63413.49426.4454.7702.78523.7333.92920.110–12.8437.61723.2343.55227.99123.514–18.202–0.9749.800
17.7627.5523.75724.81920.193–19.89216.51329.073–3.38712.4991.64133.05232.27433.288–6.94638.1473.72336.665–10.24725.43014.52625.6192.74131.519–14.0443.944–3.271
8.9% Average Gain
nique  has  had  good  and  bad  years  with  an  average  rate  of  return  of  8.9percent per “year” (keep in mind this is a six-month hold, as we are exitingin April). Of 27 years all but seven made money, so it won 74 percent ofthe time. More importantly, we beat the market, making a rate of return62 percent greater than the 5.5 percent benchmark.
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166 PUTTING IT ALL TOGETHER FOR LONG-TERM INVESTMENT SUCCESS
Net Working Capital
Table  11.3  reﬂects  the  same  timing  strategy,  this  time  applied  to  the  ﬁvestocks with the highest net working capital as well as the ﬁve with the low-est.  One  theory  of  the  stock  market  is  that  working  capital  is  king.  Themore money you have to work with the better, plus it tends to indicate awell-run company.
Fascinating information here: The highest net working capital compa-nies averaged 9.2 percent for the six months and made money in 81 per-cent  of  the  27  years.  The  lowest  net  working  capital  companies  actuallydid  better,  by  quite  a  bit,  netting  13.9  percent,  on  average.  Accuracydropped  to  21  winning  years  or  77  percent  correct.  These  simple  valuesmeasure a way to outperform the market with a gain 3.2 times greater thanthe market, on average. In the fund I manage I use this type of approachwith some weighting factors.
Price Matters
Now I’d like to show you what happens when we use these same criteriaagainst the price of the stocks as a ﬁlter. Table 11.4 shows the results forbuying the ﬁve highest-priced stocks in the Dow with the highest net work-ing  capital  ratio.  The  second  tabulation  is  that  of  the  ﬁve  lowest-pricedstocks with the lowest net working capital ratio. There is quite a differencehere, and it is one you will see across all these values. It is that lower-pricedstocks outperform their higher-priced counterparts. There is some logic tothis; bargain hunters like low prices, and it’s easier for a $30 stock to rally3 points for a 10 percent gain than a $200 stock to rally 20 points for thatsame 10 percent return.
The  high-priced  issues  netted  10.9  percent  while  the  low-priced  onesbrought in 11.7 percent. Also check out the accuracy: In the 27-year studysix years lost money in the higher-priced issues while only three years lostin the lower-priced stocks.
THE TRUTH ABOUT YIELD, CASH FLOW, PRICE-TO-SALES, AND A WHOLE LOT MORE
You have your work cut out for you with Tables 11.5 and 11.6. I am pre-senting here my studies. Again keep in mind the buy and hold periods for a
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THE TRUTH ABOUT YIELD, CASH FLOW, PRICE-TO-SALES
167
Table 11.3 Highest and Lowest Net Working Capital in Dow Jones Industrial Average
Five Highest Net Working Capital
Date
Port
Apr15Amnt
AugLTDAmnt
Apr15Pct
AugLTDPct
10/27/1975 DJWCAPHI_PORT
1.176
1.302
15.413
17.072
10/29/1976 DJWCAPHI_PORT
–0.218
–0.332
–2.404
–3.657
10/31/1977 DJWCAPHI_PORT
10/30/1978 DJWCAPHI_PORT
10/29/1979 DJWCAPHI_PORT
10/27/1980 DJWCAPHI_PORT
10/26/1981 DJWCAPHI_PORT
10/29/1982 DJWCAPHI_PORT
10/31/1983 DJWCAPHI_PORT
10/29/1984 DJWCAPHI_PORT
10/28/1985 DJWCAPHI_PORT
–0.209
0.560
–0.551
0.319
0.329
1.935
0.131
1.422
4.621
0.120
1.388
1.308
–0.177
1.051
3.392
1.574
1.824
4.970
–2.464
1.423
6.883
17.075
–6.136
14.551
3.153
3.648
–1.754
11.665
17.455
30.600
0.904
9.126
10.843
11.700
26.508
28.508
10/27/1986 DJWCAPHI_PORT
5.463
10.938
25.289
50.631
10/26/1987 DJWCAPHI_PORT
10/31/1988 DJWCAPHI_PORT
10/30/1989 DJWCAPHI_PORT
10/29/1990 DJWCAPHI_PORT
10/28/1991 DJWCAPHI_PORT
10/26/1992 DJWCAPHI_PORT
10/29/1993 DJWCAPHI_PORT
1.922
2.710
1.372
2.953
2.208
2.857
3.496
1.912
8.334
–1.540
3.163
3.164
4.891
9.065
8.652
8.610
10.152
31.225
4.086
9.441
6.332
8.082
8.800
–4.586
10.111
9.076
13.837
22.816
10/31/1994 DJWCAPHI_PORT
5.583
11.849
11.255
23.889
10/30/1995 DJWCAPHI_PORT
11.416
13.297
17.779
20.707
10/28/1996 DJWCAPHI_PORT
10.438
27.768
12.523
33.316
10/27/1997 DJWCAPHI_PORT
33.111
16.369
34.083
16.850
10/26/1998 DJWCAPHI_PORT
19.906
52.803
15.394
40.835
10/29/1999 DJWCAPHI_PORT
29.825
61.826
19.046
39.481
10/30/2000 DJWCAPHI_PORT
–26.119 –27.441
–15.969
–16.777
10/29/2001 DJWCAPHI_PORT
–0.442 –29.014
–0.323
–21.201
9.2% Average Gain
(Continued)
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168 PUTTING IT ALL TOGETHER FOR LONG-TERM INVESTMENT SUCCESS
Table 11.3 (Continued)
Five Lowest Net Working Capital
Date
Port
Apr15Amnt
AugLTDAmnt
Apr15Pct
AugLTDPct
10/27/1975 DJWCAPLOW_PORT
5.587
6.568
35.304
41.500
10/29/1976 DJWCAPLOW_PORT
0.873
–0.112
3.971
–0.510
10/31/1977 DJWCAPLOW_PORT
0.246
10/30/1978 DJWCAPLOW_PORT
1.900
2.187
2.745
1.166
10.378
9.010
13.016
10/29/1979 DJWCAPLOW_PORT
–1.266
3.530
–5.944
16.571
10/27/1980 DJWCAPLOW_PORT
3.914
1.206
15.663
4.826
10/26/1981 DJWCAPLOW_PORT
–0.708
–0.967
–2.857
–3.901
10/29/1982 DJWCAPLOW_PORT
12.617
15.585
46.398
57.314
10/31/1983 DJWCAPLOW_PORT
–1.084
–1.568
–2.141
–3.097
10/29/1984 DJWCAPLOW_PORT
10.010
14.463
21.352
30.852
10/28/1985 DJWCAPLOW_PORT
18.954
8.255
34.708
15.116
10/27/1986 DJWCAPLOW_PORT
17.751
38.335
31.162
67.297
10/26/1987 DJWCAPLOW_PORT
28.313
27.622
48.135
46.961
10/31/1988 DJWCAPLOW_PORT
10.613
14.367
11.800
15.975
10/30/1989 DJWCAPLOW_PORT
5.287
–4.545
5.317
–4.571
10/29/1990 DJWCAPLOW_PORT
19.315
27.073
21.058
29.517
10/28/1991 DJWCAPLOW_PORT
10.984
13.994
8.873
11.305
10/26/1992 DJWCAPLOW_PORT
18.762
20.820
13.753
15.261
10/29/1993 DJWCAPLOW_PORT
–2.469
8.254
–1.478
4.942
10/31/1994 DJWCAPLOW_PORT
26.431
46.010
14.470
25.188
10/30/1995 DJWCAPLOW_PORT
49.118
57.158
19.578
22.783
10/28/1996 DJWCAPLOW_PORT
37.074
78.828
11.769
25.025
10/27/1997 DJWCAPLOW_PORT 108.350
27.737
29.450
10/26/1998 DJWCAPLOW_PORT
85.308
41.888
19.438
7.539
9.544
10/29/1999 DJWCAPLOW_PORT –29.872 –71.081
–6.219
–14.799
10/30/2000 DJWCAPLOW_PORT –68.806 –42.182
–15.474
–9.487
10/29/2001 DJWCAPLOW_PORT
26.126 –29.506
6.955
–7.855
13.9% Average Gain
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THE TRUTH ABOUT YIELD, CASH FLOW, PRICE-TO-SALES
169
Table 11.4 Highest and Lowest Price to Net Working Capital in Dow JonesIndustrial Average
Five Highest Price to Working Capital
Date
Port
Apr15Amnt
AugLTDAmnt
Apr15Pct
AugLTDPct
10/27/1975 DJPTOWCAPHI_PORT 10.008
9.977
32.074
31.974
10/29/1976 DJPTOWCAPHI_PORT
2.685
–3.447
10/31/1977 DJPTOWCAPHI_PORT
0.406
7.358
6.787
1.230
–8.712
22.286
10/30/1978 DJPTOWCAPHI_PORT
3.672
7.026
10.346
19.796
10/29/1979 DJPTOWCAPHI_PORT –5.803
2.581
–15.412
6.856
10/27/1980 DJPTOWCAPHI_PORT
3.165
–6.096
7.790
–15.003
10/26/1981 DJPTOWCAPHI_PORT –1.191
–4.385
–3.752
–13.819
10/29/1982 DJPTOWCAPHI_PORT 10.414
14.550
36.509
51.008
10/31/1983 DJPTOWCAPHI_PORT –1.995
–2.862
–3.850
–5.523
10/29/1984 DJPTOWCAPHI_PORT
4.426
12.545
9.749
27.635
10/28/1985 DJPTOWCAPHI_PORT 14.616
5.411
24.095
8.920
10/27/1986 DJPTOWCAPHI_PORT 15.558
35.349
25.950
58.960
10/26/1987 DJPTOWCAPHI_PORT 19.765
23.208
35.584
41.782
10/31/1988 DJPTOWCAPHI_PORT
8.408
15.180
10.090
18.215
10/30/1989 DJPTOWCAPHI_PORT
4.358
1.123
4.692
1.209
10/29/1990 DJPTOWCAPHI_PORT 13.594
21.422
15.098
23.793
10/28/1991 DJPTOWCAPHI_PORT
5.375
7.174
4.865
6.494
10/26/1992 DJPTOWCAPHI_PORT 17.796
15.208
14.849
12.690
10/29/1993 DJPTOWCAPHI_PORT
3.230
28.324
2.268
19.888
10/31/1994 DJPTOWCAPHI_PORT –2.334
0.617
–1.454
0.384
10/30/1995 DJPTOWCAPHI_PORT 40.783
42.317
25.684
26.650
10/28/1996 DJPTOWCAPHI_PORT
9.235
63.866
4.414
30.527
10/27/1997 DJPTOWCAPHI_PORT 59.173 –14.379
21.639
–5.258
10/26/1998 DJPTOWCAPHI_PORT 34.682
49.325
12.432
17.681
10/29/1999 DJPTOWCAPHI_PORT –25.415 –45.129
–7.984
–14.177
10/30/2000 DJPTOWCAPHI_PORT –2.571 –12.425
–0.862
–4.166
10/29/2001 DJPTOWCAPHI_PORT 59.783
17.848
21.947
6.552
10.9% Average Gain
(Continued)
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170 PUTTING IT ALL TOGETHER FOR LONG-TERM INVESTMENT SUCCESS
Table 11.4 (Continued)
Five Lowest Net Working Capital
Date
Port
10/27/1975 DJPTOWCAPLOW_PORT
10/29/1976 DJPTOWCAPLOW_PORT
10/31/1977 DJPTOWCAPLOW_PORT
10/30/1978 DJPTOWCAPLOW_PORT
10/29/1979 DJPTOWCAPLOW_PORT
10/27/1980 DJPTOWCAPLOW_PORT
10/26/1981 DJPTOWCAPLOW_PORT
10/29/1982 DJPTOWCAPLOW_PORT
10/31/1983 DJPTOWCAPLOW_PORT
10/29/1984 DJPTOWCAPLOW_PORT
10/28/1985 DJPTOWCAPLOW_PORT
10/27/1986 DJPTOWCAPLOW_PORT
10/26/1987 DJPTOWCAPLOW_PORT
10/31/1988 DJPTOWCAPLOW_PORT
10/30/1989 DJPTOWCAPLOW_PORT
10/29/1990 DJPTOWCAPLOW_PORT
10/28/1991 DJPTOWCAPLOW_PORT
10/26/1992 DJPTOWCAPLOW_PORT
Apr15Amnt
AugLTDAmnt
Apr15Pct
AugLTDPct
0.415
0.012
0.042
0.235
0.039
0.679
0.110
0.921
0.096
1.345
4.587
4.123
2.811
2.036
1.783
5.322
3.466
1.804
0.770
17.738
32.895
0.027
0.354
0.378
0.763
0.397
0.864
1.384
11.587
7.052
11.342
1.131
22.073
0.376
16.273
9.024
0.520
2.511
11.829
1.588
17.262
29.768
0.941
1.394
13.659
2.496
17.220
31.962
5.582
44.053
53.605
7.098
27.065
46.587
3.248
18.522
21.401
5.337
10.237
26.835
0.507
7.460
2.120
6.311
22.861
27.110
4.765
11.685
16.064
4.352
5.740
13.846
10/29/1993 DJPTOWCAPLOW_PORT
–0.551
1.842
–1.478
4.942
10/31/1994 DJPTOWCAPLOW_PORT
5.900
10.270
14.470
25.188
10/30/1995 DJPTOWCAPLOW_PORT
9.610
12.983
16.989
22.952
10/28/1996 DJPTOWCAPLOW_PORT
8.578
18.240
11.769
25.025
10/27/1997 DJPTOWCAPLOW_PORT
34.848
25.210
40.455
29.266
10/26/1998 DJPTOWCAPLOW_PORT
17.861
4.140
14.584
3.380
10/29/1999 DJPTOWCAPLOW_PORT –12.673 –25.699 –10.361 –21.012
10/30/2000 DJPTOWCAPLOW_PORT
–9.832
–6.113 –11.065
–6.879
10/29/2001 DJPTOWCAPLOW_PORT
7.613
–3.162
10.029
–4.166
11.7% Average Gain
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THE TRUTH ABOUT YIELD, CASH FLOW, PRICE-TO-SALES
171
Table 11.5 Measures of Stock Value in Dow Jones Industrial Average
Five Lowest Cash Flow
Date
Port
Apr15Amnt
AugLTDAmnt
Apr15Pct
AugLTDPct
10/29/1976 DJCASHFLOW_PORT
0.907
0.363
7.642
10/31/1977 DJCASHFLOW_PORT –0.088
0.959
–0.756
3.061
8.239
10/30/1978 DJCASHFLOW_PORT
1.432
2.219
11.956
18.523
10/29/1979 DJCASHFLOW_PORT –1.084
1.850
–8.620
14.708
10/27/1980 DJCASHFLOW_PORT –1.340
–2.326
–9.533
–16.552
10/26/1981 DJCASHFLOW_PORT –2.379
–2.348
–22.616
–22.324
10/29/1982 DJCASHFLOW_PORT
3.198
4.816
37.762
56.877
10/31/1983 DJCASHFLOW_PORT
0.406
–0.171
10/29/1984 DJCASHFLOW_PORT
1.414
1.939
2.674
9.948
–1.124
13.643
10/28/1985 DJCASHFLOW_PORT
5.019
0.245
33.634
1.641
10/27/1986 DJCASHFLOW_PORT
3.232
5.817
22.553
40.590
10/26/1987 DJCASHFLOW_PORT
5.843
6.313
45.741
49.422
10/31/1988 DJCASHFLOW_PORT
2.214
6.082
10.800
29.667
10/30/1989 DJCASHFLOW_PORT
1.721
–0.645
7.140
–2.675
10/29/1990 DJCASHFLOW_PORT
5.785
7.261
27.717
34.786
10/28/1991 DJCASHFLOW_PORT –1.377
–2.080
–4.925
–7.438
10/26/1992 DJCASHFLOW_PORT
2.797
2.938
11.067
11.624
10/29/1993 DJCASHFLOW_PORT –0.176
1.507
–0.587
5.030
10/31/1994 DJCASHFLOW_PORT
2.007
4.336
6.947
15.007
10/30/1995 DJCASHFLOW_PORT
7.162
5.655
21.719
17.149
10/28/1996 DJCASHFLOW_PORT
2.521
6.997
6.476
17.976
10/27/1997 DJCASHFLOW_PORT 18.279
2.767
41.939
6.348
10/26/1998 DJCASHFLOW_PORT 12.698
15.437
25.001
30.393
10/29/1999 DJCASHFLOW_PORT –5.562
6.268
–8.116
9.147
10/30/2000 DJCASHFLOW_PORT –6.802
–7.703
–9.522
–10.784
10/29/2001 DJCASHFLOW_PORT
8.933
–6.194
15.513
–10.757
10.8% Average Gain
(Continued)
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172 PUTTING IT ALL TOGETHER FOR LONG-TERM INVESTMENT SUCCESS
Table 11.5 (Continued)
Five Lowest Price to Sales
Date
Port
10/27/1975 DJPTOSALES_PORT
10/29/1976 DJPTOSALES_PORT
10/31/1977 DJPTOSALES_PORT
10/30/1978 DJPTOSALES_PORT
10/29/197