Joseph Piotroski - Book/Market Investor

Validea used the investment strategy outlined in the book Value Investing written by Joseph Piotroski to create our Book/Market Investor portfolio.

Piotroski's methodology starts by narrowing stock choices to those trading in the top 20 percent of the market based on their book/market ratios (or, conversely, the bottom 20 percent of the market based on price/book ratios). He found that just buying low price/book stocks does not produce excess returns over the long term, because many low price/book companies are trading at a discount because they deserve to -- they're dogs with poor prospects. When he applied a series of additional tests of financial strength to these low price/book stocks, however, Piotroski was able to separate the dogs from the good prospects. Among the variables he examined: return on assets, current ratio, cash flow from operations, change in gross margin, and change in asset turnover. The strategy usually finds smaller companies whose stocks are flying under Wall Street's radar.