Wayne A. Thorp

Wayne A. Thorp

Wayne A. Thorp pursues a strategy focused on earnings revisions by financial analysts similar to a strategy focused on earnings surprises. The editor of Computerized Investing, a newsletter about using personal computers for financial planning, investment analysis and portfolio management, has also written extensively for AAII Journal. Thorp’s strategy is to watch out for announced earnings revisions as such changes tend to impact a stock’s performance for up to a year.

Summary

Thorp has noticed that earnings revisions not only affect stock prices immediately, but also in the medium term for up to a year. This means that stocks that experience positive earnings revisions tend to perform better for up to a year and those with negative earnings revisions can underperform for up to a year. So it is possible to buy into a good stock after such an announcement and still see capital appreciation, but investors should avoid companies with negative earnings revisions of -5% or less. The general rule is that if a company announces one surprise (positive or negative) others are sure to follow.

Success Formula Earnings Revision

  1. MktCapM is >= US$ 300 million (basis year 2000) adjusted yearly
  2. Number of analysts providing Est. EPS for the current FY is >= 4
  3. Consensus change % of current FY Est. EPS from 1 month ago to today is > 0
  4. Consensus change % of next FY Est. EPS from 1 months ago to today is > 0
  5. Number of Est. EPS upward revisions in current FY over last month is > 0
  6. Number of Est. EPS downward revisions for current FY over the last month = 0
  7. Number of Est. EPS upward revisions for next FY over the last month  > 0
  8. Number of Est. EPS downward revisions for next FY over the last month = 0
  9. Select companies that have had the largest percentage increases in the current-year consensus Est. EPS over the last month

Hypothetical performance back-tested

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical monthly relative performance

How to read this graph:
A green bar shows how much the guru strategy outperformed the benchmark index in a particular month. A red bar shows how much the guru strategy underperformed the benchmark index in a particular month.

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical portfolio turnover

Data source: Bloomberg, Calculations: meetinvest

Books

Success Formula Upward revisions min. +5%

  1. MktCapM is >= US$ 300 million (basis year 2000) adjusted yearly

  2. Number of analysts providing Est. EPS for the current FY is >= 4

  3. Consensus change % of current FY Est. EPS from 1 month ago to today is >= 5%

  4. Consensus change % of next FY Est. EPS from 1 months ago to today is >= 5%

  5. Number of Est. EPS upward revisions in current FY over last month is > 0

  6. Number of Est. EPS downward revisions for current FY over the last month = 0

  7. Number of Est. EPS upward revisions for next FY over the last month > 0

  8. Number of Est. EPS downward revisions for next FY over the last month = 0

  9. Select companies that have had the largest percentage increases in the current-year consensus Est. EPS over the last month

Hypothetical performance back-tested

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical monthly relative performance

How to read this graph:
A green bar shows how much the guru strategy outperformed the benchmark index in a particular month. A red bar shows how much the guru strategy underperformed the benchmark index in a particular month.

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical portfolio turnover

Data source: Bloomberg, Calculations: meetinvest

Books

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