Someone who reads the blog emailed me asking how Quan and I found PetSmart (PETM):
Did you find PetSmart idea through running a stock screen? If yes, which screener did you use and what parameters ?
And here’s how I answered:
Quan found PetSmart on a list of stocks that returned more than 10% a year over 15 years. I had sent him a list of every stock in the U.S. that returned more than 10% a year over 15 years (it was a bad 15 years for U.S. stocks at that time) and we added it to a watchlist. We didn’t analyze the online threat for some time. But then the stock price dropped. And we focused completely on the stock at that point.
Just to be clear, it wasn’t exactly a screen. What I did is use Portfolio123 to generate a list of U.S. stocks on a certain start and end date with price information (adjusted for splits). And then I figured out how to order them in Excel so I could create lists that compounded their stock price by certain amounts over certain periods of time.
We chose the 10% a year over 15 years simply because Portfolio123 only has data going back like 17 years or so for stock prices. And we sometimes use 10% as an adequate return number. We hoped that just using a long-term stock price compounding test would turn up some stocks we might otherwise miss by using just the kinds of methods value investors normally screen for.