Author: shyam

In a paper published in January 2002, Joseph Piotroski explored whether a simple accounting-based fundamental analysis strategy can give better returns to an investor. He came up with a way to score balance-sheets based on financial strength – the higher the score, the better were the prospective returns. Scientifically curious readers can take a look at Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers (pdf)

We created a Theme based on this score. Basically, balance-sheets are scored based on current profitability, stability and operational improvements for two years (using 3 years of data.) The rationale is that stocks that score high on these criteria should out-perform over a period of time.

You can take a look at the this theme here: Financial Strength Value

Similar themes: Magic Formula Investing, Quality to Price, Balance-sheet Strength.
[stockquote]PRECOT[/stockquote]

We saw how you can use quantitative methods to score balance-sheets with the STA, SNOA and PROBM models. When you put them all together, you get a portfolio of stocks with incredibly strong (and believable) balance-sheets. We put together a Theme that tracks such a portfolio of stocks.

Check out the “Balance-sheet Strength” theme – a portfolio of 20, equally weighted stocks for the value investor in you.

Stocks to avoid based on this model:

PIIND [stockquote]PIIND[/stockquote]
TTKPRESTIG [stockquote]TTKPRESTIG[/stockquote]
SHASUNPHAR [stockquote]SHASUNPHAR[/stockquote]
APARINDS [stockquote]APARINDS[/stockquote]
CCL [stockquote]CCL[/stockquote]
EIDPARRY [stockquote]EIDPARRY[/stockquote]
VINATIORGA [stockquote]VINATIORGA[/stockquote]
NAVNETPUBL [stockquote]NAVNETPUBL[/stockquote]
APLAPOLLO [stockquote]APLAPOLLO[/stockquote]
AVTNPL [stockquote]AVTNPL[/stockquote]

Note: we ignored stocks that don’t had 3 years worth of statements.