The Original Quant’s Timely Comeback

Not so long ago the Value Line Investment Survey was a must read publication. Each and every week the editors and analysts will pull together an issue which would promptly land in subscribers mailbox.

But the company lost its way. Management turmoil, the rise of the internet and cheap computing power combined to marginalize the timeliness of the publication. Morningstar and a host of web sites have chipped away at the company's once formidable mind share, and the firm's famed ranking system's performance was turned on its head.

In all but one of the calendars years since 2000, in fact, the stocks that Value Line has put in its Group 5 (which are supposed to be the least attractive) have outperformed the stocks that Value Line has placed in its Group 1 (which are supposed to be the most attractive). MarketWatch

The mere mention of Value Line to modern day quants provokes giggles, and it would seem that the likes of Cliff Asness and James Simons have improved upon Value Line's methodology, beating the company at their own game. But legendary research director Sam Eisenstadt, still going strong in his mid-80's, continues to tinker with the factor model and 2007 has turned out to be a good year for the venerable publication.

Value Line made a good call in June of this year, which was duly noted here:

Value Line Takes Some Chips Off

Mark Hulbert has made a career out of following the goings on at Value Line, and has filed an update:

Value Line took some profits off the table in late June, increasing its recommended cash position in equity portfolios to 25%. However, in its most recent issue, which I received on Monday, Value Line was a little more upbeat, writing, “There may be some life left in the old economy after all. For example, in the past couple of weeks, we have seen data showing a pickup in job growth, a better-than-expected gain in retail sales, and a slight uptick in industrial production. Such reports were welcome as they offset surveys showing worrisome trends in housing and consumer sentiment. The better retail results, which were highlighted by gains in spending on electronic products, food, and healthcare items, were particularly encouraging given the warm weather across much of the country in September. Those high temperatures undoubtedly held back sales of fall clothing and accessories at many retail establishments.”

However, Value Line chose not to redeploy any of its cash position by increasing its recommended equity exposure.

Six stocks are the latest additions to Value Line’s top-ranked category, its Group 1:

Nasdaq Stock Market (NDAQ)

Packaging Corportation on America (PKG)

Robbins & Myers (RBN)

Charles Schwab (SCHW)

Textron, Inc.(TXT)

Zoltek (ZOLT)

While Sam Eisenstadt continues to explore enhancements to the firm’s model, the explosion of quantitative strategies seem to have dulled the edge the ranking system was enjoyed. Writing off Eisenstadt might be premature, however, as Hulbert noted in 2005 that his mutual fund ranking system outperformed Morningstar’s similar offering.

Stock pickers using Value Line’s system can only hope that Eisenstadt and his factor models have their groove back.

Value Line profits from patience
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The wisdom that comes with age
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The content contained represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position in securities mentioned

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