Reasonable RunawaysHere you'll find details to screen for Reasonable Runaways stocks including variants for both conservative and aggressive investors. This was James O'Shaughnessy's most profitable strategy in What Works on Wall Street until he improved Cornerstone Growth in the 2005 edition. Let’s use the thematic stock screening approach to pick Reasonable Runaways stocks. Investing UniverseMarket CapitalizationThe original strategy looks for market cap >150M but it actually works with any Market Capitalization so use one that fits your risk profile. Stick to Large Caps if you are more risk adverse and include Small/Mid Caps if you can stomach higher volatility. In his latest book "Predicting the Markets of tomorrow" (*), O'Shaughnessy proposes Reasonable Runways with micro-caps 25M-250M as Investing Universe. He calls this strategy Tiny Titans. Pay great care to liquidity in this case. (*) In this book, O'Shaughnessy makes the case for Value stocks for the next 10-20 years and highlights a couple of suitable mechanical stock picking strategies. Primary Theme Go back to TopReasonable Runaways is a Value strategy. O'Shaughnessy tested many value criteria: Price/Sales, Price/Earnings, Price/Book, Price/Cash Flow, High Dividend yield.His findings showed that low Price/Sales was the most consistent: Sales are more difficult to manipulate and are more stable than say Earnings. Primary criterion: Price/Sales < 1 Now, other value criteria work as well: Price/Earnings <20, Price/Book < 1... This is good to know if your stock screener does not have the Price/Sales ratio. Secondary Theme Go back to TopIn the 2005 edition of What Works on Wall Street, O'Shaughnessy improved his Cornerstone Growth strategy by adding extra criteria on the stock's Relative Strength.He requires recent price momentum, that is 3 months and 6 months relative strength higher than average. Such improvement is also beneficial to Reasonable Runaways so you may want to add those extra criteria. Ranking and Holding Period Go back to TopO'Shaughnessy popularized the 12 months Relative Strength as a Ranking parameter in mechanical stock picking strategies.As for holding period, the stocks are held for 1 year which is the maximum reasonable for strategies including Relative Strength. Reasonable Runaways Stock Screens Go back to TopHere is a summary of Reasonable Runaways screening's parameters.In addition, an alternative similar strategy focusing on large cap is shown: MVP stands for Most Valuable Players and was proposed by John Markman (SuperModels at MSN Money) in his book Online Investing.
If you have MSN Deluxe Screener installed (Free), you can click on the following links to get the stocks that currently pass the screens: Reasonable Runaways, MVP Value. Notes: Conclusion Go back to TopDespite its tag as a "value investing strategy" (by construction, the Average Price/Sales of the portfolio will be < 1), Reasonable Runaways is quite volatile. This is due to the addition of Momentum.If you're afraid of high volatility, remember that the strategy works with any Market Cap and you can stick to large cap (Market Cap>10B for instance). Such strategy still handsomely beats the market. Check the Stock Screener to find Reasonable Runaways and Tiny Titans stocks. |
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