as well. Here are my very rough (and rosy) guesses about how these stocks would have met Fisher’s criteria in January 2018:

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