# Value investing - Piotroski f-score



## Rusty O'Toole (Feb 1, 2012)

Is anyone familiar with it? A formula by accounting professor Joseph Piotroski rating stocks by 9 criteria with 9 being a perfect score. 

Here is the original paper. There is quite a bit of discussion of his ideas on the net, wondered if anyone here has looked into it or used it?

https://www.chicagobooth.edu/~/media/FE874EE65F624AAEBD0166B1974FD74D.pdf


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## avrex (Nov 14, 2010)

The Piotroski F-Score, is definitely one metric (of many) that I utilize, when making stock selections.
I wrote about it here: The Piotroski F-Score

I have seen *backtesting* results that shows that the higher the score, the higher probability that the *stock will outperform* in the future.

I also posted a list of the Piotroski F-Score for Canadian companies.
(I̶t̶ ̶w̶a̶s̶ ̶l̶a̶s̶t̶e̶d̶ ̶u̶p̶d̶a̶t̶e̶d̶ ̶S̶e̶p̶t̶ ̶2̶0̶1̶3̶,̶ ̶b̶u̶t̶ ̶I̶ ̶w̶i̶l̶l̶ ̶u̶p̶d̶a̶t̶e̶ ̶i̶t̶ ̶a̶g̶a̶i̶n̶ ̶s̶h̶o̶r̶t̶l̶y̶. This has now been updated as of Oct 27, 2015).


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## Moneytoo (Mar 26, 2014)

Wonder if globe investor uses the same formulas to rate the stocks (not sure if you need to be unlimited subscriber to view the link - here's CTC.A "perfect 10" for example: http://data.theglobeandmail.com/Research/API/GetPdfDownload?documentTag=A28D8 )


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## avrex (Nov 14, 2010)

I have now updated the scores for the companies in the S&P/TSX Composite Index. You can view that list, here,

Piotroski F-Score for Canadian companies.

Just for fun....Of the 242 companies, the only company with a *perfect score of 9* is the Hudson's Bay Company.

*Backtesting. * Also, here are the backtesting results (2000-2014) that I found, when using the Piotroski F-Score.


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## cn_habs (Oct 27, 2015)

avrex said:


> I have now updated the scores for the companies in the S&P/TSX Composite Index. You can view that list, here,
> 
> Piotroski F-Score for Canadian companies.
> 
> ...


Thanks for posting that but where can I run that screener myself?


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## Xoron (Jun 22, 2010)

Yes, I use the Piotrowski scores in my stock selection criteria. Basically I take 8 and 9 score stocks and pick the best (value) ones from those.

The CAD stocks that score a 9 with a market cap of 100M+ are:
AIMIA INC 
CANFOR PULP PRODUCTS INC
CANADIAN TIRE CORP
PEYTO EXPLORATION & DEV CORP
CANADIAN TIRE CORP-CLASS A
MAGELLAN AEROSPACE CORP
HUDSON'S BAY CO


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## GoldStone (Mar 6, 2011)

Like all screens, this one doesn't outperform all the time. In fact, it may underform badly in the short to mid term.

For example, year to date performance:

AAII Piotroski High F-Score Screen: -35%
S&P 500: -7%

http://www.aaii.com/stock-screens/screendata/Piotroski

You need a strong understanding of how the score works. Without such understanding, you won't have the conviction to ride up and downs.


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## Xoron (Jun 22, 2010)

GoldStone said:


> Like all screens, this one doesn't outperform all the time. In fact, it may underform badly in the short to mid term.


100% agree. Most strategies will fail for short time frames, but can outperform over the longer term. Provided you can stick with it.


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## Rusty O'Toole (Feb 1, 2012)

It seems the F score finds some gems but finds a lot of duds too so the job is to pick out the good ones? Or do they all outperform eventually, so you add to the klunkers as the go down, knowing they will come back?

How do you use it, what other criteria do you use, and what are your results so far? For those who have bought stocks using this method.


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## Rusty O'Toole (Feb 1, 2012)

In his paper he suggests buying the high scorers and shorting the low scorers. In a year like this one perhaps the shorts would out perform the longs and give a better overall result?


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## Xoron (Jun 22, 2010)

Rusty O'Toole said:


> How do you use it, what other criteria do you use, and what are your results so far? For those who have bought stocks using this method.


My method is to look at all the 8 and 9 score stocks. Get the P/E, P/B, P/S, Div, Div P/O Ratio and Market Cap.

First I only look at stocks with market cap of 100M or more (for Canadian Stocks). Next, I throw away any that have high P/E (20+) High P/B and P/S (2-3+) and high Div P/O Ratio (+80%). 

The rest I look at and see what looks good. 

Every few weeks or so, I check the holdings I have and if they've fundamentally changed, consider selling or adding more (if they are still a 8 or 9)


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## leslie (May 25, 2009)

I read the orginal paper. IMO the most important take-away was that it was only the MEAN that outperformed. The MEDIAN stock underperformed. So ..
You cannot stock-pick and expect this to work.
You must rely on the large number of stocks in the tested portfolios to include the few stocks that are the big winners.


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## Xoron (Jun 22, 2010)

leslie said:


> I read the orginal paper. IMO the most important take-away was that it was only the MEAN that outperformed. The MEDIAN stock underperformed. So ..
> You cannot stock-pick and expect this to work.
> You must rely on the large number of stocks in the tested portfolios to include the few stocks that are the big winners.


Which = 7 in Canada by my calculations. Not much to choose from anyway.


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## CPA Candidate (Dec 15, 2013)

I like screens like this, but I think an investor has to open the hood on the companies a bit more. The assigning of points is binary but real life is a continuum. It's just a starting point.

For instance, HNL, a stock I regrettably own is a 7. They have done terribly over the past year and will probably cut their dividend soon.


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## Rusty O'Toole (Feb 1, 2012)

Xoron I follow your reasoning except for the dividend thing. Is this because you don't need the dividend income, and feel it will slow growth to pay out big dividends?

This whole discussion is very interesting. Is it possible to invest objectively and leave out the emotion and guesswork? What about using technical tools to pick buy and sell points?


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## Xoron (Jun 22, 2010)

Rusty O'Toole said:


> Xoron I follow your reasoning except for the dividend thing. Is this because you don't need the dividend income, and feel it will slow growth to pay out big dividends?
> 
> This whole discussion is very interesting. Is it possible to invest objectively and leave out the emotion and guesswork? What about using technical tools to pick buy and sell points?



RE: Divs.

I don't require a div. BUT if it pays one and the div payout is +80%, there is always a chance of it being cut. Causing a downward stock price. I only omit the < 80% when there has been a special dividend payed out in the last 12 months, as it counts towards the P/O ratio.


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## Rusty O'Toole (Feb 1, 2012)

This brings up another question. According to Warren Buffet in value investing falling prices should not be a cause for concern. He says you need to be able to face a 50% drop in price and see it only as a good buying opportunity. I suppose this must be because you have confidence that the company will not go out of business and must eventually come back, and go on to new heights.

I don't see how you can know this unless you are an insider working for the company and know its day to day business intimately.


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## Xoron (Jun 22, 2010)

Rusty O'Toole said:


> This brings up another question. According to Warren Buffet in value investing falling prices should not be a cause for concern. He says you need to be able to face a 50% drop in price and see it only as a good buying opportunity. I suppose this must be because you have confidence that the company will not go out of business and must eventually come back, and go on to new heights.
> 
> I don't see how you can know this unless you are an insider working for the company and know its day to day business intimately.


 Companies with a Current Ratio of 2-3 and quick ratio of 0.9-1.5 are good candidates in those situations. They have the cash/short term inventory to weather a small downturn. So two other pieces of info to consider when evaluating beat down stocks.

I guess I use the F-Score list more as a list of "candidate" value stocks with good performance. I certainly don't (and can't) buy all the stocks in the F-Score universe. The trading fees and turn over would kill me and the average retail investor.


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