The October AAII Stock Screens Update is now available online.
Featured Screen: The Wanger–Revised Approach
Ralph Wanger, the founder of Wanger Asset Management and the former manager of the Acorn Fund (now the Columbia Acorn Fund), is a consistent promoter of small-stock investing. His investing style of holding small companies with financial strength, entrepreneurial managers, and understandable businesses allowed him to generate annualized returns of 16.3% with the Acorn Fund between 1970 and 2003, while the S&P 500 index gained 12.1% a year over that period. Wanger outlined his approach in his 1997 book “A Zebra in Lion Country: Ralph Wanger’s Investment Survival Guide.” The AAII Wanger–Revised stock screen is adapted from the principles outlined in Wanger’s book.
The stocks that passed the Wanger Revised Screen at the end of August gained 2.6%, on average, by the end of September.
The Wanger approach seeks small-cap companies and is based on the premise that a company’s stock price will typically increase for one of the following reasons:
- Growth—A stock’s price reflects the level of earnings, dividends, book value, etc. Even a neglected stock will eventually see its price rise if these factors grow.
- Acquisitions—Acquisitions typically occur at a premium to the current stock price; if the overall market does not recognize the value of the company, another firm may and offer to acquire the company.
- Repurchases—Share buybacks typically benefit shareholders by providing some price support and reducing the pool of stock that must share factors such as earnings and dividends.
- Revaluation—Companies trade at varying established price multiple levels to factors such as earnings, cash flow, book value, etc. An increase in the expectations for a firm will lead to higher institutional interest and higher multiples.
For more information about the Wanger Revised screen check out:
AAII Journal article: “Ralph Wanger’s Survival Guide to Investing in Small-Cap Stocks”
For more information about each of the Wanger Revised metrics, the criteria used in the Stock Investor Pro database, and the passing companies list, check out the link below:
The purpose of the AAII Stock Screens is to provide our members with an assortment of investment strategies based on successful approaches and philosophies. Many of these screens are based on the strategies and systems of highly skilled and successful investors. However, we present them for educational purposes so you can see which approaches perform well (and those that don’t) over different market conditions. Start your risk-free AAII membership to access this wealth of investment ideas.