The Robot

John Dorfman has this little but very profitable (34 % yearly) method of stock selection: The Robot. I like it… it screens a very safe set of stocks. One of these days I’ll compare it to the Dow dogs method. But for now, I’ll copy John’s directions and add it to our… bag of tricks.

According to Dorfman:

The Robot Portfolio is a simple quantitative stock-picking model. I designed it to make the point that unpopular stocks are better investments than popular ones. It’s easier for unpopular stocks to exceed prevailing expectations.

The Robot starts with the universe of U.S. stocks with a market value of $500 million or more. It eliminates those companies whose debt is greater than stockholders’ equity, and also slices off those with negative earnings over the past four quarters.

From the approximately 1,000 stocks that remain, the Robot selects the 10 with the lowest price-earnings ratios (stock price divided by the past four quarters’ earnings).