Basketball, Bill Miller and Winning Streaks

 In a recent article for Forbes, Validea CEO John Reese outlined similarities between winning streaks in sports and those in investing. Most notably, the fact that “inevitably, streaks end,” writes Reese.

“The same holds true for the stock market,” he says. “It will go up and go down, but will do neither forever.” He references the experience of Bill Miller, formerly of Legg Mason, who had outperformed the market every year from 1991 to 2005, only to see his streak end in the wake of the financial crisis.

The best way for an investor to build a strong portfolio, writes Reese, is to concentrate on process rather than outcome, “on fundamentals rather than headlines.” Using his guru-based stock screening models, he identifies the following high-scoring stocks:

  • Argan (AGX) provides engineering services, operations management and infrastructure services and is favored for its price-earnings ratio and revenue growth as well as return-on-total capital and earnings yield.
  • PC Connection (CNXN) provides a range of information technology solutions, and earns high marks due to persistent earnings-per-share as well as its debt-free balance sheet and P/E/G ratio (of price-earnings to growth in earnings-per-share).
  • Foot Locker (FL) is a retailer of shoes and apparel with a favorable price-sales ratio, share price performance and P/E/G ratio.
  • Robert Half International (RHI) provides specialized staffing and risk consulting services. The company boasts a favorable debt-equity ratio and scores well based on its earnings-per-share and P/E/G ratio.
  • Vale SA (ADR) (VALE), a global producer of iron ore and nickel, gets a thumb’s up based on its book-market ratio and operating cash flow.