Martin Zweig Stock Screening "a la AAII"Martin Zweig stock picking strategy has drawn lots of attention due to the great performances of the Zweig stock screen at AAII.Martin Zweig stock screenIn his book "Winning on Wall Street", Zweig summarizes his stock picking strategy as follows:My stock-picking procedure involves a search for the following variables: strong growth in company earnings and sales; a reasonable price-to-earnings ratio given the company's growth rate; buying by corporate insiders, or at least the lack of heavy selling by insiders; and relatively strong price action by the stock itself. Zweig then goes into great details into how he applies his strategy scanning through the financial news. AAII translated his approach into a complex screen made possible with their Stock Investor Pro screener. Now, MSN Deluxe screener (or any other free stock screener) lacks "growth" variables to be able to re-produce a similar screen. As a result, the screen detailed below is slightly different to that of AAII. Netherveless, Marchus seems to have some success with it and insisted I publish it. We'll use the stock screening process to review the strategy. At the end of the article, I also provide a Zweig screen using Morningstar Premium Screener. As you'll see, it is virtually identical to that of AAII. Investing Universe Go back to TopZweig mentions that he does not like stocks with thin trading volume.
Zweig also does not like companies in the financial industry. In Improved Magic Formula Investing with MSN Screener, I mentionned that setting a limit of at least 10 employees removes many Finacials/Trusts companies. We'll use this filter as well. You can then manually filter out the remaining financials. Primary Theme Go back to TopZweig is a Growth At Reasonable Price investor. He is looking for:
We can translate these criteria in the MSN Deluxe screener as follows:
I've also added positive 12-month EPS from continuing operations to only have profitable companies. Secondary Theme Go back to TopZweig wants stocks with relatively strong price action.
Although Zweig does not like high Debt and likes to see insiders buying shares, AAII does not use these filters so we'll skip them as well. Ranking Go back to TopThe Zweig screen is pretty demanding, not that many stocks will pass it and ranking might not be required. The AAII's Zweig screen has in average 15 stocks only.Since AAII also wants stocks with Trading Volume in the top 75% of their database, Trading Volume could be used as ranking (highest ranked first) if too many stocks pass. Using Trading volume as ranking will steer the screen toward higher Market Cap. In fact, the AAII's Zweig screen has a relatively high average Market Cap for such a growth strategy. Holding period Go back to TopZweig used monthly rebalancing during his backtest from 1976 to 1996.AAII uses monthly rebalancing as well. A reader (Tom) asked me what would be the results with quarterly rebalancing. My educated guess is that performances would be lowered but still very attractive. The Zweig screen at AAII has a monthly turnover of around 40%-45%. This means that 55%-60% of the stocks are still passing the screen after 1 month (or put another way, 55%-60% of stocks are held for more than 1 month). Therefore quarterly rebalancing is also reasonable. Martin Zweig Stock Screens Go back to Top
You can get a list of Zweig stocks with the above criteria at the mechanical investing stock screener. Select a Market Cap="All", Select a Style="Growth", Select a Strategy="Martin Zweig". Finally, here is a Zweig screen using Morningtsar Premium Screener. At the exception of
Morningstar is cheaper (especially with 3 years subscription) than a susbcription to AAII plus Stock Investor Pro so could be a good alternative.
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