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The Intelligent Investor

Proof Is In Performance Through 1Q13


There are many ways to define the qual­ity and merit of equity research. One mea­sure stands tallest: per­for­mance of stock rec­om­men­da­tions. And by that mea­sure, New Con­structs’ research is of very high quality. See our lat­est Proof Is In Per­for­mance Thru 1Q13 Report for more details.

As you can see in the post on our stock-picking acco­lades, we have plenty of inde­pen­dent, 3rd-party val­i­da­tion of our stock-picking suc­cess. So, you don’t just have to take our word for it.

Our suc­cess comes from being able to iden­tify groups of stocks that are most likely to be re-priced as the mar­ket, over time, rec­ti­fies mis­per­cep­tions of eco­nomic value cre­ated by investors employ­ing less ana­lyt­i­cal rigor than we. We derive our advan­tage from the in-depth analy­sis of finan­cial state­ments, espe­cially the notes to the finan­cial state­ments, which we apply to the analy­sis of the under­ly­ing eco­nomic value of 3000 firms. We believe our exact­ing approach to research gives us advan­tage in the selec­tion of indi­vid­ual secu­ri­ties for our long and short portfolios.

In the first quarter of 2013, our Small-Cap Short strategy (-11.5%) beat shorting the S&P 500 by 7.2%, our combined Large- and Small-Cap Short strategy (-7.7%) beat shorting the combined S&P 500 and Russell 2000 in 1Q13 by 2.5%, and our Small-Cap Long strategy (4.8%) outperformed the Russell 2000 in 1Q13 by 0.3%.

The cumulative returns of our rec­om­men­da­tions since Jan­u­ary 2005:

Long/Short Strat­egies:

  • Most Attractive/Dangerous (Large and Small stocks): 55.8%
  • Most Attractive/Dangerous (Large cap stocks only):  65.5%
  • Most Attractive/Dangerous (Small cap stocks only): 38.3%

Long Strat­egies:

  • Most Attrac­tive  (Large and Small stocks): 80.3%
  • Most Attrac­tive (Large cap stocks only): 83.9%
  • Most Attrac­tive (Small cap stocks only): 68.8%

Short Strat­egies:

  • Most Dan­ger­ous (Large and Small stocks): -42.1%
  • Most Dan­ger­ous (Large cap stocks only):  -33.6%
  • Most Dan­ger­ous (Small cap stocks only): -52.8%

These returns com­pare well to the major indices over the same time frame:

  • S&P 500: 32.0%
  • Rus­sell 2000: 50.6%
  • Risk-Free Rate: 15.4%
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